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
Pacific Gateway Exchange, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 94-3134065
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State incorporation or organization) (IRS Employer Identification No.)
533 Airport Boulevard, Suite 505
Burlingame, California 94010
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(Address of principal executive office) (Zip Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None Not applicable
Securities to be registered pursuant to Section 12(g) of the Act:
Preferred Stock Purchase Rights
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(Title of Class)
<PAGE>
Item 1. Description of Registrant's Securities to be Registered
-------------------------------------------------------
On November 17, 1997, the Board of Directors of Pacific Gateway
Exchange, Inc. (the "Company") approved the adoption of a stockholder
rights plan (the "Plan"). To put the Plan into effect, the Board declared a
dividend distribution of one Right for each outstanding share of common
stock, par value $.0001 per share (the "Common Stock"), of the Company to
stockholders of record at the close of business on December 1, 1997 (the
"Record Date"). Except as described below, each Right, when exercisable,
entitles the registered holder to purchase from the Company one
one-thousandth of a share of Series A Junior Participating Preferred Stock,
par value $.0001 per share (the "Preferred Stock"), at a price of $200 per
one one-thousandth of a share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a
Rights Agreement (the "Rights Agreement") dated as of November 17, 1997
between the Company and Norwest Bank Minnesota, N.A., as Rights Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Right
certificates will be distributed. 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, or obtained the
right to acquire, beneficial ownership of 15% or more of the outstanding
shares of Common Stock (subject to certain limited exceptions specified in
the Rights Agreement) (the "Shares Acquisition Date") or (ii) 15 Business
Days (or such later date as may be determined by action of the Board of
Directors of the Company (the "Board of Directors") prior to the time that
any person becomes an Acquiring Person) following the commencement of (or a
public announcement of an intention to make) a tender or exchange offer if,
upon consummation thereof, such person or group would be the beneficial
owner of 15% or more of such outstanding shares of Common Stock (or in the
case of one particular existing stockholder, more than 20% of the Common
Stock) (the earlier of such dates being called the "Distribution Date"),
the Rights will be evidenced by the Common Stock certificates together with
a copy of the Summary of Rights Plan and not by separate certificates.
The Rights Agreement also provides that, until the Distribution
Date, the Rights will be transferred with and only with the Common Stock.
Until the Distribution Date (or earlier redemption, expiration or
termination of the Rights), the transfer of any certificates for Common
Stock, with or without a copy of the Summary of Rights Plan, will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificates. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Stock as
of the close of business on the Distribution Date and, thereafter, such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and
will expire at the earliest of (i) December 1, 2007 (the "Final Expiration
Date"), (ii) the redemption of the Rights by the Company as described below
and (iii) the exchange of all Rights for Common Stock as described below.
<PAGE>
Subject to certain limited exceptions specified in the Rights
Agreement, in the event that any person (other than the Company, its
affiliates or any person receiving newly-issued shares of Common Stock
directly from the Company) becomes the beneficial owner of 15% or more of
the then outstanding shares of Common Stock, each holder of a Right will
thereafter have the right to receive, upon exercise at the then current
exercise price of the Right, Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a value equal to
two times the exercise price of the Right. The Rights Agreement contains an
exemption for any issuance of Common Stock by the Company directly to any
person (for example, in a private placement or an acquisition by the
Company in which Common Stock is used as consideration), even if that
person would become the beneficial owner of 15% or more of the Common Stock
(or in the case of one particular existing stockholder, more than 20% of
the Common Stock), provided that such person does not acquire any
additional shares of Common Stock.
In the event that, at any time following the Shares Acquisition
Date, the Company is acquired in a merger or other business combination
transaction or 50% or more of the Company's assets or earning power are
sold, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon exercise at the then current
exercise price of the Right, common stock of the acquiring or surviving
company having a value equal to two times the exercise price of the Right.
Notwithstanding the foregoing, following the occurrence of any of
the events set forth in the preceding two paragraphs (the "Triggering
Events"), any Rights that are, or (under certain circumstances specified in
the Rights Agreement) were, beneficially owned by any Acquiring Person will
immediately become null and void.
The Purchase Price payable, and the number of shares of Preferred
Stock or other securities or property issuable, upon exercise of the
Rights, and the number of Rights associated with a share of Common Stock,
are subject to adjustment from time to time to prevent dilution, among
other circumstances, in the event of a stock dividend on, or a subdivision,
split, combination, consolidation or reclassification of, the Preferred
Stock or the Common Stock, or a reverse split of the outstanding shares of
Preferred Stock or the Common Stock.
At any time after a Triggering Event and prior to the acquisition
by a person or group of affiliated or associated persons of 50% or more of
the outstanding Common Stock, the Board of Directors 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 share of Common
Stock 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 the Purchase Price. The Company will not be required to issue
fractional shares of Preferred Stock or Common Stock (other than fractions
in multiples of one one-thousandths of a share of Preferred Stock) and, in
lieu thereof, an adjustment in cash may be made based on the market price
of the Preferred Stock or Common Stock on the last trading date prior to
the date of exercise.
<PAGE>
At any time after the date of the Rights Agreement until the time
that a person becomes an Acquiring Person, the Board of Directors may
redeem the Rights in whole, but not in part, at a price of $.01 per Right
(the "Redemption Price"), which may (at the option of the Company) be paid
in cash, shares of Common Stock or other consideration deemed appropriate
by the Board of Directors. Upon the effectiveness of any action of the
Board of Directors ordering redemption of the Rights, the Rights will
terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.
The provisions of the Rights Agreement may be amended by the
Company, except that any amendment adopted after the time that a person
becomes an Acquiring Person may not adversely affect the interests of
holders of Rights.
As of October 31, 1997, there were 18,830,590 shares of Common
Stock outstanding. Each outstanding share of Common Stock on the Record
Date will receive one Right. Fifty thousand (50,000) shares of Preferred
Stock will be reserved for issuance in the event of exercise of the Rights.
The Rights have certain anti-takeover effects. The Rights will
cause substantial dilution to a person or group that attempts to acquire
the Company without conditioning the offer on the Rights being redeemed or
a substantial number of Rights being acquired, and under certain
circumstances the Rights beneficially owned by such a person or group may
become void. The Rights should not interfere with any merger or other
business combination approved by the Board of Directors because, if the
Rights would become exercisable as a result of such merger or business
combination, the Board of Directors may, at its option, at any time prior
to the time that any Person becomes an Acquiring Person, redeem all (but
not less than all) of the then outstanding Rights at the Redemption Price.
A copy of the Rights Agreement is being filed with the Securities
and Exchange Commission as an exhibit to this Registration Statement on
Form 8-A. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights
Agreement.
Item 2. Exhibits
1. Rights Agreement, dated as of November 17, 1997 between Pacific
Gateway Exchange, Inc. and Norwest Bank Minnesota, N.A., as Rights
Agent, which includes as Exhibit A thereto the Form of Certificate
of Designation, as Exhibit B thereto the Form of Right Certificate,
and as Exhibit C thereto the Summary of Rights Plan. Pursuant to the
Rights Agreement, Right Certificates will not be mailed until the
occurrence of certain events described more fully in Section 3 of
the Rights Agreement.
<PAGE>
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.
PACIFIC GATEWAY EXCHANGE, INC.
Date: November 17, 1997 By: /s/Howard A. Neckowitz
----------------------------
Name: Howard A. Neckowitz
Title: Chairman, President and
Chief Executive Officer
Exhibit 1
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=============================================================================
RIGHTS AGREEMENT
between
PACIFIC GATEWAY EXCHANGE, INC.
and
NORWEST BANK MINNESOTA, N.A.
Rights Agent
Dated as of November 17, 1997
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
Section 1. Certain Definitions..............................................1
Section 2. Appointment of Rights Agent......................................5
Section 3. Issue of Right Certificates......................................5
Section 4. Form of Right Certificates.......................................7
Section 5. Countersignature and Registration................................8
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen
Right Certificates.............................................9
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights....9
Section 8. Cancellation and Destruction of Right Certificates..............12
Section 9. Availability of Preferred Shares............................. ..12
Section 10. Preferred Shares Record Date....................................12
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......20
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.................................................20
Section 14. Fractional Rights and Fractional Shares.........................22
Section 15. Rights of Action................................................23
Section 16. Agreement of Right Holders......................................24
Section 17. Right Certificate Holder Not Deemed a Stockholder...............24
Section 18. Concerning the Rights Agent.....................................25
Section 19. Merger or Consolidation or Change of Name of Rights Agent.......25
Section 20. Duties of Rights Agent..........................................26
Section 21. Change of Rights Agent..........................................28
Section 22. Issuance of New Right Certificates..............................29
Section 23. Redemption......................................................29
Section 24. Exchange........................................................30
Section 25. Notice of Certain Events........................................31
Section 26. Notices.........................................................32
Section 27. Supplements and Amendments......................................33
Section 28. Successors......................................................33
Section 29. Benefits of This Agreement......................................33
Section 30. Severability....................................................33
Section 31. Governing Law...................................................33
Section 32. Counterparts....................................................33
Section 33. Descriptive Headings............................................34
Section 34. Determinations and Actions by the Board of Directors............34
Signature....................................................................35
Exhibit A -- Form of Certificate of Designation, Preferences and Rights
Exhibit B -- Form of Right Certificate
Exhibit C -- Summary of Rights Plan
<PAGE>
RIGHTS AGREEMENT
----------------
Rights Agreement, dated as of November 17, 1997 (the "Agreement"),
between Pacific Gateway Exchange, Inc., a Delaware corporation (the
"Company"), and Norwest Bank Minnesota, N.A., a national banking
association formed under the laws of the United States (the "Rights
Agent").
