<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
TOLLGRADE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1537134
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
493 Nixon Road
Cheswick, Pennsylvania 15024
(Address of principal (Zip Code)
executive offices)
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Series A Junior Participating Preferred Stock Purchase Rights
(Title of Class)
<PAGE> 2
Item 1. Description of Registrant's Securities to be Registered.
On July 23, 1996, the Board of Directors of Tollgrade Communications,
Inc. (the "Corporation") declared a dividend of one preferred share purchase
right (a "Right") for each outstanding share of Common Stock, par value $0.20
per share (the "Common Shares"), of the Corporation. The dividend is payable on
August 15, 1996 (the "Record Date") to the shareholders of record on that date.
Each Right entitles the registered holder to purchase from the Corporation one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $1.00 per share (the "Preferred Shares"), of the Corporation at a price of
$115.00 per one one-hundredth of a Preferred Share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement") between the Corporation and Chase
Mellon Shareholder Services, L.L.C., as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired beneficial ownership of 20% or more of the
outstanding Common Shares 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 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 20% or more of such outstanding Common Shares (the earlier of such
dates being called the "Distribution Date"), the Rights will be evidenced, with
respect to any of the Common Share certificates outstanding as of the Record
Date, by such Common Share certificate.
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date, upon transfer or new
issuance of Common Shares, 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
Common Shares will also constitute the transfer of the Rights associated with
the Common Shares 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 Shares
as of the close of business on the Distribution Date, and such separate Right
Certificates alone will evidence the Rights.
-2-
<PAGE> 3
The Rights are not exercisable until the Distribution Date. The Rights
will expire on August 15, 2006 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed by the
Corporation, in each case, as described below.
The Purchase Price payable, and the number and type of Preferred Shares
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, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then current market price of the Preferred Shares or (iii) upon
the distribution to holders of the Preferred Shares of evidences of indebtedness
or assets (excluding regular periodic cash dividends, cash payment of dividend
arrearages or dividends payable in Preferred Shares) or of subscription rights
or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock dividend on the Common Shares payable in
Common Shares or subdivisions, consolidations or combinations of the Common
Shares occurring, in any such case, prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share 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 Common Share. In the event of
liquidation, the holders of the Preferred Shares 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 Common Share. Each Preferred
Share will have 100 votes, voting together with the Common Shares. Finally, in
the event of any merger, consolidation or other transaction in which Common
Shares are exchanged, each Preferred Share will be entitled to receive 100 times
the amount received per Common Share. These rights are protected by customary
antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one Common Share.
In the event that any person becomes an Acquiring Person, each holder
of a Right, other than Rights beneficially owned by the Acquiring Person or its
associates or affiliates (which will be void), will thereafter have the right to
receive
-3-
<PAGE> 4
upon exercise that number of Common Shares or, at the option of the Corporation,
Preferred Shares (or shares of a class or series of the Corporation's preferred
stock having equivalent rights, preferences and privileges) or, in certain
circumstances, other securities or assets having a market value of two times the
exercise price of the Right. In the event that after the date of the first
public announcement that any person has become an Acquiring Person, the
Corporation is acquired in a merger or other business combination transaction or
50% or more of its consolidated assets or earning power are sold, proper
provision will be made so that each holder of a Right, other than rights
beneficially owned by the Acquiring Person or its associates or affiliates
(which will be void) will thereafter have the right to receive, upon the
exercise thereof at the then current Purchase 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 times the exercise price of the
Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
Common Shares and prior to the acquisition by such person or group of 50% or
more of the outstanding Common Shares, the Board of Directors of the Corporation
may exchange for each Right (other than Rights owned by such person or group
which have become void), in whole or in part, one Common Share, or one
one-hundredth of a Preferred Share (or of a share of a class or series of the
Corporation's preferred stock having equivalent rights, preferences and
privileges), or, in certain circumstances, an amount of other securities or
assets having equivalent value (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. Unless the Corporation elects otherwise, no fractional
Preferred Shares or Common Shares will be issued upon exercise or exchange of
the Rights (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share, which may, at the election of the
Corporation, be evidenced by depositary receipts) and in lieu thereof, an
adjustment in cash will be made based on the market price of the Preferred
Shares or Common Shares, as the case may be, on the last trading day prior to
the date of exercise or exchange.
At any time prior to the acquisition by a person or group of affiliated
or associated persons of beneficial ownership of 20% or more of the outstanding
Common Shares, the Board of Directors of the Corporation may redeem the Rights
in whole, but not in part, at a price of $.01 per Right (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
-4-
<PAGE> 5
Directors in its sole discretion may establish. Immediately upon any redemption
of the Rights, the right to exercise the Rights will terminate, 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
Corporation without the consent of the holders of the Rights before the
Distribution Date in any respect whatever, except for an amendment not
contemplated by the Rights Agreement that would reduce the Redemption Price.
From and after the Distribution Date, in general, the Corporation may amend the
terms of the Rights without the consent of the holders of the Rights only in a
manner which does not affect adversely the interests of the holders of Rights
generally (exclusive of the interests of an Acquiring Person or affiliated or
associated persons). Prior to any person becoming an Acquiring Person, the
Corporation may without the consent of the holders of the Rights lower the 20%
thresholds referred to above to not less than the greater of (i) any percentage
greater than the largest percentage of the outstanding Common Shares then known
to the Corporation to be beneficially owned by any person or group of affiliated
or associated persons and (ii) 10%.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Corporation, including, without limitation, the
right to vote or to receive dividends.
This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, a copy of
which has been filed as an Exhibit to this Registration Statement on Form 8-A
and is hereby incorporated herein by reference.
Item 2. Exhibits.
1. Rights Agreement dated as of July 23, 1996 between the Company and
Chase Mellon Shareholder Services, L.L.C., as Rights Agent, which includes as
Exhibit B thereto, the form of Right Certificate. Pursuant to the Rights
Agreement, Right Certificates will not be mailed until after the Distribution
Date (as defined in the Rights Agreement).
-5-
<PAGE> 6
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereto duly authorized.
TOLLGRADE COMMUNICATIONS, INC.
Dated: August 9, 1996 By /s/ CHRISTIAN L. ALLISON
--------------------------
Christian L. Allison
Chief Executive Officer
-6-
<PAGE> 7
TOLLGRADE COMMUNICATIONS, INC.
Exhibit Index
Location in
Sequential
Exhibit Numbering
Number Description System
1 Rights Agreement dated as of July 23, 1996
between the Company and Chase Mellon Shareholder
Services, L.L.C., as Rights Agent, which includes as
Exhibit B thereto, the form of Right Certificate.
Pursuant to the Rights Agreement, Rights Certificates
will not be mailed until after the Distribution Date
(as defined in the Rights Agreement).
-7-
<PAGE> 1
EXHIBIT 1
TOLLGRADE COMMUNICATIONS, INC.
RIGHTS AGREEMENT
Dated as of July 23, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. Certain Definitions.......................................................... 1
Section 2. Appointment of Rights Agent.................................................. 4
Section 3. Issue of Right Certificates.................................................. 4
Section 4. Form of Right Certificates................................................... 6
Section 5. Countersignature and Registration............................................ 7
Section 6. Transfer, Split Up, Combination and
Exchange of Right Certificates;
Mutilated, Destroyed, Lost or
Stolen Right Certificates.................................................... 7
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights; Void Rights....................................... 8
Section 8. Cancellation and Destruction of
Right Certificates........................................................... 10
Section 9. Reservation and Availability of
Preferred Shares; Registration............................................... 11
Section 10. Preferred Shares Record Date................................................. 13
Section 11. Adjustment of Purchase Price, Number of
Shares or Number of Rights................................................... 13
Section 12. Certificate of Adjusted Purchase Price
or Number of Shares.......................................................... 21
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power................................................... 21
Section 14. Fractional Rights and Fractional Shares...................................... 23
Section 15. Rights of Action............................................................. 24
Section 16. Agreement of Right Holders................................................... 25
Section 17. Right Holder Not Deemed a Shareholder........................................ 25
Section 18. Concerning the Rights Agent.................................................. 26
Section 19. Merger or Consolidation or Change of
Name of Rights Agent......................................................... 26
Section 20. Duties of Rights Agent....................................................... 27
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 21. Change of Rights Agent....................................................... 29
Section 22. Issuance of New Right Certificates........................................... 30
Section 23. Redemption................................................................... 30
Section 24. Exchange..................................................................... 31
Section 25. Notice of Certain Events..................................................... 32
Section 26. Notices...................................................................... 33
Section 27. Supplements and Amendments................................................... 34
Section 28. Successors................................................................... 34
Section 29. Benefits of this Agreement................................................... 35
Section 30. Severability................................................................. 35
Section 31. Governing Law................................................................ 35
Section 32. Counterparts................................................................. 35
Section 33. Descriptive Headings......................................................... 35
Signatures ............................................................................. 36
</TABLE>
Exhibit A - Form of Statement With Respect to Shares of Series A Junior
Participating Preferred Stock of Tollgrade Communications, Inc.
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
-ii-
<PAGE> 4
RIGHTS AGREEMENT
THIS AGREEMENT, dated as of July 23, 1996, between TOLLGRADE
COMMUNICATIONS, INC., a Pennsylvania corporation (the "Corporation"), and CHASE
MELLON SHAREHOLDER SERVICES, L.L.C., a national banking association
(the "Rights Agent"),
WITNESSETH THAT:
WHEREAS, the Board of Directors of the Corporation has
authorized and declared a dividend of one preferred share purchase right (a
"Right") for each Common Share (as hereinafter defined) of the Corporation
outstanding on August 15, 1996 (the "Record Date"), each Right representing the
right to purchase one one-hundredth of a Preferred Share (as hereinafter
defined), upon the terms and subject to the conditions herein set forth, and has
further authorized and directed the issuance of one Right with respect to each
Common Share that shall become outstanding between the Record Date and the
earliest of the Distribution Date, the Redemption Date and the Final Expiration
Date (as such terms are hereinafter defined).
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, and intending to be legally bound hereby,
the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 20% or more of the Common Shares of the Corporation then
outstanding, but shall not include the Corporation, any Subsidiary of the
Corporation, any employee benefit plan of the Corporation or of any Subsidiary
of the Corporation, or any entity holding Common Shares for or pursuant to the
terms of any such plan. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of an acquisition of Common Shares by the
Corporation which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 20% or more
of the Common Shares of the Corporation then outstanding; provided, however,
that if a Person shall become the Beneficial Owner of 20% or more of the Common
Shares of the Corporation then outstanding by reason of share purchases by the
Corporation and shall, after such share purchases by the Corporation, become the
Beneficial Owner of any additional Common Shares of the Corporation, then such
Person shall be deemed to be an "Acquiring Person".
<PAGE> 5
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as such Rule is in effect on the date
of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of, and
shall be deemed to "beneficially own", any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, as such Rules are in
effect on the date of this Agreement;
(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, and
regardless of any conditions to exercise of such right
(whether or not such conditions then are or could be
satisfied)) 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, 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 or on
behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for
purchase or exchange; and provided, further, that a Person
shall not be deemed to be the Beneficial Owner of, or to
beneficially own, securities which such Person has the right
to acquire (whether such right is exercisable immediately or
only after the passage of time, and regardless of any
conditions to exercise of such right (whether or not such
conditions then are or could be satisfied)) upon the exercise
of conversion rights conferred in any class or series of
preferred stock of the Corporation issued prior to the
Distribution Date if the resolutions of the Board of Directors
of the Corporation providing for the issuance of such class or
series shall specifically refer to this Rights Agreement and
provide that the right to acquire securities upon the exercise
of conversion rights so conferred shall not be deemed to
constitute beneficial ownership of such securities; or
(B) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a
-2-
<PAGE> 6
Person shall not be deemed the Beneficial Owner of, or to
beneficially own, any security if the agreement, arrangement
or understanding to vote such security (1) arises solely from
a revocable proxy or consent given to such Person in response
to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable rules and regulations
promulgated under the Exchange Act and (2) is not also then
reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); 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) for
the purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to Section 1(c)(ii)(B) hereof) or disposing
of any securities of the Corporation.
For purposes of this Agreement, the percentage of outstanding
securities with respect to which a Person is the Beneficial Owner shall be
determined by dividing (i) the number of such securities as to which such Person
is deemed the Beneficial Owner, whether or not actually outstanding by (ii) the
total number of such securities then actually outstanding plus the number of
such securities not actually outstanding of which such Person is deemed the
Beneficial Owner.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in the Commonwealth of
Pennsylvania 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., Eastern time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., Eastern time, on the next succeeding
Business Day.
(f) "Common Shares", when used with reference to the
Corporation, shall mean the shares of Common Stock, par value $.20 per share, of
the Corporation. "Common Shares", when used with reference to any Person other
than the Corporation, shall mean the capital stock (or analogous equity
interest, in the case of a Person which is not a corporation) with the greatest
voting power of such other Person or, if such other Person is a Subsidiary of
another Person, of the Person or Persons which ultimately control such
first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
-3-
<PAGE> 7
(h) "Final Expiration Date" shall have the meaning set forth
in Section 7 hereof.
(i) "Person" shall mean any individual, firm, partnership,
association, group (as such term is used in Rule 13d-5 under the Exchange Act,
as such Rule is in effect on the date of this Agreement), corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
(j) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $1.00 per share, of the Corporation
having the rights and preferences set forth in the Form of Statement With
Respect to Shares attached to this Agreement as Exhibit A.
(k) "Redemption Date" shall have the meaning set forth in
Section 7 hereof.
(l) "Shares Acquisition Date" shall mean the first date of
public announcement (including, without limitation, a report filed pursuant to
Section 13(d) or 14(d) under the Exchange Act) by the Corporation or an
Acquiring Person that an Acquiring Person has become such.
(m) "Subsidiary" of any Person shall mean any Person of which
a majority of the voting power of the voting equity securities or a majority of
the equity interest is beneficially owned, directly or indirectly, by such
Person.
Section 2. Appointment of Rights Agent. The Corporation hereby
appoints the Rights Agent to act as agent for the Corporation and the holders of
the Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Shares) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Corporation may from time to time appoint such co-Rights Agents
as it may deem necessary or desirable.
Section 3. Issue of Right Certificates.
(a) Until the earlier of (i) the tenth day after the Shares
Acquisition Date or (ii) the tenth Business Day (or such later date as may be
determined by action of the Board of Directors prior to such time as any Person
becomes an Acquiring Person) after the date of the commencement by any Person
(other than the Corporation, any Subsidiary of the Corporation, any employee
benefit plan of the Corporation or of any Subsidiary of the Corporation or any
entity holding Common Shares for or pursuant to the terms of any such plan) of,
or of the first public announcement of the intention of any Person (other than
the Corporation, any Subsidiary of the Corporation, any employee benefit plan of
the Corporation or of any Subsidiary of the Corporation or any entity holding
Common Shares for or pursuant to
-4-
<PAGE> 8
the terms of any such plan) to commence, a tender or exchange offer the
consummation of which would result in any Person becoming the Beneficial Owner
of Common Shares aggregating 20% or more of the then outstanding Common Shares
(including any such date which is after the date of this Agreement and prior to
the issuance of the Rights; the earlier of such dates being herein referred to
as the "Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common Shares
registered in the names of the holders thereof (which certificates shall also be
deemed to be Right Certificates) and not by separate Right Certificates, and (y)
the right to receive Right Certificates will be transferable only in connection
with the transfer of Common Shares. As soon as practicable after the
Distribution Date, the Corporation will prepare and execute, the Rights Agent
will countersign, and the Corporation will send or cause to be sent (and the
Rights Agent will, if requested, send) by first-class, insured, postage-prepaid
mail, to each record holder of Common Shares as of the close of business on the
Distribution Date, at the address of such holder shown on the records of the
Corporation, a Right Certificate, in substantially the form of Exhibit B hereto
(a "Right Certificate"), evidencing one Right for each Common Share so held
(subject to adjustment for fractional Rights and payment of cash in lieu of
fractional Rights as provided in Section 14 hereof). From and after the
Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) On the Record Date, or as soon as practicable thereafter,
the Corporation will send a copy of a Summary of Rights to Purchase Preferred
Shares, in substantially the form of Exhibit C hereto (the "Summary of Rights"),
by first-class, postage-prepaid mail, to each record holder of Common Shares as
of the close of business on the Record Date, at the address of such holder shown
on the records of the Corporation. With respect to certificates for Common
Shares outstanding as of the Record Date, until the Distribution Date, the
Rights will be evidenced by such certificates registered in the names of the
holders of such Common Shares, the holders of such certificates shall be deemed
to be the holders of the associated Rights, and the registered holders of the
Common Shares shall also be the registered holders of the associated Rights.
Until the Distribution Date (or the earlier of the Redemption Date or the Final
Expiration Date), the surrender for transfer of any certificate for Common
Shares shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this subsection (c)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date shall
evidence one Right for each share of Common Stock
-5-
<PAGE> 9
evidenced thereby, and shall have impressed on, printed on, written on or
otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Tollgrade
Communications, Inc. and Chase Mellon Shareholder Services, L.L.C.,
dated as of July 23, 1996 (as amended, modified or supplemented from
time to time, the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of Tollgrade Communications, Inc. Tollgrade
Communications, Inc. will mail to the holder of this certificate a copy
of the Rights Agreement without charge after receipt of a written
request therefor. Under certain circumstances set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and
will no longer be evidenced by this certificate. Under certain
circumstances set forth in the Rights Agreement, such Rights may be
redeemed or exchanged for other securities or assets of the Corporation
at the option of the Corporation. In addition, under certain
circumstances set forth in the Rights Agreement, Rights which are
"beneficially owned" by an "Acquiring Person" or an "Affiliate" or
"Associate" thereof, or by any transferee of any of the foregoing,
shall become null and void.
Certificates representing shares of Common Stock that are issued and outstanding
on the Record Date shall evidence one Right for each share of Common Stock
evidenced thereby notwithstanding absence of the foregoing legend. If the
Corporation acquires any Common Shares after the Record Date but prior to the
Distribution Date (other than Common Shares held in a fiduciary capacity or
pursuant to any employee benefit plan of the Corporation or any Subsidiary of
the Corporation), any Rights associated with such Common Shares shall be deemed
cancelled and retired so that the Corporation shall not be entitled to exercise
any Rights associated with such Common Shares.
Section 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase Preferred Shares and of assignment to be
printed on the reverse thereof) shall be substantially the same as Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Corporation may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 22 hereof, the Right Certificates
shall entitle the holders thereof to purchase such number of one one-hundredths
of a Preferred Share as shall be set
-6-
<PAGE> 10
forth therein at the price per one one-hundredth of a Preferred Share set forth
therein (as such price may be adjusted from time to time pursuant to the terms
hereof, the "Purchase Price"), but the number of such one one-hundredths of a
Preferred Share and the Purchase Price shall be subject to adjustment as
provided herein.