W I T N E S S E T H:
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WHEREAS, the Board of Directors of the Company has authorized and
declared a dividend of one preferred share purchase right (a "Right") for
each Common Share (as hereinafter defined) of the Company outstanding as of
the close of business on December 1, 1997 (the "Record Date"), each Right
representing the right to purchase one one-thousandth 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 Expiration Date (as such term is
hereinafter defined).
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions.
-------------------
For purposes of this Agreement, the following terms have the meanings
indicated:
"Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person, shall be
the Beneficial Owner (as such term is hereinafter defined) of 15% or more
of the Common Shares of the Company then outstanding, but shall not include
(a) the Company, (b) any Subsidiary (as such term is hereinafter defined)
of the Company, (c) any employee benefit plan of the Company or any
Subsidiary of the Company, (d) any Person holding Common Shares for or
pursuant to the terms of any such employee benefit plan, (e) any Person,
who, as of the date hereof, is the Beneficial Owner of 15% or more of the
outstanding Common Shares; provided, however, that if any such Beneficial
Owner shall become the Beneficial Owner of additional Common Shares of the
Company (other than pursuant to a dividend or distribution paid or made by
the Company on the outstanding Common Shares in Common Shares or pursuant
to a split or subdivision of the outstanding Common Shares), then such
Person shall be deemed to be an "Acquiring Person" unless, upon becoming
the Beneficial Owner of such additional Common Shares, such Person is not
then the Beneficial Owner of 15% or more of the Common Shares then
outstanding, (f) notwithstanding clause (e), Howard A. Neckowitz, who is
Chairman, President and Chief Executive Officer of the Company as of the
date hereof, members of his immediate family living in the same household
with him, partnerships, corporations, limited liability companies or other
entities, all the equity of which is owned by Howard A. Neckowitz or
members of
<PAGE>
his immediate family living in the same household with him,
or trusts, the beneficial interest of which is held by Howard A. Neckowitz or
members of his immediate family living in the same household with him,
regardless of the acquisition by any such Persons of beneficial ownership of
additional Common Shares; provided, however, that after the date hereof, that
Howard A. Neckowitz, members of his immediate family living in the same
household with him, and any partnership, corporation, limited liability company,
other entity or trust described in this clause (f) shall individually or
collectively be an "Acquiring Person" if, in addition to the Common Shares
collectively owned by them on the date hereof, they acquire in the
aggregate more than five percent (5%) of the Common Shares then outstanding
(excluding from such 5% limitation Common Shares acquired, or to be
acquired, pursuant to any employee benefit plan, compensation plan or
incentive plan of the Company or any Subsidiary of the Company or other
compensation arrangement with the Company or any Subsidiary of the
Company); provided, further, that such 5% limitation shall not limit the
right of Howard A. Neckowitz, members of his immediate family living in the
same household with him, or any partnership, corporation, limited liability
company, other entity or trust described in this clause (f) to become the
Benefical Owner or Beneficial Owners of 15% of the outstanding Common
Shares in the event that he, they or it are ever the Beneficial Owner or
Beneficial Owners of less than 15% of the outstanding Common Shares or (g)
KDD America, Inc. ("KDD"), a New York corporation and subsidiary of Kokusai
Denshin Denwa Co. Ltd., a Japanese corporation; provided, however, that if,
after the date hereof, KDD becomes the Beneficial Owner of more than 20% of
the Common Shares then outstanding, then KDD shall be deemed to be an
"Acquiring Person". Notwithstanding the foregoing, no Person shall become
an "Acquiring Person" as the result of (a) an acquisition of Common Shares
by the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such
Person to 15% or more of the Common Shares of the Company then outstanding
(or in the case of KDD, more than 20% of the Common Shares of the Company
then outstanding) or (b) the acquisition by such Person of newly issued
Common Shares directly from the Company (it being understood that a
purchase from an underwriter or other intermediary is not directly from the
Company); provided, however, that if a Person shall become the Beneficial
Owner of 15% or more of the Common Shares of the Company then outstanding
(or in the case of KDD, more than 20% of the Common Shares of the Company
then outstanding) by reason of share purchases by the Company or the
receipt of newly issued Common Shares directly from the Company and shall,
after such share purchases or direct issuance by the Company, become the
Beneficial Owner of any additional Common Shares of the Company, then such
Person shall be deemed to be an "Acquiring Person"; provided further,
however, that any transferee from such Person who becomes the Beneficial
Owner of 15% or more of the Common Shares of the Company then outstanding
shall nevertheless be deemed to be an "Acquiring Person." Notwithstanding
the foregoing, if the Board of Directors of the Company determines in good
faith that a Person who would otherwise be an "Acquiring Person," as
defined pursuant to the foregoing provisions of this paragraph, has become
such inadvertently, and such Person divests as promptly as practicable (and
in any event within ten business days after notification by the Company) a
sufficient number of Common Shares so that such Person would no longer be an
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<PAGE>
Acquiring Person, as defined pursuant to the foregoing provisions of this
paragraph, then such Person shall not be deemed to be an "Acquiring Person"
for any purposes of this Agreement.
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement.
A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to have "beneficial ownership" of or "beneficially own" any
securities:
(a) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(b) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has (A) the right to acquire
(whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding, whether written or oral (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;
(B) the sole or shared right to vote or dispose (including any
such right pursuant to any agreement, arrangement or
understanding, whether written or oral); provided, however, that a
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 (C) "beneficial ownership" (as determined
pursuant to Rule 13d-3 (or any successor rule) of the General
Rules and Regulations under the Exchange Act); or
(c) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which
such Person or any of such Person's Affiliates or Associates has
any agreement, arrangement or understanding, whether written or
oral (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 clause (B) of subparagraph (b) of this definition) or disposing
of any securities of the Company.
-3-
<PAGE>
Notwithstanding anything in this definition of beneficial
ownership to the contrary, the phrase "then outstanding," when used with
reference to a Person's beneficial ownership of securities of the Company,
shall mean the number of such securities then issued and outstanding
together with the number of such securities not then actually issued and
outstanding which such Person would be deemed to own beneficially
hereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in California are authorized or
obligated by law or executive order to close.
"Close of business" on any given date shall mean 5:00 P.M., San
Francisco time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., San Francisco time, on the next
succeeding Business Day.
"Common Shares" when used with reference to the Company shall mean
the shares of common stock, $0.0001 par value (as such shares may be
constituted or designated, or as such par value may be changed, from time
to time during the term of this Agreement), of the Company. "Common Shares"
when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of
such other Person or the equity securities or other equity interest having
power to control or direct the management of such other Person.
"Distribution Date" shall have the meaning set forth in Section 3
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Ratio" shall have the meaning set forth in Section 24 hereof.
"Expiration Date" shall have the meaning set forth in Section 7 hereof.
"Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
"Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such
entity.
"Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $0.0001 per share, of the Company
having the rights and preferences set forth in the form of the Certificate
of Designation, Preferences and Rights attached to this Agreement as
Exhibit A.
"Principal Party" shall have the meaning set forth in Section 13
hereof.
"Purchase Price" shall have the meaning set forth in Section 4 hereof.
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<PAGE>
"Redemption Date" shall have the meaning set forth in Section 7 hereof.
"Right Certificate" shall have the meaning set forth in Section 3
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) promulgated
under the Exchange Act) by the Company or an Acquiring Person that an
Acquiring Person has become such.
"Subsidiary" shall mean, with reference to any Person, any
corporation or other entity of which a majority of the voting power of the
voting equity securities or equity interest is owned, directly or
indirectly, by such Person.
"Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.
"Triggering Event" shall mean any event described in Section
11(a)(ii) or Section 13(a) hereof.
Any determination or interpretation required in connection with
any of the definitions contained in this Section 1 shall be made by the
Board of Directors of the Company in their good faith judgment, which
determination shall be final and binding on the Rights Agent.
Section 2. Appointment of Rights Agent.
---------------------------
The Company hereby appoints the Rights Agent to act as agent for the
Company 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 Company 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 close of business on the tenth
day after the Shares Acquisition Date or (ii) the close of business on the
fifteenth 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 Company, any Subsidiary of the Company, any employee benefit plan
of the Company or of any Subsidiary of the Company 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
Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company or any entity holding Common
Shares for or pursuant to 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 15% or more of the
-5-
<PAGE>
then outstanding Common Shares (or in the case of KDD, more than 20% of
the then outstanding Common Shares) (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 certificates for Rights) and not by
separate certificates, and (y) the Rights will be transferable only in
connection with the transfer of the underlying Common Shares (including a
transfer to the Company). As soon as practicable after the Distribution
Date, the Company will prepare and execute, the Rights Agent will
countersign, and the Company will send or cause to be sent (and the Rights
Agent will, if requested, send) by first-class, 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 Company, a Right Certificate, in substantially the form of Exhibit B
hereto (a "Right Certificate"), evidencing one Right for each Common Share
so held. As of 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
Company will send a copy of a Summary of Rights Plan, in substantially the
form of Exhibit C hereto (the "Summary of Rights Plan"), by first class,
postage-prepaid mail, to each record holder of Common Shares as of the
close of business on the Record Date (other than any Acquiring Person or
any Associate or Affiliate of any Acquiring Person), at the address of such
holder shown on the records of the Company. 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 thereof together with the Summary of Rights Plan, and
registered holders of 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 transfer of any
certificate for Common Shares outstanding on the Record Date, with or
without a copy of the Summary of Rights Plan, shall also constitute the
transfer of the Rights associated with the Common Shares represented
thereby.