Section 5. Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf of the
Corporation by its Chairman of the Board, its Chief Executive Officer, its
President, any of its Vice Presidents, or its Treasurer, either manually or by
facsimile signature, shall have affixed thereto the Corporation's seal or a
facsimile thereof, and shall be attested by the Secretary or an Assistant
Secretary of the Corporation, either manually or by facsimile signature. The
Right Certificates shall be manually countersigned by the Rights Agent and shall
not be valid for any purpose unless countersigned. If any officer of the
Corporation who shall have signed any of the Right Certificates shall cease to
be such officer of the Corporation before countersignature by the Rights Agent
and issuance and delivery by the Corporation, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Corporation with the same force and effect as though the person who
signed such Right Certificates had not ceased to be such officer of the
Corporation; and any Right Certificate may be signed on behalf of the
Corporation by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Corporation 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 its principal office, 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(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 of the Redemption Date or the
Final Expiration Date, any Right Certificate or Right Certificates (other than
Right Certificates representing Rights that have become void pursuant to Section
7(f) hereof or that have been exchanged pursuant to Section 24 hereof) may be
transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates,
-7-
<PAGE> 11
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the principal office of the
Rights Agent. Neither the Rights Agent nor the Corporation shall be obligated to
take any action with respect to transfer of any such surrendered Right
Certificate until the registered holder thereof shall have completed and signed
the certificate contained in the form of assignment on the reverse side of such
Right Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owners) or Affiliates or
Associates thereof as the Corporation shall reasonably request. Thereupon,
subject to Section 20(j) hereof, 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 Corporation may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Right
Certificates.
(b) Upon receipt by the Corporation 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, at the
Corporation's request, reimbursement to the Corporation and the Rights Agent of
all reasonable expenses incidental thereto, and upon surrender to the Rights
Agent and cancellation of the Right Certificate if mutilated, the Corporation
will make and deliver a new Right Certificate of like tenor to the Rights Agent
for delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration
Date of Rights; Void Rights.
(a) Subject to Sections 7(f), 9(c), 11(a)(iv) and the other
provisions hereof, the registered holder of any Right Certificate may exercise
the Rights evidenced thereby (except as otherwise provided herein) in whole or
in part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the principal office of the Rights Agent,
together with payment of the Purchase Price for each one one-hundredth of a
Preferred Share as to which the Rights are exercised, at or prior to the
earliest of (i) the close of business on July 23, 2006 (the "Final Expiration
Date"), (ii) the time at which the Rights are redeemed as provided in Section 23
-8-
<PAGE> 12
hereof (the "Redemption Date"), or (iii) the time at which such Rights are
exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a
Preferred Share pursuant to the exercise of a Right shall initially be $115,
shall be subject to adjustment from time to time as provided in Sections 11 and
13 hereof and shall be payable in lawful money of the United States of America
in accordance with subsection (c) below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the shares to be purchased and
an amount equal to any applicable transfer tax required to be paid by the holder
of such Right Certificate in accordance with Section 9 hereof (in cash or by
certified check, cashier's check or money order payable to the order of the
Corporation), the Rights Agent shall, subject to Section 20(j) hereof, thereupon
as soon as practicable (i) (A) requisition from any transfer agent of the
Preferred Shares certificates for the number of Preferred Shares to be
purchased, and the Corporation hereby irrevocably authorizes its transfer agent
to comply with all such requests, or (B) if the Corporation shall have elected
to deposit the Preferred Shares issuable upon exercise of the Rights hereunder
with a depository agent, requisition from the depositary agent depositary
receipts representing such number of one one-hundredths of a Preferred Share as
are to be purchased (in which case certificates for the Preferred Shares
represented by such receipts shall be deposited by the transfer agent with the
depositary agent) and the Corporation hereby directs the depositary agent to
comply with such request, (ii) when appropriate, requisition from the
Corporation the amount of cash to be paid in lieu of issuance of fractional
shares in accordance with Section 14 hereof, (iii) as soon as practicable after
receipt of such certificates or depositary 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 (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of such Right Certificate.
(d) If 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 Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Corporation shall be obligated to
issue any Preferred Shares or undertake any other
-9-
<PAGE> 13
action upon any exercise or purported exercise of a Right unless the registered
holder of such Right shall have (i) completed and signed the certificate
contained in 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 Corporation shall
reasonably request.
(f) Notwithstanding anything in this Agreement to the
contrary, any Rights that are beneficially owned from time to time on or after
the date any Person shall become an Acquiring Person by an Acquiring Person (or
any Affiliate or Associate thereof), or by any direct or indirect transferee of
any of the foregoing, shall be null and void without further action; without
limitation, no holder or successor holder of such Rights (including but not
limited to any such direct or indirect transferee from the Acquiring Person or
any Affiliate or Associate thereof) shall thereafter have any right to exercise
such Rights under any provision of this Agreement or the related Rights
Certificate, nor shall any such Person be entitled to receive any property or
securities in an exchange pursuant to Section 24 hereof. No Right Certificate
shall be issued pursuant to Section 3 hereof that represents Rights beneficially
owned by an Acquiring Person (or Associate or Affiliate thereof) pursuant to the
preceding sentence; no Right Certificate shall be issued at any time upon the
transfer of any Rights to an Acquiring Person (or any Associate or Affiliate
thereof) whose Rights would be void pursuant to the preceding sentence; and any
Rights Certificate delivered to the Rights Agent for transfer to an Acquiring
Person (or Associate or Affiliate thereof) whose Rights would be void pursuant
to the preceding sentence shall be cancelled. If any Right Certificate is
presented for transfer or exercise and the registered holder thereof will not
complete the certificate contained in the form of assignment or notice of
election to purchase or will not provide such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owners) or Affiliates or
Associates thereof as the Corporation may reasonably request, then the
Corporation shall be entitled, without more, conclusively to deem the Beneficial
Owner thereof to be an Acquiring Person or an Affiliate or Associate thereof or
a transferee of one of the foregoing, and accordingly to deem such Rights void.
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 Corporation 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 the provisions of this Rights Agreement. The Corporation shall deliver to the
Rights Agent for
-10-
<PAGE> 14
cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Corporation
(other than in a fiduciary capacity or pursuant to any employee benefit plan of
the Corporation or any Subsidiary of the Corporation) otherwise than upon the
exercise thereof. The Rights Agent shall deliver all cancelled Right
Certificates to the Corporation, or shall, at the written request of the
Corporation, destroy such cancelled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Corporation.
Section 9. Reservation and Availability of Preferred Shares;
Registration.
(a) The Corporation covenants and agrees that it will cause to
be reserved and kept available out of its authorized and unissued Preferred
Shares or any Preferred Shares held in its treasury, the number of Preferred
Shares that will be sufficient to permit the exercise in full of all outstanding
Rights in accordance with Section 7 hereof. Notwithstanding the foregoing or
anything else contained herein, prior to the Board of Directors of the
Corporation determining that any Person has become an Acquiring Person, the
Corporation shall not be obligated to cause to be reserved and kept available
any Common Shares to permit the exercise of any outstanding Rights pursuant to
Section 11(a)(ii) hereof, or any exchange pursuant to Section 24 hereof, or to
cause to be reserved and kept available any Preferred Shares (other than those
referred to in the preceding sentence) or other securities for issuance in lieu
of any Common Shares pursuant to Section 11(a)(iii), 11(a)(iv) or 24(c) hereof.
The Corporation covenants and agrees that it will not, after any determination
by its Board of Directors that any Person has become an Acquiring Person, take
any action that would reduce the number of its authorized and unissued Common
Shares and Preferred Shares and Common Shares and Preferred Shares held in its
treasury (exclusive of shares previously reserved for other purposes) below the
number sufficient to permit the exercise in full of all outstanding Rights, and
if at any such time the number of such authorized and unissued and treasury
shares not otherwise reserved is less than the number sufficient to permit the
exercise in full of all outstanding Rights, the Corporation shall not take any
action that would increase such shortfall.
(b) If the Preferred Shares (or Common Shares or other
securities, as the case may be) issuable upon the exercise of Rights are listed
on any national securities exchange, the Corporation shall use its best efforts
to cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed on such exchange upon official notice of
issuance upon such exercise.
(c) To the extent necessary to permit the Rights to be
exercised in accordance with the terms of this Agreement without conflict with
applicable law, the Corporation shall use its best
-11-
<PAGE> 15
efforts to (i) file as soon as is practicable following the Distribution Date a
registration statement on the appropriate form under the Securities Act of 1933
(the "Securities Act") with respect to the securities purchasable upon the
exercise of the rights, (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 Securities 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. To the extent necessary to permit
the Rights to be exercised in accordance with the terms of this Agreement
without conflict with applicable law, the Corporation shall also use its best
efforts as soon as practicable following the Distribution Date to take such
action as may be appropriate under the securities laws of the various states.
The Corporation may temporarily suspend the exercisability of the Rights in some
or all jurisdictions to the extent necessary to avoid such conflict pending
effectiveness of such registration statement and such action under state
securities laws. Upon any such suspension, the Corporation shall make a public
announcement stating that the exercisability of the Rights has been temporarily
suspended. Notwithstanding any provision of this Agreement to the contrary, the
Rights shall not be exercisable in any jurisdiction unless the requisite
qualification in such jurisdiction shall have been obtained.
(d) The Corporation covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Shares (or Common
Shares or other securities, as the case may be) delivered upon exercise of
Rights shall, at the time of delivery of the certificates for such Preferred
Shares (or Common Shares or other securities, as the case may be) (subject to
payment of the Purchase Price), be duly and validly authorized and issued and,
in the case of shares of capital stock, fully paid and nonassessable.