(c) Rights shall be issued in respect of all Common Shares which
are issued (whether originally issued or delivered from the Company's
treasury) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date.
Certificates representing such Common Shares shall also be deemed to be
certificates for Rights. Certificates representing both Common Shares and
Rights in accordance with this Section 3 which are executed and delivered
(whether the Common Shares represented thereby are originally issued,
delivered from the Company's treasury or are presented for transfer) by the
Company (including, without limitation, certificates representing
reacquired Common Shares referred to in the last sentence of this paragraph
(c)) after the Record Date but prior to the earliest of the Distribution
Date, the Redemption Date or the Final Expiration Date shall have impressed
on, printed on, written on or otherwise affixed to them a legend
substantially equivalent to the following:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in the Rights Agreement between
Pacific Gateway Exchange, Inc. (the
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<PAGE>
"Company") and Norwest Bank Minnesota, N.A., dated as of November 17,
1997 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at
the principal offices of the Company. Under certain circumstances,
as set forth in the Rights Agreement, such Rights will be evidenced
by separate certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this certificate
a copy of the Rights Agreement, as in effect on the date of mailing,
without charge promptly after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement,
Rights issued to, or held by, any Person who is, was or becomes an
Acquiring Person or an Affiliate or Associate thereof (as such terms
are defined in the Rights Agreement), whether currently held by or
on behalf of such Person or by any subsequent holder, shall become
null and void.
Until the Distribution Date, the Rights associated with the Common Shares
shall be evidenced by the certificates representing the associated Common
Shares alone, and the transfer of any such certificate shall also
constitute the transfer of the Rights associated with the Common Shares
represented thereby. In the event that the Company purchases or acquires
any Common Shares after the Record Date but prior to the Distribution Date,
any Rights associated with such Common Shares shall be deemed canceled and
retired so that the Company shall not be entitled to exercise any Rights
associated with the Common Shares which are no longer outstanding.
Section 4. Form of Right Certificates.
--------------------------
(a) The Right Certificates (and the forms of election to purchase
Preferred Shares and of assignment to be printed on the reverse thereof)
shall each be substantially in the form set forth in Exhibit B hereto and
may have such marks of identification or designation and such legends,
summaries or endorsements printed thereon as the Company 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 11 and Section
22 hereof, the Right Certificates shall entitle the holders thereof to
purchase such number of one one-thousandths of a Preferred Share as shall
be set forth therein at the price per one one-thousandth of a Preferred
Share set forth therein (the "Purchase Price"), but the amount and type of
securities purchasable upon the exercise of each Right and the Purchase
Price thereof shall be subject to adjustment as provided herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an
Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii)
a transferee of an Acquiring Person (or such Associate or Affiliate)
-7-
<PAGE>
who becomes a transferee after the Acquiring Person becomes an Acquiring
Person, or (iii) a transferee of an Acquiring Person (or such Associate or
Affiliate) who becomes a transferee prior to or concurrently with the Acquiring
Person becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or
understanding, whether written or oral, regarding the transferred Rights or
(B) a transfer which is part of a plan, arrangement or understanding,
whether written or oral, which has as a primary purpose or effect avoidance
of Section 7(e) hereof, and any Right Certificate issued pursuant to
Section 6 or Section 11 hereof upon transfer, exchange, replacement or
adjustment of any other Right Certificate referred to in this sentence,
shall contain (to the extent feasible and otherwise reasonably identifiable
as such) the following legend:
The Rights represented by this Right Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly, this
Right Certificate and the Rights represented hereby may become
void in the circumstances specified in Section 7(e) of such
Agreement.
The provisions of Section 7(e) shall apply whether or not any Right
Certificate actually contains the foregoing legend.
Section 5. Countersignature and Registration.
---------------------------------
The Right Certificates shall be executed on behalf of the Company
by its Chairman of the Board, its Chief Executive Officer, any Vice
Chairman, its President, any of its Vice Presidents, or its Treasurer,
either manually or by facsimile signature, shall have affixed thereto the
Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, 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. In case any officer of the Company who shall have signed any
of the Right Certificates shall cease to be such officer of the Company
before countersignature by the Rights Agent and issuance and delivery by
the Company, such Right Certificates, nevertheless, may be countersigned by
the Rights Agent and issued and delivered by the Company with the same
force and effect as though the person who signed such Right Certificates
had not ceased to be such officer of the Company; and any Right Certificate
may be signed on behalf of the Company by any person who, at the actual
date of the execution of such Right Certificate, shall be a proper officer
of the Company to sign such Right Certificate, although at the date of the
execution of this Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its office designated for such purpose, books for
registration and transfer of the Right Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the
Right Certificates, the number of Rights evidenced on its face by each of
the Right Certificates and the date of each of the Right Certificates.
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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 4(b), 7(e), 14 and 24
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 may be transferred, split up, combined or exchanged for
another Right Certificate or Right Certificates, entitling the registered
holder to purchase a like number of Preferred Shares (or, following a
Triggering Event, Common Shares, other securities or property, as the case
may be) 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 office of the Rights
Agent designated for such purpose. Neither the Rights Agent nor the Company
shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Right Certificate until the registered
holder shall have completed and signed the certificate contained in the
form of assignment on the reverse side of such Right Certificate
accompanied by such documents as the Rights Agent may deem appropriate and
the Company shall have been provided with such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates
or Associates thereof as the Company shall reasonably request. Thereupon
the Rights Agent shall, subject to Sections 4 and 7 hereof, countersign and
deliver to the person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any 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 Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Right Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to them, and,
at the Company's request, reimbursement to the Company 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
Company will make and deliver a new Right Certificate of like tenor to the
Rights Agent for countersignature and 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.
- ------
(a) Subject to Section 7(e) 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 office of the Rights Agent designated for such purpose,
together with payment of the Purchase Price with respect to each
surrendered Right for the total number of Preferred Shares
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<PAGE>
(or other securities or property, as the case may be) as to which the
Rights are exercised, at or prior to the earliest of (i) the close of
business on December 1, 2007 (the "Final Expiration Date"), (ii) the time
at which the Rights are redeemed as provided in Section 23 hereof (the
"Redemption Date") (the earlier of (i) and (ii) being herein referred to as
the "Expiration Date") and (iii) the time at which such Rights are
exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-thousandth of a Preferred
Share pursuant to the exercise of a Right shall initially be $200, 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 paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase and the certificate on the
reverse side of the Right Certificate duly executed, accompanied by such
documents as the Rights Agent may deem appropriate, payment of the Purchase
Price for the shares (or other securities or property, as the case may be)
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 by certified check, cashier's check or money order payable
to the order of the Company, the Rights Agent shall thereupon promptly (i)
(A) requisition from any transfer agent of the Preferred Shares (or make
available, if the Rights Agent is the transfer agent of the Preferred
Shares) certificates for the number of Preferred Shares to be purchased,
and the Company hereby irrevocably authorizes its transfer agent to comply
with all such requests, or (B) if the Company shall have elected to deposit
the Preferred Shares issuable upon exercise of the Rights with a depositary
agent, requisition from the depositary agent depositary receipts
representing such number of one one-thousandths 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 Company will direct the depositary agent to
comply with such request; (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional
shares in accordance with Section 14 hereof; (iii) 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. In the event that
the Company is obligated to issue other securities (including Common
Shares) of the Company, pay cash and/or distribute other property pursuant
to Section 11(a) hereof, the Company will make all arrangements necessary
so that such other securities, cash and/or property are available for
distribution by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent and delivered to the
registered holder of such Right Certificate or to his duly authorized
assigns, subject to the provisions of Section 14 hereof.
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<PAGE>
(e) Notwithstanding anything in this Agreement to the contrary,
from and after the occurrence of a Triggering Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate
of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes an Acquiring Person, or (iii) a transferee of an Acquiring
Person (or such Associate or Affiliate) who becomes a transferee prior to
or concurrently with the Acquiring Person becoming an Acquiring Person and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom the Acquiring Person has
any continuing agreement, arrangement or understanding, whether written or
oral, regarding the transferred Rights or (B) a transfer which the Board of
Directors otherwise concludes in good faith is part of a plan, arrangement
or understanding (whether written or oral) which has as a primary purpose
or effect the avoidance of this Section 7(e), shall become null and void
without any further action, and any holder of such Rights shall thereupon
have no rights whatsoever with respect to such Rights, whether under any
provision of this Agreement or otherwise, from and after the occurrence of
a Triggering Event. The Company shall use all reasonable efforts to ensure
that the provisions of this Section 7(e) hereof are complied with, but
shall have no liability to any holder of Rights for the inability to make
any determinations with respect to an Acquiring Person or its Affiliates,
Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake
any action with respect to a registered holder upon the occurrence of any
purported exercise as set forth in this Section 7 unless the certificate
contained in the form of election to purchase set forth on the reverse side
of the Right Certificate surrendered for such exercise shall have been
completed and signed by the registered holder thereof and the Company shall
have been provided with such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
(g) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued Preferred
Shares (and, following the occurrence of a Triggering Event, Common Shares
and/or other securities) or any Preferred Shares (and, following the
occurrence of a Triggering Event, Common Shares and/or other securities)
held in its treasury, the number of Preferred Shares (and, following the
occurrence of a Triggering Event, Common Shares and/or other securities)
that will be sufficient to permit the exercise in full of all outstanding
Rights.