(e) The Corporation 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 delivery of the Right Certificates
or of any Preferred Shares (or Common Shares or other securities, as the case
may be) upon the exercise of Rights. The Corporation shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Right Certificates to a Person other than, or the issuance or
delivery of certificates or depositary receipts for the Preferred Shares (or
Common Shares or other securities or assets, as the case may be) in a name other
than that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or to deliver any certificates or
depositary receipts for Preferred Shares (or Common Shares or other securities
or assets, as the case may be) upon the exercise of any Rights until any such
tax
-12-
<PAGE> 16
shall have been paid (any such tax being payable by the holder of such Right
Certificate at the time of surrender) or until it has been established to the
Corporation's reasonable satisfaction that no such tax is due.
Section 10. Preferred Shares Record Date. Each Person in whose
name any certificate for Preferred Shares (or Common Shares 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 Shares (or Common
Shares or other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of the Purchase 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 transfer books for Preferred
Shares (or Common Shares or other securities, as the case may be) of the
Corporation are closed, such Person shall be deemed to have become the record
holder of such Preferred Shares (or Common Shares or other securities, as the
case may be) on, and such certificate shall be dated, the next succeeding
Business Day on which the transfer books of the Corporation for Preferred Shares
(or Common Shares or other securities, as the case may be) are open.
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights. The Purchase Price, the number of Preferred Shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) If the Corporation shall at any time after the date
of this Agreement (A) declare a dividend on the Preferred Shares payable
in Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C)
combine the outstanding Preferred Shares into a smaller number of
Preferred Shares or (D) issue any shares of its capital stock in a
reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger in which
the Corporation is the continuing or surviving corporation), then,
except as otherwise provided in this Section 11(a), the Purchase Price
in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification, and
the number and kind of shares of capital stock issuable on such date,
shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive the aggregate
number and kind of shares of capital stock which, if such Right had been
exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Corporation were open, he would
have owned upon such exercise and been entitled to receive by
-13-
<PAGE> 17
virtue of such dividend, subdivision, combination or reclassification.
(ii) Subject to Section 24 of this Agreement, in the event any
Person shall become an Acquiring Person, each holder of a Right shall
thereafter have a right to receive, upon exercise thereof at a price
equal to the then current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then
exercisable, in accordance with the terms of this Agreement and in lieu
of Preferred Shares, such number of Common Shares of the Corporation as
shall equal the result obtained by (x) multiplying the then current
Purchase Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable and dividing that product by (y)
50% of the then current per share market price of the Corporation's
Common Shares (determined pursuant to Section 11(d) hereof) on the first
date any Person shall have become an Acquiring Person.
(iii) In any exercise of Rights pursuant to the foregoing
Section 11(a)(ii), the Corporation, (A) at its option may, and (B) in
the event there are not sufficient Common Shares available (that is,
shares constituting treasury shares or authorized but unissued shares,
after excluding any Common Shares previously reserved for other
purposes) to permit the exercise in full of the Rights shall, substitute
(in whole or in part) Preferred Shares (or equivalent preferred shares,
as such term is defined in Section 11(b) hereof) for Common Shares
purchasable upon the exercise of such Rights, at the initial rate of one
one-hundredth of a Preferred Share (or equivalent preferred share) for
each Common Share entitled to be purchased, as appropriately adjusted to
reflect adjustments in the voting rights of the Preferred Shares
pursuant to the terms thereof, so that the fraction of a Preferred Share
delivered in lieu of each Common Share shall have the same voting rights
as one Common Share.
(iv) If and to the extent that in any exercise of Rights
pursuant to the foregoing Section 11(a)(ii), or in any exchange of the
Rights pursuant to Section 24 hereof, there shall not be sufficient
Common Shares and Preferred Shares (or equivalent preferred shares)
available (that is, shares constituting treasury shares or authorized
but unissued shares, after excluding any Common Shares or Preferred
Shares (or equivalent preferred shares) previously reserved for other
purposes) to permit the exercise in full of such Rights pursuant to the
foregoing subsections (ii) and (iii) of this Section 11(a), or to permit
the full exchange of the Rights ordered in accordance with Section 24
hereof, the Corporation shall, to the extent of such unavailability,
take such action as shall be necessary to substitute for each Common
Share, Preferred Share or equivalent preferred share otherwise
-14-
<PAGE> 18
deliverable upon such exercise of the Rights or upon such exchange, debt
or equity securities or other assets (or a combination thereof) having a
fair value equal to the current per share market price of the
Corporation's Common Shares (determined pursuant to Section 11(d)
hereof) on the first date any Person shall have become an Acquiring
Person. The fair value of any such debt or equity securities or other
assets shall be determined by the Corporation based upon the advice of a
nationally recognized investment banking firm selected by the
Corporation. If the Corporation shall determine in good faith that it is
likely that sufficient additional Common Shares or Preferred Shares (or
equivalent preferred shares) could be authorized for the issuance upon
exercise in full of the Rights, or upon the consummation in full of any
such exchange, then the Corporation may suspend the exercisability of
the Rights to a date not later than 90 days following the Shares
Acquisition Date, in order that the Corporation may seek shareholder
approval and take other requisite action to authorize such additional
shares. If any such suspension shall occur, the Corporation shall make a
public announcement that the exercisability of the Rights has been
temporarily suspended, and shall make a further public announcement at
such time as such suspension is no longer in effect.
Any substitution pursuant to subsection (iii) or (iv) of this
Section 11(a) or pursuant to Section 24(c) hereof shall be effected pro
rata as to all outstanding Rights (other than Rights which have become
void pursuant to the provisions of Section 7(f) hereof) exercisable
pursuant to Section 11(a)(ii) or exchangeable pursuant to Section 24,
provided, however, that to the extent that, successively, the number of
Common Shares, or the number of one one-hundredths (as adjusted) of
Preferred Shares or equivalent preferred shares, available exceeds an
integral multiple of the number of such Rights so exercisable or
exchangeable, then (A) in the case of any exercise of Rights pursuant to
Section 11(a)(ii), such excess shares may be made available,
successively, on the basis of one excess Common Share or one
one-hundredth (as adjusted) of a Preferred Share or equivalent preferred
share per Right to the holders of the Rights in the order in which such
Rights are exercised and (B) in the case of any exchange of the Rights
pursuant to Section 24 hereof, such excess shares may be allocated by
lot in such manner as the Corporation shall determine among the holders
of the Rights to be exchanged.
(b) If the Corporation shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("equivalent preferred
-15-
<PAGE> 19
shares")) or securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent preferred share
(or having a conversion price per share, if a security convertible into
Preferred Shares or equivalent preferred shares) less than the then current per
share market price of the Preferred Shares (as defined in Section 11(d) hereof)
on such record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of Preferred Shares outstanding on such record date plus the number of
Preferred Shares which the aggregate offering price of the total number of
Preferred Shares and/or equivalent preferred 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 market price and the denominator of
which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible). If 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 the Board of Directors of the Corporation, whose determination shall be
described in a statement filed with the Rights Agent. Preferred Shares owned by
or held for the account of the Corporation 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
or warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not been
fixed.
(c) If the Corporation shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend, a cash
dividend on account of accumulated and unpaid regular quarterly cash dividends,
or a dividend payable in Preferred Shares) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the then current per share market price of the
Preferred Shares on such record date, less the fair market value (as determined
in good faith by the Board of Directors of the Corporation, 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 Preferred Share and the
denominator of which shall be such
-16-
<PAGE> 20
current per share market price of the Preferred Shares. 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 Purchase Price shall again be adjusted to
be the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the
purpose of this Section 11(d)(i)) on any date shall be deemed to be the
average of the daily closing prices per share of such Security for the
30 consecutive Trading Days immediately prior to such date; provided,
however, that if the current per share market price of the Security is
determined during a period following the announcement by the issuer of
such Security of (A) a dividend or distribution on such Security payable
in shares of such Security or securities convertible into such shares,
or (B) any subdivision, combination or reclassification of such Security
and prior to the expiration of 30 Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification, then, and in each such
case, the current per share market price shall be appropriately adjusted
to reflect the current market price per share equivalent of such
Security. The closing price for each 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 principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading
on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the
Security is listed or admitted to trading or, if the Security is 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 bid and
low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations
System ("NASDAQ") or such other system then in use, or, if on any such
date the Security is not 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 the Security selected by the Board of Directors
of the Corporation. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the Security is listed
or admitted to trading is open for the transaction of business or, if
the Security is not listed or admitted to trading on any national
securities exchange, a Business Day.
-17-
<PAGE> 21
(ii) For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Shares shall be
determined in accordance with the method set forth in Section 11(d)(i).
If the Preferred Shares are not publicly traded, the "current per share
market price" of the Preferred Shares shall be conclusively deemed to be
the current per share market price of the Common Shares as determined
pursuant to Section 11(d)(i) (appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the
date hereof), multiplied by one hundred. If neither the Common Shares
nor the Preferred Shares are publicly held or so listed or traded,
"current per share market price" of the Preferred Shares shall mean the
fair value per share as determined in good faith by the Board of
Directors of the Corporation, whose determination shall be described in
a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 and Section 13 shall be made to the nearest cent or to the nearest
one one-millionth of a Preferred Share or one ten-thousandth of any other share
or security as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 and Section 13 shall
be made no later than the earlier of (i) three years from the date of the
transaction which requires such adjustment or (ii) the date of the expiration of
the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section
11(a) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any property, securities or shares of capital
stock of the Corporation other than Preferred Shares, thereafter the number of
such other property, securities or shares so receivable upon exercise of any
Right (as well as any consideration to be paid therefor) shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Shares contained in
Section 11(a) through (c), inclusive, and the provisions of Sections 7, 9, 10
and 13 with respect to the Preferred Shares shall apply on like terms to any
such other property, securities or shares.