(h) Notwithstanding any statement to the contrary contained in
this Agreement or in any Right Certificate, if the Distribution Date or the
Shares Acquisition Date shall occur prior to the Record Date, the
provisions of this Agreement, including (without limitation) Sections 3 and
11(a)(ii), shall be applicable to the Rights upon their issuance to the
same extent that such provisions would have been applicable if the Record
Date were the date of this Agreement.
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<PAGE>
Section 8. Cancellation and Destruction of Right Certificates.
--------------------------------------------------
All Right Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the
Company or to any of its agents, be delivered to the Rights Agent for
cancellation or in canceled form, or, if surrendered to the Rights Agent,
shall be canceled by it, and no Right Certificates shall be issued in lieu
thereof except as expressly permitted by any of the provisions of this
Agreement. The Company shall deliver to the Rights Agent for cancellation
and retirement, and the Rights Agent shall so cancel and retire, any other
Right Certificate purchased or acquired by the Company otherwise than upon
the exercise thereof. The Rights Agent shall deliver all canceled Right
Certificates to the Company, or shall, at the written request of the
Company, cause such canceled Right Certificates to be destroyed, and in
such case cause a certificate of destruction to be delivered to the
Company.
Section 9. Availability of Preferred Shares.
--------------------------------
The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all Preferred Shares (and, following the
occurrence of a Triggering Event, Common Shares and/or other securities)
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such Preferred Shares (and, following the occurrence of a
Triggering Event, Common Shares and/or other securities), subject to
payment of the Purchase Price, be duly and validly authorized and issued
and fully paid and nonassessable shares.
The Company further 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 and/or other
securities, as the case may be) upon the exercise of Rights. The Company
shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Right Certificates to a
person other than, or the issuance or delivery of certificates or
depositary receipts for the Preferred Shares (or Common Shares and/or other
securities, 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 and/or other securities, as
the case may be) upon the exercise of any Rights until any such tax 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 Company'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 and/or other securities, as the case may be) is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the shares or securities 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
Preferred Shares (or Common Shares and/or other securities, as the case may
be) transfer books of the Company are closed, such person shall be deemed
to have become the record
-12-
<PAGE>
holder of such shares or securities on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Shares (or
Common Shares and/or other securities, as the case may be) transfer books
of the Company are open. Prior to the exercise of the Rights evidenced
thereby, the holder of a Right Certificate shall not be entitled to any
rights of a holder of Preferred Shares (or Common Shares and/or other
securities, as the case may be) for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or
other distributions or to exercise any preemptive rights, and shall not be
entitled to receive any notice of any proceedings of the Company, except as
provided herein.
Section 11. Adjustment of 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) In the event the Company 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 Company is the continuing or
surviving corporation), except as otherwise provided in this
Section 11(a) and Section 7(e) hereof, 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 Company were open, he would have owned upon
such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification; provided,
however, that in no event shall the consideration to be paid upon
the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise
of one Right. If an event occurs which would require an adjustment
under both Section 11(a)(i) and Section 11(a)(ii), the adjustment
provided for in this Section 11(a)(i) shall be in addition to, and
shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii).
(ii) Subject to Section 24 of this Agreement, in the
event any Person becomes an Acquiring Person, each holder of a
Right, except as provided below and in Section 7(e) hereof, 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-thousandths 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 Company as shall equal the result obtained by (x)
multiplying
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<PAGE>
the then current Purchase Price by the number of one
one-thousandths 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 Company's Common Shares
(determined pursuant to Section 11(d) hereof) on the date of the
occurrence of such event. In the event that any Person shall
become an Acquiring Person and the Rights shall then be
outstanding, the Company shall not take any action which would
eliminate or diminish the benefits intended to be afforded by the
Rights.
(iii) In lieu of issuing Common Shares of the Company in
accordance with Section 11(a)(ii) hereof, the Company may, in the
sole discretion of the Board of Directors, elect to (and, in the
event that the Board of Directors has not exercised the exchange
right contained in Section 24 hereof and there are not sufficient
issued but not outstanding and authorized but unissued Common
Shares to permit the exercise in full of the Rights in accordance
with the foregoing subparagraph (ii), the Company shall) take all
such action as may be necessary to authorize, issue or pay, upon
the exercise of the Rights, cash (including by way of a reduction
of the Purchase Price), property, other securities or any
combination thereof having an aggregate value equal to the value
of the Common Shares of the Company which otherwise would have
been issuable pursuant to Section 11(a)(ii), which aggregate value
shall be determined by a majority of the Board of Directors. For
purposes of the preceding sentence, the value of the Common Shares
shall be determined pursuant to Section 11(d) hereof and the value
of any equity securities which a majority of the Board of
Directors determines to be a "common stock equivalent" (including
the Preferred Shares, in such ratio as the Board of Directors
shall determine) shall be deemed to have the same value as the
Common Shares. Any such election by the Board of Directors must be
made and publicly announced within 60 days following the date on
which the event described in Section 11(a)(ii) shall have
occurred. Following the occurrence of the event described in
Section 11(a)(ii), a majority of the Board of Directors then in
office may suspend the exercisability of the Rights for a period
of up to 60 days following the date on which the event described
in Section 11(a)(ii) shall have occurred to the extent that such
directors have not determined whether to exercise the company's
right of election under this Section 11(a)(iii). In the event of
any such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily
suspended.
(b) In case the Company 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 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)) on such record date, the Purchase Price to be in effect
after such record date shall be
-14-
<PAGE>
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); provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable
upon exercise of one Right. In case such subscription price may be paid in
a consideration part or all of which shall be in a form other than cash,
the value of such consideration shall be as determined in good faith by the
Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent and shall be binding on the
Rights Agent. Preferred Shares owned by or held for the account of the
Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights, options 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) In case the Company 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
Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred 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
Company, whose determination shall be described in a statement filed with
the Rights Agent) of the portion of the assets or evidences of indebtedness
so to be distributed or of such subscription rights or warrants applicable
to one Preferred Share, and the denominator of which shall be such current
per share market price of the Preferred Shares; provided, however, that in
no event shall the consideration to be paid upon the exercise of one Right
be less than the aggregate par value of the shares of capital stock of the
Company to be issued upon exercise of one Right. Such adjustments shall be
made successively whenever such a record date is fixed; and in the event
that such distribution is not so made, the 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,
other than under Section 11(a)(iii) hereof, 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
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<PAGE>
the average of the daily closing prices per share of such Security
for the 30 consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date, and for the purpose of
any computation under Section 11(a)(iii) hereof, the "current per
share market price" of a Security on any date shall be deemed to
be the average of the daily closing prices per share of such
Security for thirty (30) consecutive Trading Days immediately
following such date; provided, however, that in the event that 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 (other than the Rights), 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
(ex-dividend) 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 Quotation 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 Company. If on any such date no market maker
is making a market in the Security, the fair value of such
Security on such date (as determined in good faith by the Board of
Directors of the Company) shall be used. 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.
(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 of the Company 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),
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<PAGE>
multiplied by one thousand. If neither the Common Shares of the
Company nor the Preferred Shares are publicly held or so listed or
traded, "current per share market price" shall mean the fair value
per share as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a statement
filed with the Rights Agent.
(e) Anything herein to the contrary notwithstanding, 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 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 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 shares of capital stock of the Company other
than Preferred Shares, thereafter the number of such other shares so
receivable upon exercise of any Right 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 this
Section 11, and the provisions of Sections 7, 9, 10, 13 and 14 with respect
to the Preferred Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company 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-thousandths
of a Preferred Share purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company 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-thousandths 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- thousandths of a share covered by a
Right immediately prior to this 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.
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<PAGE>
(i) The Company 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-thousandths 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-thousandths 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. The Company 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 Company 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 Company, 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 Company, 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.
(j) Irrespective of any adjustment or change in the Purchase Price
or the number of one one-thousandths 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-thousandths 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-thousandth of the then par value,
if any, of the Preferred Shares issuable upon exercise of the Rights, the
Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally
issue fully paid and 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 Company 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 Company, if any, issuable upon such exercise over and above the
Preferred Shares and
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other capital stock or securities of the Company, if any, issuable upon
such exercise on the basis of the Purchase Price in effect prior to such
adjustment; provided, however, that the Company 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 Company 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 Company to holders of its Preferred
Shares shall not be taxable to such stockholders.
(n) In the event that at any time after the date of this Agreement
and prior to the Distribution Date, the Company 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 Common Shares, then in any such
case (i) the number of one one-thousandths of a Preferred Share purchasable
after such event upon proper exercise of each Right shall be determined by
multiplying the number of one one-thousandths 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) So long as the shares issuable upon the exercise of the Rights
may be listed on any national securities exchange, the Company 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.
(p) The Company shall use its best efforts to (i) file, as soon as
practicable following the first occurrence of a Triggering Event, a
registration statement under the Securities Act with respect to the
securities purchasable upon exercise of the Rights on an appropriate form,
(ii) cause such registration statement to become effective as soon as
practicable after such filing and (iii) cause such registration statement
to remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the date
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<PAGE>
of the expiration of the Rights. The Company will also take such action, if
any, as may be appropriate under the blue sky laws of the various states.
The Company may temporarily suspend, for a period of time not to exceed 90
days, the exercisability of the Rights in order to prepare and file such
registration statement or in order to comply with such blue sky laws. Upon
any such suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended.
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 Company 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) mail a brief summary thereof to each holder of a Right Certificate in
accordance with Section 25 hereof. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment therein
contained and may assume that no adjustment has been made unless and until
it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
------------------------------------------------------
Earning Power.
- -------------
(a) If after the Shares Acquisition Date, directly or indirectly,
(x) the Company shall consolidate with, or merge with and into, any other
Person, (y) any Person shall consolidate with the Company, or merge with
and into the Company and the Company shall be the continuing or surviving
corporation of such merger and, in connection with such merger, all or part
of the Common Shares shall be changed into or exchanged for stock or other
securities of any other Person (or the Company) or cash or any other
property, or (z) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to
any Person or Persons other than the Company or one or more of its
wholly-owned Subsidiaries, then, and in each such case, proper provision
shall be made so that (i) 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-thousandths 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, nonassessable and freely tradeable
Common Shares of the Principal Party (as hereinafter defined), free and
clear of all liens, rights of call or first refusal, encumbrances or other
adverse claims, as shall equal the result obtained by (A) multiplying the
then current Purchase Price by the number of one one-thousandths of a
Preferred Share for which a Right is then exercisable (or, if such Right is
not then exercisable for a number of one one-thousandths of a Preferred
Share, the number of such fractional shares for which it was exercisable
immediately prior to an event described under Section 11(a)(ii) hereof) and
dividing that product by (B) 50% of the then current per share market price
of the Common Shares of such Principal Party (determined pursuant to
Section 11(d) hereof) on the date of consummation of such consolidation,
merger, sale or transfer; (ii) such Principal Party shall thereafter be
liable for, and shall assume, by virtue of
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<PAGE>
such consolidation, merger, sale or transfer, or otherwise, all the
obligations and duties of the Company pursuant to this Agreement; (iii) the
term "Company" shall thereafter be deemed to refer to such Principal Party;
and (iv) such Principal Party shall take such steps (including, but not
limited to, the reservation of a sufficient number of its Common Shares in
accordance with Section 9 hereof) in connection with such consummation as
may be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common
Shares thereafter deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean:
(i) In the case of any transaction described in (x) or
(y) of the first sentence of Section 13(a), the Person that is the
issuer of any securities into which Common Shares of the Company
are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the surviving entity
of such merger or consolidation (including the Company if
applicable); and
(ii) in the case of any transaction described in (z) of
the first sentence in Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions;
provided, however, that in any such case described in clauses (b)(i) and
(b)(ii): (1) if the Common Shares of such Person are not at such time and
have not been continuously over the preceding 12-month period registered
under Section 12 of the Exchange Act, and such Person is a direct or
indirect Subsidiary of another Person the Common Shares of which are and
have been so registered, "Principal Party" shall refer to such other
Person; (2) in case such Person is a Subsidiary, directly or indirectly, or
more than one Person, the Common Shares of two or more of which are and
have been so registered, "Principal Party" shall refer to whichever of such
Persons is the issuer of the Common Shares having the greatest aggregate
market value; and (3) in case such Person is owned, directly or indirectly,
by a joint venture formed by two or more Persons that are not owned,
directly or indirectly, by the same Person, the rules set forth in (1) and
(2) above shall apply to each of the chains of ownership having an interest
in such joint venture as if such party were a "Subsidiary" of both or all
of such joint venturers and the Principal Parties in each such chain shall
bear the obligations set forth in this Section 13 in the same ratio as
their direct or indirect interests in such Person bear to the total of such
interests.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have sufficient
Common Shares authorized to permit the full exercise of the Rights and
prior thereto the Company and such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement providing for the
terms set forth in paragraphs (a) and (b) of this Section 13 and further
providing that, as soon
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<PAGE>
as practicable after the date of any consolidation, merger or sale of
assets mentioned in paragraph (a) of this Section 13, the Principal Party
will:
(i) prepare and file a registration statement under the
Securities Act, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form,
and will use its best efforts to cause such registration statement
to (A) become effective as soon as practicable after such filing
and (B) remain effective (with a prospectus at all times meeting
the requirements of the Securities Act) until the Expiration Date;
(ii) deliver to holders of the Rights historical
financial statements for the Principal Party and each of its
Affiliates which comply in all respects with the requirements for
registration on Form 10 under the Exchange Act; and
(iii) take such actions, if any, as may be necessary or
appropriate under the blue sky laws of the various states.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. In the event that
one of the transactions described in Section 13(a) shall occur at any time
after the occurrence of a transaction described in Section 11(a)(ii)
hereof, the Rights which have not theretofore been exercised shall
thereafter become exercisable in the manner described in Section 13(a).
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of Rights
or to distribute Right Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there may be paid to the registered holders
of the Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
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 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
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<PAGE>
Rights selected by the Board of Directors of the Company. 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 Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other
than fractions which are integral multiples of one one-thousandth of a
Preferred Share). Fractions of Preferred Shares in integral multiples of
one one-thousandth of a Preferred Share may, at the election of the
Company, be evidenced by depositary receipts, pursuant to an appropriate
agreement between the Company and a depositary selected by it; provided,
that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which
they are entitled as beneficial owners of the Preferred Shares represented
by such depositary receipts. In lieu of fractional Preferred Shares that
are not integral multiples of one one-thousandth of a Preferred Share, the
Company may pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the
same fraction of the current market value of one one-thousandth of a
Preferred Share. For the purposes of this Section 14(b), the current market
value of one one-thousandth of a Preferred Share shall be one
one-thousandth of the closing price of a Preferred Share (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.
(c) Following the occurrence of a Triggering Event, the Company
shall not be required to issue fractions of Common Shares upon exercise of
the Rights or to distribute certificates which evidence fractional Common
Shares. In lieu of fractional Common Shares, the Company may pay to the
registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction
of the current market value of one Common Share. For purposes of this
Section 14(c), the current market value of one Common Share shall be the
closing price of one Common Share (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.
(d) 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 Right Certificates (and,
prior to the Distribution Date, the registered holders of the Common
Shares); and any registered holder of any Right Certifi cate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in his own behalf and
for his own benefit, enforce, and
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<PAGE>
may institute and maintain any suit, action or proceeding against the
Company to enforce, or otherwise act in respect of, his right to exercise
the Rights evidenced by such Right Certificate in the manner provided in
such Right Certificate and in this 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.
--------------------------
Every holder of a Right, by accepting the same, consents and agrees
with the Company and the Rights Agent and with every other holder of a Right
that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of 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 office of the Rights Agent designated for such purposes, duly
endorsed or accompanied by a proper instrument of transfer and with
appropriate forms and certificates fully executed;
(c) the Company and the Rights Agent may deem and treat the person
in whose name the Right Certificate (or, prior to the Distribution Date,
the associated Common 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 Company
or the Rights Agent) for all purposes whatsoever, and neither the Company
nor the Rights Agent shall be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any
holder of a Right or any 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 such obligation.
Section 17. Right Certificate Holder Not Deemed a Stockholder.
-------------------------------------------------
No holder, as such, of any Right Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or any other securities of the Company which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Right Certificate be construed to
confer upon the holder of any Right Certificate, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting
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<PAGE>
thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except
as provided in Section 25 hereof), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by such Right
Certificate shall have been exercised in accordance with the provisions
hereof.
Section 18. Concerning the Rights Agent.
---------------------------
The Company agrees to pay to the Rights Agent reasonable compensation
for all services rendered by it hereunder and, from time to time, on
demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements (including any taxes other than income taxes) incurred
in the administration and execution of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify
the Rights Agent for, and to hold it harmless against, any loss, liability,
or expense, incurred without negligence, bad faith or willful misconduct on
the part of the Rights Agent, for anything done or omitted by the Rights
Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim
of liability arising, directly or indirectly, therefrom.
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 Company, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice,
direction, consent, certificate, statement or other paper or document
believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged by the proper person or persons, or
otherwise upon the advice of counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights
---------------------------------------------------
Agent.
- -----
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 hereof. In case 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 in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent
may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and
in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
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<PAGE>
In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall
not have been countersigned, the Rights Agent may countersign such Right
Certificates either in its prior name or in its changed name; 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
Company and the holders of Right Certificates, by their acceptance thereof,
shall be bound:
(a) The Rights Agent may consult with legal counsel satisfactory
to it (who may be legal counsel for the Company), and the opinion of such
counsel shall be full and complete authorization and protection to the
Rights Agent, and the Rights Agent shall incur no liability or
responsibility to the Company or to any holder of any Right Certificate in
respect of 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 Company prior to taking or suffering
or omitting 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, any Vice Chairman,
the President, any Vice President, the Treasurer or the Secretary of the
Company and delivered to the Rights Agent; and such certificate shall be
full authorization to the Rights Agent for any action taken, suffered or
omitted 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 Company only
for, and shall indemnify and hold harmless the Company from and against,
any and all losses, liabilities, costs, damages and expenses (including
attorneys' fees) arising out of or in connection with the Rights Agent's
negligence, bad faith or willful misconduct.
(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 Company 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 execution hereof by the Rights Agent) or in respect
of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by
the Company of any
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<PAGE>
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(e) hereof) or 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, 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 a certificate
furnished pursuant to Section 12 describing a 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 Preferred Shares or
Common Shares to be issued pursuant to this Agreement or any Right
Certificate or as to whether any Preferred Shares or Common Shares will,
when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered
all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or
performing by the Rights Agent of the provisions of this 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, any Vice
Chairman, the President, any Vice President, the Secretary or the Treasurer
of the Company, 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.