(g) All Rights originally issued by the Corporation subsequent
to any adjustment made to the Purchase Price hereunder shall evidence the right
to purchase, at the adjusted Purchase Price, the number of one one-hundredths of
a Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
-18-
<PAGE> 22
(h) Unless the Corporation shall have exercised its election
as provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a Preferred Share (calculated to the nearest one
one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number
of one one-hundredths of a share covered by a Right immediately prior to such
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Corporation may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any adjustment in the number of one one-hundredths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. If
any such adjustment shall be made after the Distribution Date, the Corporation
shall make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the
Corporation shall, as promptly as practicable, cause to be distributed to
holders of record of Right Certificates on such record date Right Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Corporation, shall cause to be distributed to such holders of record in
substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by
the Corporation, new Right Certificates evidencing all the Rights to which such
holders shall be entitled after such adjustment. Right Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein and shall be registered in the names of the holders of record of
Right Certificates on the record date specified in the public announcement.
-19-
<PAGE> 23
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-hundredths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below one one-hundredth of the then par value, if
any, of the Preferred Shares issuable upon exercise of the Rights, the
Corporation shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable Preferred Shares at such adjusted Purchase
Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Corporation may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Corporation,
if any, issuable upon such exercise over and above the Preferred Shares and
other capital stock or securities of the Corporation, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Corporation shall deliver to such holder a due bill
or other appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Corporation shall be entitled to make such reductions in
the Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it in its sole discretion shall determine
to be advisable in order that any consolidation or subdivision of the Preferred
Shares, issuance wholly for cash of any Preferred Shares at less than the
current market price, issuance wholly for cash of Preferred Shares or securities
which by their terms are convertible into or exchangeable for Preferred Shares,
dividends on Preferred Shares payable in Preferred Shares or issuance of rights,
options or warrants referred to hereinabove in Section 11(b), hereafter made by
the Corporation to holders of its Preferred Shares shall not be taxable to such
shareholders.
(n) If at any time after the date of this Agreement and prior
to the Distribution Date, the Corporation shall (i) declare or pay any dividend
on the Common Shares payable in Common Shares or (ii) effect a subdivision,
combination or consolidation of the Common Shares (by reclassification or
otherwise than by payment of dividends in Common Shares) into a greater or
lesser number of
-20-
<PAGE> 24
Common Shares, then in any such case (i) the number of one one-hundredths of a
Preferred Share purchasable after such event upon proper exercise of each Right
shall be determined by multiplying the number of one one-hundredths of a
Preferred Share so purchasable immediately prior to such event by a fraction,
the numerator of which is the number of Common Shares outstanding immediately
before such event and the denominator of which is the number of Common Shares
outstanding immediately after such event, and (ii) each Common Share outstanding
immediately after such event shall have issued with respect to it that number of
Rights which each Common Share outstanding immediately prior to such event had
issued with respect to it. The adjustments provided for in this Section 11(n)
shall be made successively whenever such a dividend is declared or paid or such
a subdivision, combination or consolidation is effected.
(o) The Corporation covenants and agrees that, after the
Distribution Date, it shall not take or suffer any Subsidiary to take any action
which will, or is intended to, or which is reasonably foreseeable will, diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights, except as permitted by Section 23 or Section 27 hereof (it being
understood that the issuance of additional Rights shall not be deemed to violate
this Section 11(o)).
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 or 13
hereof, the Corporation shall promptly (a) prepare a certificate setting forth
such adjustment, and a brief statement of the facts accounting for such
adjustment, (b) file with the Rights Agent and with each transfer agent for the
Common Shares or the Preferred Shares a copy of such certificate and (c) if
Right Certificates have been issued, mail a brief summary thereof to each holder
of a Right Certificate in accordance with Section 26 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power.
(a) If at any time following the Shares Acquisition Date,
directly or indirectly, (i) the Corporation shall consolidate with, or merge
with and into, or be a party to any binding share exchange with, any other
Person, (ii) any Person shall merge with and into the Corporation and the
Corporation shall be the continuing or surviving corporation of such merger and,
in connection with such merger, either all or part of the Common Shares shall be
changed into or exchanged for stock or other securities of any other Person (or
the Corporation) or cash or any other property, or the Corporation shall issue
any Common Shares or other shares of capital stock having ordinary voting power
in the election of directors of the Corporation, or (iii) the Corporation shall
sell or otherwise transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer) (it
-21-
<PAGE> 25
being understood that "transfer" includes, among other things, a corporate
division), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Corporation and its Subsidiaries
(taken as a whole) to any other Person other than the Corporation or one or more
of its wholly-owned Subsidiaries, then, and in each such case, proper provision
shall be made so that (w) each holder of a Right (except as otherwise provided
herein) shall thereafter have the right to receive, upon the exercise thereof at
a price equal to the then current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of validly authorized and issued, fully paid, nonassesable and
freely tradable Common Shares (not subject to any rights of redemption,
repurchase or first refusal) of the Flip-Over Entity as shall equal the result
obtained by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable and
dividing that result by (B) 50% of the then current per share market price of
the Common Shares of the Flip-Over Entity (determined pursuant to Section 11(d)
hereof) on the date of consummation of such consolidation, merger, share
exchange, sale or transfer; (x) the Flip-Over Entity shall thereafter be liable
for, and shall assume, by virtue of such consolidation, merger, share exchange,
sale or transfer, all the obligations and duties of the Corporation pursuant to
this Agreement; (y) the term "Corporation" shall thereafter be deemed to refer
to such Flip-Over Entity; and (z) such Flip-Over Entity shall take such steps in
connection with the consummation of such transaction as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the Common Shares thereafter deliverable upon
the exercise of the Rights. The provisions of this Section 13 shall similarly
apply to successive mergers or consolidations or sales or other transfers.
(b) "Flip-Over Entity" shall mean: (i) in the case of any
consolidation, merger or share exchange referred to in clause (i) or (ii) of
Section 13(a) hereof, the resulting, surviving or acquiring Person, as the case
may be (which may be the Corporation), and (ii) in the case of any sale or
transfer referred to in clause (iii) of Section 13(a) hereof, the Person that is
the party receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions.
(c) The Corporation shall not consummate any consolidation,
merger, share exchange, sale or transfer referred to in Section 13(a) hereof
unless (i) the Flip-Over Entity shall have immediately after such transaction a
sufficient number of authorized Common Shares, which have not been issued or
reserved for issuance, to permit the exercise in full of the Rights in
accordance with this Section 13 (and the Flip-Over Entity shall
-22-
<PAGE> 26
reserve such number of shares for such purpose), (ii) the Corporation and the
Flip-Over Entity shall have executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in subsections (a) and
(b) of this Section 13, and further providing that, as soon as practicable after
the date of any such consolidation, merger, share exchange, sale or transfer,
the Flip-Over Entity shall prepare and file a registration statement on an
appropriate form under the Securities Act of 1933, as amended, and take such
action as shall be necessary under applicable state securities laws, with
respect to the Rights and the securities purchasable upon exercise of the
Rights, and will use its best efforts to cause such registration statement and
other action to become effective as soon as practicable after such filing and
remain effective (with a prospectus at all times meeting the requirements of
law) so long as any Rights may be exercised hereunder. The Corporation shall not
enter into any transaction referred to in Section 13(a) hereof if at the time of
such transaction there are any rights, warrants, instruments or securities
outstanding or any agreements or arrangements which, as a result of the
consummation of such transaction, would eliminate or substantially diminish the
benefits intended to be afforded by the Rights.
Section 14. Fractional Rights and Fractional Shares.
(a) The Corporation shall not be required to issue fractions
of Rights on or after the Distribution Date or to distribute Right Certificates
which evidence fractional Rights. If the Corporation elects not to issue
fractional Rights, then, in lieu of such fractional Rights, there shall be paid
on or promptly after the Distribution Date to the registered holders of such
Rights with regard to which such fractional Rights would otherwise be issuable,
an amount in cash equal to the same fraction of the current market value of a
whole Right. For the purposes of this Section 14(a), the current market value of
a whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. 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
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are 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 bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not
-23-
<PAGE> 27
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 the Rights
selected by the Board of Directors of the Corporation. If on any such date no
such market maker is making a market in the Rights, the fair value of the Rights
on such date as determined in good faith by the Board of Directors of the
Corporation shall be used.
(b) In connection with any exercise of Rights, or any exchange
of Rights pursuant to Section 24 hereof, the Corporation shall not be required
to issue fractions of Common Shares or to distribute certificates which evidence
fractional Common Shares, nor shall the Corporation be required to issue
fractions of Preferred Shares (other than fractions which are integral multiples
of one one-hundredth of a Preferred Share) or to distribute certificates which
evidence Preferred Shares in any such odd fraction. Fractions of Preferred
Shares in integral multiples of one one-hundredth of a Preferred Share may, at
the election of the Corporation, be evidenced by depositary receipts, pursuant
to an appropriate agreement between the Corporation and a depositary selected by
it; provided, that such agreement shall provide that the holders of such
depositary receipts shall have all the rights, privileges and preferences to
which they are entitled as beneficial owners of the Preferred Shares represented
by such depositary receipts. If the Corporation elects not to issue fractional
Common Shares or odd fractional Preferred Shares, then, in lieu of such
fractional shares, the Corporation shall pay to the registered holder of each
Right otherwise entitled to receive the same at the time such Right is exercised
or exchanged as herein provided an amount in cash equal to the same fraction of
the current market value of a whole share. For the purposes of this subsection
(b), the current market value of a whole Common Share or Preferred Share shall
be the closing price of a Common Share or Preferred Share, as the case may be
(as determined pursuant to the second sentence of Section 11(d)(i) hereof) for
the Trading Day immediately prior to the date of such exercise or exchange.
(c) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect
of this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of the
Rights; and any registered holder of any Right, without the consent of the
Rights Agent or of the holder of any other Right, may, in his own behalf and for
his own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Corporation to enforce, or otherwise act in respect of,
his right to exercise such holder's Rights in the manner provided in such Right
Certificate and in
-24-
<PAGE> 28
this Agreement. Without limiting the foregoing or any remedies 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 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. Without limitation of
the other provisions hereof and of the Right Certificates, every holder of a
Right, by accepting the same, consents and agrees with the Corporation 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 the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer;
(c) the Corporation 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 Shares 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
Shares certificate made by anyone other than the Corporation or the Rights
Agent) for all purposes whatsoever, and neither the Corporation nor the Rights
Agent shall be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Corporation nor the Rights Agent shall have any liability
to any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority prohibiting or otherwise restraining
performance of any such obligation.
Section 17. Right Holder Not Deemed a Shareholder. No holder,
as such, of any Right shall be entitled to vote, receive dividends or be deemed
for any purpose the holder of the Preferred Shares, Common Shares or any other
securities of the Corporation 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
-25-
<PAGE> 29
Right, as such, any of the rights of a shareholder of the Corporation or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until such Right shall have been exercised
or exchanged in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Corporation 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
Agreement and the exercise and performance of its duties hereunder. The
Corporation also agrees to indemnify the Rights Agent for, and to hold it
harmless against, any loss, liability, or expense, incurred without gross
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 acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected 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 Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Corporation, 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 or Change of Name of
Rights Agent.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be 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 stock transfer or corporate trust business of the Rights Agent
or any successor Rights Agent, shall be the successor to the Rights Agent under
this 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
-26-
<PAGE> 30
hereof. If at the time such successor Rights Agent shall succeed to the agency
created by this Agreement any of the Right 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 if 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 Agreement.
(b) If 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; and if 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; and in all such cases such Right Certificates shall have
the full force provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Corporation and the holders
of Right Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Corporation), 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
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Corporation prior to taking or suffering
any action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any one of the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the
Treasurer or the Secretary of the Corporation and delivered to the Rights Agent;
and 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
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the
Corporation or any other Person only for its own gross negligence, bad faith or
willful misconduct.
-27-
<PAGE> 31
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this 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 Corporation only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due authorization, execution and delivery 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 Corporation of any covenant or condition contained in this
Agreement or in any Right Certificate; nor shall it be responsible for any
change in the exercisability of the Rights (including the Rights becoming void
pursuant to Section 7(f) hereof) or for any adjustment in the terms of the
Rights (including the manner, method or amount thereof) provided for in Section
3, 11, 13, 23 or 24 hereof, or the ascertaining of the existence of facts that
would require any such change or adjustment (except with respect to the exercise
of Rights evidenced by Right Certificates after receipt of the certificate
contemplated by Section 12 hereof describing such change or adjustment); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any securities issuable upon exercise
of any Right or as to whether any such securities will, when issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Corporation 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 Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Secretary or the Treasurer of the
Corporation, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any 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.
(h) 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 Corporation or become pecuniarily interested in any
transaction in which the Corporation may be interested, or contract with or lend
money to the
-28-
<PAGE> 32
Corporation or otherwise act as fully and freely as though it were not Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Corporation or for any other legal entity.
(i) 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 Corporation resulting from any
such act, default, neglect or misconduct, provided reasonable care was exercised
in the selection and continued employment thereof.
(j) If, with respect to any Right Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response, the Rights Agent shall
not take any further action with respect to such requested exercise or transfer
without direction from the Corporation.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Corporation and to each
transfer agent of the Common Shares and Preferred Shares by registered or
certified mail, and, in case of a resignation after the Distribution Date, to
the holders of the Right Certificates in accordance with Section 26 hereof. The
Corporation may remove the Rights Agent upon 30 days' notice in writing, mailed
to the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Shares and Preferred Shares by registered or
certified mail, and, in case of a removal after the Distribution Date, to the
holders of the Right Certificates in accordance with Section 26 hereof. If the
Rights Agent shall resign or be removed or shall otherwise become incapable of
acting, the Corporation shall appoint a successor to the Rights Agent. If the
Corporation shall fail to make such appointment within a period of 30 days after
giving notice of 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 (which holder shall, with such notice, submit
his Right Certificate for inspection by the Corporation), then the registered
holder 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 Corporation or by such a court, shall be a corporation
organized and doing business under the laws of the United States or of the
Commonwealth of Pennsylvania (or of any other state of the United States so long
as such corporation is authorized to do business in the Commonwealth of
Pennsylvania), in good standing, having an office in the Commonwealth of
Pennsylvania, which is authorized
-29-
<PAGE> 33
under the laws of the United States or of the Commonwealth of Pennsylvania to
exercise the powers contemplated by this Agreement, is subject to supervision or
examination by federal or state authority, and has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $25
million. 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
date of any such appointment the Corporation shall file notice thereof in
writing with the predecessor Rights Agent and each transfer agent of the Common
Shares and Preferred Shares, and, in the case of an appointment after the
Distribution Date, mail a notice thereof in writing 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.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Corporation 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 Purchase Price or 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 Agreement.
Section 23. Redemption.
(a) The Rights may be redeemed by action of the Board of
Directors pursuant to subsection (b) of this Section 23 and may not be redeemed
in any other manner.
(b) The Board of Directors of the Corporation may, at its
option, at any time prior to such time as any Person becomes an Acquiring
Person, redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the "Redemption Price").
The redemption of the Rights by the Board of Directors 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.
(c) Immediately upon the action of the Board of Directors of
the Corporation ordering the redemption of the Rights
-30-
<PAGE> 34
pursuant to subsection (b) of this Section 23 (or at such later time as may be
specified by the Board in taking such action), 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 in cash. The Corporation shall promptly give public notice of
any such redemption; provided, however, that the failure to give, or any defect
in, any such notice shall not affect the validity of such redemption. Within 10
days after such action of the Board of Directors ordering the redemption of the
Rights pursuant to subsection (b), the Corporation shall mail a notice of
redemption to all the holders of the then outstanding Rights 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 Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made. Neither the Corporation nor any of its Affiliates or Associates
may redeem, acquire or purchase for value any Rights at any time in any manner
other than that specifically set forth in this Section 23 and other than in
connection with the purchase or acquisition of Common Shares prior to the
Distribution Date.
Section 24. Exchange.
(a) The Board of Directors of the Corporation 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 (which shall not include
Rights that have become void pursuant to the provisions of Section 7(f) hereof)
for Common Shares at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time after any Person (other than the Corporation, any Subsidiary of the
Corporation, any employee benefit plan of the Corporation or any such
Subsidiary, or any entity holding Common Shares for or pursuant to the terms of
any such plan), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors of
the Corporation ordering the exchange of any Rights pursuant to subsection (a)
of this Section 24 (or at such later time as may be specified by the Board in
taking such action) and without any further action and without any notice, the
right to exercise such Rights shall terminate and the only right thereafter
of a holder of such Rights shall be to receive that number of Common Shares
equal to the number of such Rights held by such
-31-
<PAGE> 35
holder multiplied by the Exchange Ratio. The Corporation 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 exchange.
The Corporation promptly shall mail a notice of any such exchange to all of the
holders of such Rights in accordance with Section 26 hereof. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of exchange will state the method
by which the exchange of the Common Shares 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 which have become void pursuant to the provisions of Section
7(f) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the
Corporation, (A) at its option may, and (B) in the event there are not
sufficient Common Shares available (that is, shares constituting treasury shares
or authorized but unissued shares, after excluding any Common Shares previously
reserved for other purposes) to permit the full exchange of the Rights ordered
by the Board of Directors of the Corporation shall, substitute (in whole or in
part) Preferred Shares (or equivalent preferred shares, as such term is defined
in Section 11(b) hereof) for Common Shares exchangeable for Rights, at the
initial rate of one one-hundredth of a Preferred Share (or equivalent preferred
share) for each Common Share, as appropriately adjusted to reflect adjustments
in the voting rights of the Preferred Shares pursuant to the terms thereof, so
that the fraction of a Preferred Share delivered in lieu of each Common Share
shall have the same voting rights as one Common Share. Exchange pursuant to this
Section 24 is also subject to the provisions of Section 11(a)(iv) hereof.
Section 25. Notice of Certain Events.
(a) If the Corporation shall propose, at any time after the
Distribution Date and while any Rights continue to be exercisable (i) to pay any
dividend payable in stock of any class to the holders of its Preferred Shares or
to make any other distribution to the holders of its Preferred Shares (other
than regular quarterly cash dividends or cash payment on account of arrearages
in such dividends), (ii) to offer to the holders of its Preferred Shares rights
or warrants to subscribe for or to purchase any additional Preferred Shares or
shares of stock of any class or any other securities, rights or options, (iii)
to effect any reclassification of its Preferred Shares (other than a
reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or share exchange with, or merger into
or with, or to effect 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 50% or more of the assets or earning power of the Corporation
-32-
<PAGE> 36
and its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Corporation, or (vi) to declare or
pay any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Corporation shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, share exchange, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, 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 10 days
prior to the record date for determining holders of the Preferred Shares for
purposes of such action, and in the case of any such other action, at least 10
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, whichever shall be the earlier.