Any application by the Rights Agent for written instructions from the
Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this
Agreement and the date on and/or after which such action shall be taken or
such omission shall be effective. The Rights Agent shall not be liable for
any action taken by, or omission of, the Rights Agent in accordance with a
proposal included in any such application on or after the date specified in
such application (which date shall not be less than five Business Days
after the date such application is given, unless any such officer shall
have consented in writing to an earlier date) unless, prior to taking any
such action (or the effective date in the case of an omission), the Rights
Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or its Subsidiaries or become pecuniarily
interested in any transaction in which the Company or its Subsidiaries may
be interested, or contract with or lend money to the Company or its
Subsidiaries 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 Company or its Subsidiaries
or for any other legal entity.
-27-
<PAGE>
(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 Company 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 Rights Certificate surrendered to the
Rights Agent for exercise, transfer, split up, combination or exchange, 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 to clause 1 and/or 2 thereof, the Rights Agent shall
not take any further action with respect to such requested exercise,
transfer, split up, combination or exchange without first consulting with
the Company.
(k) The Rights Agent shall not be under any duty or responsibility
to ensure compliance with any applicable federal or state securities laws
in connection with the issuance, transfer or exchange of Right
Certificates.
(l) The Rights Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to
involve expense unless the Company or one or more holders of Right
Certificates shall furnish the Rights Agent with security and indemnity to
its satisfaction for any costs and expenses which may be incurred.
(m) The Rights Agent shall not be liable for failure to perform
any duties except as specifically set forth herein, and no implied
covenants or obligations shall be read into this Agreement against the
Rights Agent whose duties and obligations are ministerial and shall be
determined solely by the express provisions hereof.
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 Company and to each transfer agent of the Common
Shares or Preferred Shares by registered or certified mail, and to the
holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor 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 or Preferred
Shares by registered or certified mail, and to the holders of the Right
Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company 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 (who shall, with such notice, submit his Right
Certificate for inspection by the Company), 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 Company or
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<PAGE>
by such a court, shall be a corporation or bank organized and doing
business under the laws of the United States or of any other state of the
United States, which is authorized under such laws to exercise corporate
trust or stock transfer powers and is subject to supervision or examination
by federal or state authority and which has at the time of its appointment
as Rights Agent a combined capital and surplus of at least $100 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 Company shall
file notice thereof in writing with the predecessor Rights Agent and each
transfer agent of the Common Shares or Preferred Shares, and 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 Company may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by its
Board of Directors to reflect any adjustment or change in the Purchase
Price and the number or kind or class of shares or other securities or
property purchasable under the Right Certificates made in accordance with
the provisions of this Agreement.
Section 23. Redemption.
----------
(a) The Board of Directors of the Company 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. If
redemption of the Rights is to be effective as of a future date, the Rights
shall continue to be exercisable, subject to Section 7 hereof, until the
effective date of the redemption, provided that nothing contained herein
shall preclude the Board of Directors from subsequently causing the Rights
to be redeemed at a date earlier than the previously scheduled effective
date of the redemption. The Company may, at its option, pay the Redemption
Price in cash, Common Shares (based on the current per share market price
of the Common Shares at the time of redemption) or any other form of
consideration deemed appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights (or at the effective time of
such redemption established
-29-
<PAGE>
by the Board of Directors of the Company pursuant to paragraph (a) of this
Section 23), and without any further action and without any notice,
the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company 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 or,
if later, the effectiveness of the redemption of the Rights pursuant to
paragraph (a) of this Section 23, the Company 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. The Company may, at its
option, discharge all of its obligations with respect to the Rights by (i)
issuing a press release announcing the manner of redemption of the Rights,
(ii) depositing with a bank or trust company having a capital and surplus
of at least $100,000,000, funds necessary for such redemption, in trust, to
be applied to the redemption of the Rights so called for redemption and
(iii) arranging for the mailing of the Redemption Price to the registered
holders of the Rights; then, and upon such action, all outstanding Rights
Certificates shall be null and void without further action by the Company.
Neither the Company 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, in Section 24 hereof,
or in connection with the purchase of Common Shares prior to the
Distribution Date.
Section 24. Exchange.
--------
(a) The Board of Directors of the Company may, at its option, at
any time after a Triggering Event, 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(e) 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 Company, any
Subsidiary of the Company, any employee benefit plan of the Company 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
Company ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24 and without any further action and without any notice, the
right to exercise such Rights shall terminate and the only right thereafter
of a holder of such Rights shall be to receive that number of
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<PAGE>
Common Shares equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public
notice of any such exchange; provided, however, that the failure to give,
or any defect in, such notice shall not affect the validity of such
exchange. The Company promptly shall mail a notice of any such exchange to
all of the holders of such Rights at their last addresses as they appear
upon the registry books of the Rights Agent. 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(e) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at
its option, may substitute 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-thousandth 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.
(d) In the event that there shall not be sufficient Common Shares
or Preferred Shares issued but not outstanding or authorized but unissued
to permit any exchange of Rights as contemplated in accordance with this
Section 24, the Company shall take all such action as may be necessary to
authorize additional Common Shares or Preferred Shares for issuance upon
exchange of the Rights.
(e) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, the Company shall pay to
the registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash
equal to the same fraction of the current market value of a whole Common
Share. For the purposes of this paragraph (e), the current market value of
a whole Common Share shall be the closing price of a Common Share (as
determined pursuant to the second sentence of Section 11(d)(i) hereof) for
the Trading Day immediately prior to the date of exchange pursuant to this
Section 24.
Section 25. Notice of Certain Events.
------------------------
(a) In case the Company shall propose at any time after the
Distribution Date (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 a regular quarterly cash
dividend), (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
-31-
<PAGE>
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 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 Company and its Subsidiaries (taken as a
whole) to, any other Person, (v) to effect the liquidation, dissolution or
winding up of the Company, 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 Company 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, 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) In case any of the events set forth in Section 11(a)(ii)
hereof shall occur, then the Company 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 under Section 11(a)(ii) hereof.
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
Company shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Pacific Gateway Exchange, Inc.
533 Airport Boulevard
Suite 505
Burlingame, California 94010
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the
holder of any Right Certificate to or on the Rights Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) as
follows:
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<PAGE>
Norwest Bank Minnesota, N.A.
161 North Concord Exchange
South St. Paul, Minnesota 55075
Attention: Theodore Garrity
Notices or demands authorized by this Agreement to be given or made by the
Company 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 Company. Notices or demands sent by mail shall be
deemed given or made three Business Days after the date they are sent.
Section 27. Supplements and Amendments.
--------------------------
The Company may from time to time supplement or amend this Agreement
in any respect whatsoever without the approval of any holders of Right
Certificates, any such supplement or amendment to be evidenced by a writing
signed by the Company and the Rights Agent; provided, however, that from
and after such time as any Person becomes an Acquiring Person, this
Agreement shall not be amended in any manner which would adversely affect
the interests of the holders of Rights.
Section 28. Successors.
----------
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Rights Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
Section 29. Benefits of This Agreement.
--------------------------
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares) any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares).
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.
Section 31. Governing Law.
-------------
This Agreement and each Right Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Delaware and
for all purposes shall be governed by and construed in accordance with the
laws of such State applicable to contracts to be made and performed
entirely within such State.
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, and all such counterparts shall together constitute but one and
the same instrument.
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<PAGE>
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 construction of any of the provisions hereof.
Section 34. Determinations and Actions by the Board of Directors.
----------------------------------------------------
The Board of Directors of the Company shall have the exclusive power
and authority to administer this Agreement and to exercise all rights and
powers specifically granted to the Board or the Company or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of
this Agreement and (ii) make all determinations deemed necessary or
advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights or to amend the
Agreement). All such actions, interpretations and determinations
(including, for purpose of clause (y) below, all omissions with respect to
the foregoing) which are done or made by the Board in good faith, shall (x)
be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Right Certificates and all other parties and (y) not subject
the Board of Directors to any liability to the holders of the Right
Certificates.
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<PAGE>
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.
Attest: PACIFIC GATEWAY EXCHANGE, INC.
By: /s/ Gail Granton By: /s/ Howard A. Neckowitz
----------------------------- ---------------------------
Title: Corporate Secretary Title: Chairman, President and
Chief Executive Officer
Attest: NORWEST BANK MINNESOTA, N.A.
By: /s/ Barb Novak By: /s/ Ted Garrity
--------------------------------- ----------------------------
Title: Assistant Secretary Title: Officer, Norwest Bank
Norwest Bank Minnesota, N.A. Minnesota N.A.
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<PAGE>
Exhibit A
---------
FORM OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF
PACIFIC GATEWAY EXCHANGE, INC.
Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
The undersigned duly authorized officers of Pacific Gateway
Exchange, Inc., a Delaware corporation (the "Corporation"), in accordance
with the provisions of Section 151 of the General Corporation Law of the
State of Delaware, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Amended and Restated Certificate of Incorporation of the
Corporation, as amended, the Board of Directors on November 17, 1997, at a
meeting duly called and held, adopted the following resolution creating a
series of 50,000 shares of Preferred Stock, par value $0.0001 per share,
designated as Series A Junior Participating Preferred Stock:
RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors by the Amended and Restated Certificate of
Incorporation, as amended, of the Corporation, the Board of Directors
hereby creates a series of preferred stock, par value $0.0001 per share, of
the Corporation (such preferred stock being herein referred to as
"Preferred Stock," which term shall include any additional shares of
preferred stock of the same class heretofore or hereafter authorized to be
issued by the Corporation), consisting of 50,000 shares, and hereby fixes
the designation and the voting powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, as follows:
Section 1. Designation and Amount.