(b) If any Person becomes an Acquiring Person, then the
Corporation shall as soon as practicable thereafter give to each holder of a
Right Certificate, in accordance with Section 26 hereof, a notice of the
occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights hereunder.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Corporation 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:
Tollgrade Communications, Inc.
493 Nixon Road
Cheswick, PA 15024
Attention: Corporate Secretary
Any notice or demand authorized by this Agreement to be given or made by the
Corporation or by the holder of any Right Certificate to or on the Rights Agent
shall be sufficiently given or made if
-33-
<PAGE> 37
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Corporation) as follows:
Chase Mellon Shareholder Services, L.L.C.,
3rd Floor Station Square
Pittsburgh, PA 15219
Attention: Ms. Anita Landreau
Notices or demands authorized by this Agreement to be given or made by the
Corporation or the Rights Agent to the holder 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 Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Shares. Any notice to the holder of a
Right Certificate which is mailed in the manner herein provided shall be deemed
effective when so mailed, whether or not the holder receives the notice; any
notice to the Corporation or to the Rights Agent shall be deemed effective if
and when received.
Section 27. Supplements and Amendments. Prior to the
Distribution Date the Corporation and the Rights Agent may, without the approval
of any holders of Rights, from time to time supplement or amend this Agreement
in any respect whatever, except for a supplement or amendment that would reduce
the Redemption Price in a manner not contemplated by Section 23 hereof. From and
after the Distribution Date, the Corporation and the Rights Agent may, without
the approval of any holders of Rights, from time to time supplement or amend
this Agreement only in order (i) to cure any ambiguity, (ii) to correct or
supplement any provision contained herein which may be inconsistent with any
other provisions herein or otherwise defective, or (iii) to amend or supplement
the provisions hereof in any manner which the Corporation deems necessary or
desirable and which does not affect adversely the interests of the holders of
Rights generally (in any case exclusive of the interests of an Acquiring Person
or an Affiliate or Associate of an Acquiring Person). Without limiting the
foregoing, the Corporation and the Rights Agent may, without the approval of any
holders of Rights, at any time prior to such time as any Person becomes an
Acquiring Person amend this Agreement to lower the thresholds set forth in
Sections 1(a) and 3(a) hereof from 20% to not less than the greater of (i) any
percentage greater than the largest percentage of the outstanding Common Shares
then known by the Corporation to be beneficially owned by any Person (other than
the Corporation, any Subsidiary of the Corporation, any employee benefit plan of
the Corporation or of any Subsidiary of the Corporation, or any entity holding
Common Shares for or pursuant to the terms of any such plan) and (ii) 10%. Upon
the delivery of a certificate from an appropriate officer of the Corporation
which states that a proposed supplement
-34-
<PAGE> 38
or amendment is in compliance with the terms of this Section 27, the Rights
Agent shall execute such supplement or amendment.
Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Corporation or the Rights Agent
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the Corporation,
the Rights Agent and the registered holders of the Rights any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Corporation, the Rights Agent and the
registered holders of the Rights.
Section 30. Severability. If any term, provision, covenant or
restriction of this 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 Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, notwithstanding anything in this Agreement to the contrary,
if any such term, provision, covenant or restriction is held by such court or
authority to be invalid, void or unenforceable and the Board of Directors of the
Corporation determines in its good faith judgment that severing the invalid
language from this Agreement would adversely affect the purpose or effect of
this Agreement, the right of redemption set forth in Section 23 hereof shall be
reinstated and shall not expire until the close of business on the tenth day
following the date of such determination by the Board.
Section 31. Governing Law. This Agreement and each Right
issued hereunder shall be deemed to be a contract made under the laws of the
Commonwealth of Pennsylvania and for all purposes shall be governed by and
construed in accordance with the laws of such Commonwealth applicable to
contracts to be made and performed entirely within such Commonwealth.
Section 32. Counterparts. This Agreement may be executed in
any number of counterparts, and each of such counterparts shall for all purposes
be deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of
the several Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or
-35-
<PAGE> 39
construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the day and year first
above written.
TOLLGRADE COMMUNICATIONS, INC.
Attest:
By By
-------------------------- ------------------------------
Sara Antol, Secretary Christian L. Allison,
President and Chief
Executive Officer
CHASE MELLON SHAREHOLDER
SERVICES, L.L.C.
Attest:
By By
-------------------------- ------------------------------
Title: Title:
-36-
<PAGE> 40
Exhibit A
STATEMENT WITH RESPECT TO SHARES
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
TOLLGRADE COMMUNICATIONS, INC.
(Pursuant to Section 1522(c) of the
Pennsylvania Business Corporation Law of 1988)
In compliance with the requirements of Section 1522(c) of
Pennsylvania Business Corporation Law of 1988 (the "BCL"), Tollgrade
Communications, Inc., a corporation organized and existing under the BCL (the
"Corporation"), hereby certifies that:
1. The name of the Corporation is Tollgrade Communications,
Inc.
2. The resolution ("Resolution") duly adopted by the Board of
Directors of the Corporation establishing and designating a series of the
Corporation's Preferred Stock, par value $1.00 per share, and fixing and
determining the relative rights and preferences thereof is as follows:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Restated
Articles of Incorporation, the Board of Directors hereby creates a series of
Preferred Stock, par value $1.00 per share (the "Preferred Stock"), of the
Corporation and hereby states the designation and number of shares, and fixes
the relative rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock"), and the number of shares constituting the Series A
Preferred Stock shall be 200,000. 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 A Preferred Stock to a number less
than the number of shares then outstanding plus the
A-1
<PAGE> 41
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 Corporation convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to the
holders of Common Stock, par value $.20 per share (the "Common Stock"),
of the Corporation, 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 A
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 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 A Preferred Stock. In the
event the Corporation 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 than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence 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 Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in subsection (A) of this
Section immediately after it declares
A-2
<PAGE> 42
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 A 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 A 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 A 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 A 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 A Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the
payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation 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 than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the number of votes per share to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of which is the
number of shares of Common
A-3
<PAGE> 43
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 herein, in any other
Statement With Respect to Shares creating a series of Preferred Stock or
any similar stock, or by law, the holders of shares of Series A
Preferred Stock and the holders of shares of Common Stock and any other
capital stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of shareholders
of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A 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 A 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 A Preferred Stock outstanding shall have been paid in full, the
Corporation 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 A 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 A Preferred Stock, except
dividends paid ratably on the Series A 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 A Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon
A-4
<PAGE> 44
dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
subsection (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 A Preferred
Stock purchased or otherwise acquired by the Corporation 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 shares of Preferred Stock and may be reissued as part of the same or a
new series of Preferred Stock subject to the conditions and restrictions on
issuance set forth herein, in the Restated Articles of Incorporation, or in any
other Statement With Respect to Shares 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 Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $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, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) 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 A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
A-5
<PAGE> 45
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation 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 than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence 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 Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares 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 A 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 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 Corporation 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 than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying much 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 A Preferred
Stock shall not be redeemable.
Section 9. Rank. Except as otherwise set forth in the Restated
Articles of Incorporation or in the Statement With Respect to Shares creating
another series of Preferred Stock or any other class or series of stock, the
Series A Preferred Stock shall rank, with respect to the payment of dividends
and the
A-6
<PAGE> 46
distribution of assets, junior to all other series of the Corporation's
Preferred Stock and to any other class or series of stock other than the Common
Stock, whether now existing or hereafter created.
Section 10. Amendment. The Restated Articles of Incorporation
of the Corporation shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A
Preferred Stock so as to affect them adversely without the affirmative vote of a
majority of the votes cast at a meeting of shareholders by the holders of Series
A Preferred Stock, voting together as a single class.
3. (i) The aggregate number of shares of the Series A
Preferred Stock established and designated by the Resolution is 200,000; (ii)
the number of shares of preferred stock previously established and designated
pursuant to Section 1522 of the BCL is hereby reduced to the number of shares
currently outstanding, that is, zero, (iii) the Corporation has not previously
established and designated any other shares of its stock pursuant to Section
1522 of the BCL or any corresponding provision of prior law with respect
thereto; and (iv) the aggregate number of shares established and designated by
the Restated Articles of Incorporation of the Corporation is 17,000,000, of
which 10,000,000 shares are Preferred Stock, par value $1.00 per share, issuable
in one or more series, and 7,000,000 shares are Common Stock, par value $.20 per
share.
4. The Resolution was duly adopted at a meeting of the Board
of Directors of the Corporation duly called and held on July 23, 1996, at which
meeting a quorum was present and acted throughout.
IN WITNESS WHEREOF, this Statement With Respect to Shares is
executed on behalf of the Corporation by its President and Chief Executive
Officer and attested by its Secretary this 23rd day of July, 1996.
------------------------------
Christian L. Allison, President
and Chief Executive Officer
Attest:
- - ---------------------
Sara Antol, Secretary
A-7
<PAGE> 47
Exhibit B
Form of Right Certificate
Certificate No. R- Rights
NOT EXERCISABLE AFTER JULY , 2006 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01
PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT, IN EACH CASE AT THE OPTION OF THE CORPORATION.
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT,
RIGHTS WHICH ARE "BENEFICIALLY OWNED" BY AN "ACQUIRING PERSON"
OR AN "AFFILIATE" OR "ASSOCIATE" THEREOF, OR BY ANY TRANSFEREE
OF ANY OF THE FOREGOING, SHALL BECOME NULL AND VOID.
Right Certificate
TOLLGRADE COMMUNICATIONS, INC.
This certifies that ___________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement dated as of July 23, 1996 (as amended, modified or supplemented from
time to time, the "Rights Agreement"), between Tollgrade Communications, Inc., a
Pennsylvania corporation (the "Corporation"), and Chase Mellon Shareholder
Services, L.L.C., (the "Rights Agent"), to purchase from the Corporation at any
time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., Eastern time, on July 23, 2006 at the
principal office of the Rights Agent, or at the office of its successor as
Rights Agent, one one-hundredth of a fully paid and nonassessable share of
Series A Junior Participating Preferred Stock, par value $1.00 per share (the
"Preferred Shares"), of the Corporation, at a purchase price of $115 per one
one-hundredth of a Preferred Share (the "Purchase Price"), upon presentation and
surrender of this Right Certificate with the Form of Election to Purchase duly
executed. The number of Rights evidenced by this Right Certificate (and the
number of one one-hundredths of a Preferred Share which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of __________, 199_, based on the Preferred
Shares as constituted at such date. As provided in the Rights Agreement, the
Purchase Price and the number of one one-hundredths of a Preferred Share which
may be purchased upon the exercise of the Rights evidenced by this Right
Certificate are
B-1
<PAGE> 48
subject to modification and adjustment upon the happening of certain events,
and, in certain circumstances specified in the Rights Agreement, the type and
amount of securities or other assets purchaseable upon the exercise of such
Rights are subject to change.
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 full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Corporation and the holders of the Right Certificates.
Copies of the Rights Agreement are on file at the principal executive offices of
the Corporation and the above-mentioned offices of the Rights Agent.
This Right Certificate, with or without other Right
Certificates, upon surrender at the principal office of the Rights Agent, 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 Preferred Shares 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 not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Corporation at a
redemption price of $.01 per Right or (ii) may be exchanged in whole or in part
for shares of the Corporation's Common Stock, par value $.20 per share, for
Preferred Shares or, in certain circumstances, for other securities or assets.
The Corporation shall not be required to issue fractional
Preferred Shares upon the exercise of any Right or Rights evidenced hereby
(other than fractions which are integral multiples of one one-hundredth of a
Preferred Share, which may, at the election of the Corporation, be evidenced by
depositary receipts), but in lieu thereof a cash payment may be made, as
provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be
entitled to vote, receive dividends or be deemed for any purpose the holder of
the Preferred Shares or of any other securities of the Corporation 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 shareholder of the Corporation or any right to vote
for the election of directors or upon any matter submitted to shareholders at
any meeting thereof, or to give or withhold
B-2
<PAGE> 49
consent to any corporate action, or to receive notice of meetings or other
actions affecting shareholders (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.
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
Corporation and its corporate seal. Dated as of ___________, 199_.
ATTEST: TOLLGRADE COMMUNICATIONS, INC.
By
- - --------------------------- ---------------------------
Countersigned:
CHASE MELLON SHAREHOLDER SERVICES, L.L.C.
By
------------------------
Authorized Signature
B-3
<PAGE> 50
[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
Corporation, with full power of substitution.
Dated: __________________, 199_
___________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
- - -------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
___________________________
Signature
- - -------------------------------------------------------------------------------
B-4
<PAGE> 51
[Form of Reverse Side of Right Certificate -- continued]
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Right Certificate.)
To: TOLLGRADE COMMUNICATIONS, INC.
The undersigned hereby irrevocably elects to exercise
_______________________________ Rights represented by this Right Certificate to
purchase the Preferred Shares (or other securities or assets) issuable or
deliverable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
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 insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
Dated: __________________, 199_
___________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States.
B-5
<PAGE> 52
[Form of Reverse Side of Right Certificate -- continued]
- - -------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
---------------------------
Signature
- - -------------------------------------------------------------------------------
NOTICE
The signature in the foregoing Forms of Assignment and
Election must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Corporation and the Rights Agent will deem the beneficial owner
of the Rights evidenced by this Right Certificate to be an Acquiring Person or
an Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
B-6
<PAGE> 53
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On July , 1996, the Board of Directors of Tollgrade
Communications, Inc. (the "Corporation") declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share of Common Stock, par
value $.20 per share (the "Common Shares"), of the Corporation. The dividend is
payable on July , 1996 (the "Record Date") to the shareholders of record on that
date. Each Right entitles the registered holder to purchase from the Corporation
one one-hundredth of a share of Series A Junior Participating Preferred Stock,
par value $1.00 per share (the "Preferred Shares"), of the Corporation at a
price of $***** per one one-hundredth of a Preferred Share (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement (the "Rights Agreement") between the Corporation and
Chase Mellon Shareholder Services, L.L.C., as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired beneficial ownership of 20% or more of the
outstanding Common Shares 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 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 20% or more of such outstanding Common Shares (the earlier of such
dates being called the "Distribution Date"), the Rights will be evidenced, with
respect to any of the Common Share certificates outstanding as of the Record
Date, by such Common Share certificate.
The Rights Agreement provides that, until the Distribution
Date, the Rights will be transferred with and only with the Common Shares. Until
the Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date, upon transfer or new
issuance of Common Shares, 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
Common Shares will also constitute the transfer of the Rights associated with
the Common Shares 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 Shares
as of the close of business on the
C-1
<PAGE> 54
Distribution Date, and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date.
The Rights will expire on July 23, 2006 (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the Rights are earlier redeemed
by the Corporation, in each case, as described below.
The Purchase Price payable, and the number and type of
Preferred Shares 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, the Preferred Shares, (ii) upon the grant to holders of the
Preferred Shares of certain rights or warrants to subscribe for or purchase
Preferred Shares at a price, or securities convertible into Preferred Shares
with a conversion price, less than the then current market price of the
Preferred Shares or (iii) upon the distribution to holders of the Preferred
Shares of evidences of indebtedness or assets (excluding regular periodic cash
dividends, cash payment of dividend arrearages or dividends payable in Preferred
Shares) or of subscription rights or warrants (other than those referred to
above).
The number of outstanding Rights and the number of one
one-hundredths of a Preferred Share issuable upon exercise of each Right are
also subject to adjustment in the event of a stock dividend on the Common Shares
payable in Common Shares or subdivisions, consolidations or combinations of the
Common Shares occurring, in any such case, prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will
not be redeemable. Each Preferred Share 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 Common Share. In
the event of liquidation, the holders of the Preferred Shares 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 Common Share.
Each Preferred Share will have 100 votes, voting together with the Common
Shares. Finally, in the event of any merger, consolidation or other transaction
in which Common Shares are exchanged, each Preferred Share will be entitled to
receive 100 times the amount received per Common Share. These rights are
protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
Preferred Share purchasable upon exercise of each Right should approximate the
value of one Common Share.
C-2
<PAGE> 55
In the event that after the date of the first public
announcement that any person has become an Acquiring Person, the Corporation is
acquired in a merger or other business combination transaction or 50% or more of
its consolidated assets or earning power are sold, proper provision will be made
so that each holder of a Right, other than rights beneficially owned by the
Acquiring Person or its associates or affiliates (which will be void) will
thereafter have the right to receive, upon the exercise thereof at the then
current Purchase 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 times the exercise price of the Right. In the event that any person
becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person or its associates or affiliates
(which will be void), will thereafter have the right to receive upon exercise
that number of Common Shares or, at the option of the Corporation, Preferred
Shares (or shares of a class or series of the Corporation's preferred stock
having equivalent rights, preferences and privileges) or, in certain
circumstances, other securities or assets having a market value of two times the
exercise price of the Right.
At any time after the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 20% or more of the
outstanding Common Shares and prior to the acquisition by such person or group
of 50% or more of the outstanding Common Shares, the Board of Directors of the
Corporation may exchange the Rights (other than Rights owned by such person or
group which have become void), in whole or in part, at an exchange ratio of one
Common Share, or one one-hundredth of a Preferred Share (or of a share of a
class or series of the Corporation's preferred stock having equivalent rights,
preferences and privileges), or, in certain circumstances, an amount of other
securities or assets having equivalent value, per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at least
1% in such Purchase Price. Unless the Corporation elects otherwise, no
fractional Preferred Shares or Common Shares will be issued upon exercise or
exchange of the Rights (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share, which may, at the election of the
Corporation, be evidenced by depositary receipts) and in lieu thereof, an
adjustment in cash will be made based on the market price of the Preferred
Shares or Common Shares, as the case may be, on the last trading day prior to
the date of exercise or exchange.
At any time prior to the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 20% or more of the
outstanding Common Shares, the Board of Directors of the Corporation may redeem
the Rights in whole, but
C-3
<PAGE> 56
not in part, at a price of $.01 per Right (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. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate, 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 Corporation without the consent of the holders of the Rights
before the Distribution Date in any respect whatever, except for an amendment
not contemplated by the Rights Agreement that would reduce the Redemption Price.
From and after the Distribution Date, in general, the Corporation may amend the
terms of the Rights without the consent of the holders of the Rights only in a
manner which does not affect adversely the interests of the holders of Rights
generally (exclusive of the interests of an Acquiring Person or affiliated or
associated persons). Prior to any person becoming an Acquiring Person, the
Corporation may without the consent of the holders of the Rights lower the 20%
thresholds referred to above to not less than the greater of (i) any percentage
greater than the largest percentage of the outstanding Common Shares then known
to the Corporation to be beneficially owned by any person or group of affiliated
or associated persons and (ii) 10%.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a shareholder of the Corporation, 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 August 9, 1996. A copy of the Rights Agreement is available free
of charge from the Corporation. 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.
C-4