----------------------
There shall be a series of Preferred Stock of the Corporation which
shall be designated as "Series A Junior Participating Preferred Stock," par
value $0.0001 per share, (hereinafter called "Series A Preferred Stock"),
and the number of shares constituting such series shall be 50,000. Such
number of shares may be increased or decreased by resolution of the Board
of Directors and by the filing of a certificate pursuant to the provisions
of the General Corporation Law of the State of Delaware stating that such
increase or reduction has been so authorized; provided, however, that no
decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than that of the shares then outstanding plus the number of
shares of Series A Preferred Stock issuable upon exercise of outstanding
rights, options or warrants or upon conversion of outstanding securities
issued by the Corporation.
<PAGE>
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Preferred Stock with respect to dividends, the holders
of shares of Series A Preferred 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 to holders of record
on the last business 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) $10.00 or (b) subject to the provision for adjustment
hereinafter set forth, 1,000 times the aggregate per share amount of all
cash dividends, and 1,000 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 (hereinafter defined) or a
subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the common stock, par value $0.0001 per share,
of the Corporation (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 following December 1, 1997 (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock or (iii) combine the outstanding Common Stock into a smaller
number of shares, 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 each 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 paragraph (A) above at the time
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock).
(C) No dividend or distribution (other than a dividend payable in
shares of Common Stock) shall be paid or payable to the holders of shares
of Common Stock unless, prior thereto, all accrued but unpaid dividends to
the date of such dividend or distribution shall have been paid to the
holders of shares of Series A Preferred Stock.
(D) 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 of Series A
Preferred Stock, 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
<PAGE>
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 no more than 30 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 one one-thousandth of a share of Series A Preferred Stock shall
entitle the holder thereof to one vote on all matters submitted to a vote
of the shareholders of the Corporation. In the event the Corporation shall
at any time following December 1, 1997 (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock or (iii) combine the outstanding Common Stock into a smaller
number of shares, 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 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 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) (i) Whenever, at any time or times, dividends payable on any
share or shares of Series A Preferred Stock shall be in arrears in
an amount equal to at least six full quarterly dividends (whether
or not declared and whether or not consecutive), the holders of
record of the outstanding Preferred Stock shall have the exclusive
right, voting separately as a single class, to elect two directors
of the Corporation at a special meeting of shareholders of the
Corporation or at the Corporation's next annual meeting of
shareholders, and at each subsequent annual meeting of
shareholders, as provided below. At elections for such directors,
the holders of shares of Series A Preferred Stock shall be
entitled to cast one vote for each one one-thousandth of a share
of Series A Preferred Stock held.
<PAGE>
(ii) Upon the vesting of such right of the holders of the
Preferred Stock, the maximum authorized number of members of the
Board of Directors shall automatically be increased by two and the
two vacancies so created shall be filled by vote of the holders of
the outstanding Preferred Stock as hereinafter set forth. A
special meeting of the shareholders of the Corporation then
entitled to vote shall be called by the Chairman or the President
or the Secretary of the Corporation, if requested in writing by
the holders of record of not less than 10% of the Preferred Stock
then outstanding. At such special meeting, or, if no such special
meeting shall have been called, then at the next annual meeting of
shareholders of the Corporation, the holders of the shares of the
Preferred Stock shall elect, voting as above provided, two
directors of the Corporation to fill the aforesaid vacancies
created by the automatic increase in the number of members of the
Board of Directors. At any and all such meetings for such
election, the holders of a majority of the outstanding shares of
the Preferred Stock shall be necessary to constitute a quorum for
such election, whether present in person or by proxy, and such two
directors shall be elected by the vote of at least a plurality of
shares held by such shareholders present or represented at the
meeting. Any director elected by holders of shares of the
Preferred Stock pursuant to this Section may be removed at any
annual or special meeting, by vote of a majority of the
shareholders voting as a class who elected such director, with or
without cause. In case any vacancy shall occur among the directors
elected by the holders of the Preferred Stock pursuant to this
Section, such vacancy may be filled by the remaining director so
elected, or his successor then in office, and the director so
elected to fill such vacancy shall serve until the next meeting of
shareholders for the election of directors. After the holders of
the Preferred Stock shall have exercised their right to elect
Directors in any default period and during the continuance of such
period, the number of Directors shall not be further increased or
decreased except by vote of the holders of Preferred Stock as
herein provided or pursuant to the rights of any equity securities
ranking senior to or pari passu with the Series A Preferred Stock.
(iii) The right of the holders of the Preferred Stock,
voting separately as a class, to elect two members of the Board of
Directors of the Corporation as aforesaid shall continue until,
and only until, such time as all arrears in dividends (whether or
not declared) on the Preferred Stock shall have been paid or
declared and set apart for payment, at which time such right shall
terminate, except as herein or by law expressly provided, subject
to revesting in the event of each and every subsequent default of
the character above-mentioned. Upon any termination of the right
of the holders of the shares of the Preferred Stock as a class to
vote for directors as herein provided, the term of office of all
directors then in office elected by the holders of Preferred Stock
pursuant to this Section shall terminate immediately. Whenever the
term of office of the directors elected by the holders of the
Preferred Stock pursuant to this Section shall terminate and the
special voting powers vested in the holders of the Preferred Stock
pursuant to this Section shall have expired, the maximum number of
members of the Board of Directors of the Corporation shall be such
number as may be provided for in the By-laws of the Corporation or
in a resolution of the Board of Directors
<PAGE>
adopted pursuant thereto, irrespective of any increase made
pursuant to the provisions of this Section.
(D) Except as set forth herein, 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 on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration 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 on 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 on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, provided that the Corporation may at
any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred
Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of 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.
<PAGE>
(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 paragraph
(A) of this Section, 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
canceled 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 a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any voluntary liquidation, dissolution or winding up of
the Corporation, no distribution shall be made 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 $10.00 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date
of such payment (the "Series A Liquidation Preference"). Following the
payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Preferred Stock unless, prior thereto, the holders of shares of Common
Stock shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 1,000 (as appropriately adjusted as set forth in
subparagraph C below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of
the full amount of the Series A Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Series A Preferred Stock
and Common Stock, respectively, holders of Series A Preferred Stock and
holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio,
on a per share basis, of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference
and the liquidation preferences of all other series of Preferred Stock, if
any, which rank on a parity with the Series A Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences.
(C) In the event the Corporation shall at any time following
December 1, 1997 (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller
<PAGE>
number of shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
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 the shares of Series A Preferred
Stock shall at the same time be similarly exchanged or changed in an amount
per share (subject to the provision for adjustment hereinafter set forth)
equal to 1,000 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 (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock or (iii) combine the outstanding Common Stock into a smaller number
of shares, 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 such amount by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. Redemption.
----------
The shares of a Series A Preferred Stock shall not be redeemable by
the Corporation. The preceding sentence shall not limit the ability of the
Corporation to purchase or otherwise deal in such shares of stock to the
extent permitted by law.
Section 9. Ranking.
-------
The Series A Preferred Stock shall rank junior to all other series
of the Corporation's preferred stock (whether with or without par value) as
to the payment of dividends and the distribution of assets, unless the
terms of any such series shall provide otherwise.
Section 10. Amendment.
---------
The Amended and Restated Certificate of Incorporation of the
Corporation, as amended as of this date, 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 the holders of a majority or more of the
outstanding shares of Series A Preferred Stock, voting separately as a
class.
Section 11. Fractional Shares.
-----------------
Series A Preferred Stock may be issued in fractions of a share which
shall entitle the holder, in proportion to such holder's fractional shares,
to exercise voting rights, receive dividends, participate in distributions
and to have the benefit of all other rights of holders of Series A
Preferred Stock.
<PAGE>
The Amended and Restated Certificate of Incorporation is to be
further amended so that the designation and number of shares of the class
and series acted upon in the forgoing resolution, and the relative rights,
preferences and limitations of such class and series, are as stated in the
resolution.
IN WITNESS WHEREOF, Pacific Gateway Exchange, Inc. has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by
Howard A. Neckowitz, its Chairman, President and Chief Executive Officer,
and the same to be attested by Gail E. Granton, its Corporate Secretary,
this 17th day of November, 1997.
PACIFIC GATEWAY EXCHANGE, INC.
By: /s/ Howard A. Neckowitz
------------------------
Name: Howard A. Neckowitz
Title: Chairman, President and Chief
Executive Officer
(SEAL)
Attest:
By: /s/ Gail Granton
---------------------------------
Name: Gail E. Granton
Title: Corporate Secretary
<PAGE>
Exhibit B
---------
[Form of Right Certificate]
Certificate No. R- -------------- Rights
NOT EXERCISABLE AFTER DECEMBER 1, 2007, OR EARLIER IF THE RIGHTS
EXPIRE UNDER CERTAIN CIRCUMSTANCES OR ARE REDEEMED BY THE COMPANY.
THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED
BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS
AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME
NULL AND VOID. [THE RIGHTS REPRE SENTED BY THIS CERTIFICATE ARE OR
WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS
RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME
VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH
AGREEMENT.]*/
Right Certificate
Pacific Gateway Exchange, 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 November 17, 1997 (the
"Rights Agreement"), between Pacific Gateway Exchange, Inc., a Delaware
corporation (the "Company"), and Norwest Bank Minnesota, N.A., a national
banking association formed under the laws of the United States (the "Rights
Agent"), to purchase from the Company at any time after the Distribution
Date (as such term is defined in the Rights Agreement) and prior to 5:00
p.m. (San Francisco time) on December 1, 2007, or notice of redemption or
exchange at the office of the Rights Agent (or its successors as Rights
Agent) designated for such purpose, one one-thousandth of a fully paid
non-assessable share of Series A Junior Participating Preferred Stock, par
value $0.0001 per share, (the "Preferred
- -------------
*/ The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
<PAGE>
Shares") of the Company at a purchase price of $200 per one one-thousandth
of a share (the "Purchase Price") upon presentation and surrender of this
Right Certificate with the appropriate Form of Election to Purchase and
related Certificate duly executed. The number of Rights evidenced by this
Right Certificate (and the number of shares which may be purchased upon
exercise thereof) set forth above, and the Purchase Price per share set
forth above, are the number and Purchase Price as of December 1, 1997,
based on the Preferred Shares as constituted at such date. Capitalized
terms not defined in this Right Certificate that are defined in the Rights
Agreement shall have the meanings ascribed to them in the Rights Agreement.
Upon the occurrence of a Triggering Event, if the Rights evidenced
by this Right Certificate are beneficially owned by (i) an Acquiring Person
or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined in the Rights Agreement), (ii) under certain circumstances
specified in the Rights Agreement, a transferee of any such Acquiring
Person, Associate or Affiliate, or (iii) under certain circumstances
specified in the Rights Agreement, a transferee of a person who, after such
transfer, became an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, such Rights shall become null and void and no holder
hereof shall have any right with respect to such Rights from and after the
occurrence of any such Triggering Event.
As provided in the Rights Agreement, the Purchase Price and the
number and kind of Preferred Shares or other securities, which may be
purchased upon the exercise of the Rights evidenced by this Right
Certificate are subject to modification and adjustment upon the happening
of certain events.
This Right Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part
hereof and to which Rights Agreement reference is hereby made for a full
description of the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Company and the holders of
the Right Certificates, which limitations of rights include the temporary
suspension of the exercisability of such Rights under certain circumstances
specified in such Rights Agreement. Copies of the Rights Agreement are
available upon written request to the Rights Agent.
This Right Certificate, with or without other Right Certificates,
upon surrender at the principal corporate trust office of the Rights Agent,
may be exchanged for another Right Certificate or other 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.
<PAGE>
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option
at a redemption price of $.01 per Right at any time prior to the earlier of
the close of business on (i) the Shares Acquisition Date and (ii) the Final
Expiration Date.
No fractional Preferred Shares will be issued upon the exercise of
any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-thousandth of a Preferred Share, which may at
the election of the Company be evidenced by depository receipts), but in
lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Right Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of
Preferred Shares or of any other securities of the Company which may at any
time be issuable on the exercise hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder
hereof, as such, any of the rights of a shareholder of the Company 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 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.
<PAGE>
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of -------------------- --,---
ATTEST: (SEAL) PACIFIC GATEWAY EXCHANGE, INC.
- ---------------------------- By:------------------------------
Name: Name:
Title: Title:
Countersigned:
NORWEST BANK MINNESOTA, N.A.
By:----------------------------------
Authorized Signature
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the Right Certificate.)
FOR VALUE RECEIVED____________________________________________________________
hereby sells, assigns and transfers unto______________________________________
______________________________________________________________________________
Please print name and address of transferee)
this Right Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint ___________
Attorney, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Date: ________________ __, ____
____________________________
Signature
Signature Guaranteed:
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Right Certificate [ ] is [ ] is not being sold, assigned
and transferred by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such
Acquiring Person (as such terms are defined pursuant to the Rights
Agreement)
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced
by this Right Certificate from any Person who is, was or
subsequently became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Date: ________________ __, ____
____________________________
Signature
<PAGE>
NOTICE
------
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate
in every particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to exercise Rights represented by the Right
Certificate.)
To: PACIFIC GATEWAY EXCHANGE, INC.
The undersigned hereby irrevocably elects to exercise ________ Rights
represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of
the Rights) and requests that certificates for such 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 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)
Date: ________________ __, ____
____________________________
Signature
Signature Guaranteed:
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate [ ] are [ ]
are not being exercised by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Acquiring
Person (as such terms are defined pursuant to the Rights Agreement);
<PAGE>
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Right
Certificate from any Person who is, was or became an Acquiring Person
or an Affiliate or Associate of an Acquiring Person.
Date: ________________ __, ____
____________________________
Signature
NOTICE
------
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any
change whatsoever.
<PAGE>
Exhibit C
---------
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON
(AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL
BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE
SUMMARY OF RIGHTS PLAN
-----------------------
On November 17, 1997, the Board of Directors of Pacific Gateway
Exchange, Inc. (the "Company") declared a dividend distribution of one
Right for each outstanding share of common stock, par value $0.0001 per
share (the "Common Stock"), of the Company to shareholders of record at the
close of business on December 1, 1997 (the "Record Date"). Except as
described below, each Right, when exercisable, entitles the registered
holder to purchase from the Company one one-thousandth of a share of Series
A Junior Participating Preferred Stock, par value $0.0001 per share (the
"Preferred Stock"), at a price of $200 per one one-thousandth of a 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 Company and Norwest Bank Minnesota, N.A., as Rights Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Right
certificates will be distributed. 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, or obtained the
right to acquire, beneficial ownership of 15% or more of the outstanding
shares of Common Stock (subject to certain limited exceptions specified in
the Rights Agreement) (the "Shares Acquisition Date") or (ii) 15 Business
Days (or such later date as may be determined by action of the Board of
Directors of the Company (the "Board of Directors") prior to the time that
any person becomes an Acquiring Person) following the commencement of (or a
public announcement of an intention to make) a tender or exchange offer if,
upon consummation thereof, such person or group would be the beneficial
owner of 15% or more of such outstanding shares of Common Stock (or in the
case of one particular existing stockholder, more than 20% of the Common
Stock) (the earlier of such dates being called the "Distribution Date"),
the Rights will be evidenced by the Common Stock certificates, together
with a copy of the Summary of Rights Plan and not by separate certificates.
The Rights Agreement also provides that, until the Distribution
Date, the Rights will be transferred with and only with the Common Stock.
Until the Distribution Date (or earlier redemption, expiration or
termination of the Rights), the transfer of any certificates for
<PAGE>
Common Stock, with or without a copy of this Summary of Rights Plan, will
also constitute the transfer of the Rights associated with the Common Stock
represented by such certificates. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Stock as
of the close of business on the Distribution Date and, thereafter, such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and
will expire at the earliest of (i) December 1, 2007 (the "Final Expiration
Date"), (ii) the redemption of the Rights by the Company as described below
and (iii) the exchange of all Rights for Common Stock as described below.
Subject to certain limited exceptions specified in the Rights
Agreement, in the event that any person (other than the Company, its
affiliates or any person receiving newly-issued shares of Common Stock
directly from the Company) becomes the beneficial owner of 15% or more of
the then outstanding shares of Common Stock, each holder of a Right will
thereafter have the right to receive, upon exercise at the then current
exercise price of the Right, Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a value equal to
two times the exercise price of the Right. The Rights Agreement contains an
exemption for any issuance of Common Stock by the Company directly to any
person (for example, in a private placement or an acquisition by the
Company in which Common Stock is used as consideration), even if that
person would become the beneficial owner of 15% or more of the Common Stock
(or in the case of one particular existing stockholder, more than 20% of
the Common Stock), provided that such person does not acquire any
additional shares of Common Stock.
In the event that, at any time following the Shares Acquisition
Date, the Company is acquired in a merger or other business combination
transaction or 50% or more of the Company's assets or earning power are
sold, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon exercise at the then-current
exercise price of the Right, common stock of the acquiring or surviving
company having a value equal to two times the exercise price of the Right.
Notwithstanding the foregoing, following the occurrence of any of
the events set forth in the preceding two paragraphs (the "Triggering
Events"), any Rights that are, or (under certain circumstances specified in
the Rights Agreement) were, beneficially owned by any Acquiring Person will
immediately become null and void.
The Purchase Price payable, and the number of shares of Preferred
Stock or other securities or property issuable, upon exercise of the
Rights, and the number of Rights associated with a share of Common Stock,
are subject to adjustment from time to time to prevent dilution, among
other circumstances, in the event of a stock dividend on, or a subdivision,
split, combination, consolidation or reclassification of, the Preferred
Stock or the
<PAGE>
Common Stock, or a reverse split of the outstanding shares of Preferred
Stock or the Common Stock.
At any time after a Triggering Event and prior to the acquisition
by a person or group of affiliated or associated persons of 50% or more of
the outstanding Common Stock, the Board of Directors 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 share of Common
Stock 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 the Purchase Price. The Company will not be required to issue
fractional shares of Preferred Stock or Common Stock (other than fractions
in multiples of one one-thousandths of a share of Preferred Stock) and, in
lieu thereof, an adjustment in cash may be made based on the market price
of the Preferred Stock or Common Stock on the last trading date prior to
the date of exercise.
At any time after the date of the Rights Agreement until the time
that a person becomes an Acquiring Person, the Board of Directors may
redeem the Rights in whole, but not in part, at a price of $.01 per Right
(the "Redemption Price"), which may (at the option of the Company) be paid
in cash, shares of Common Stock or other consideration deemed appropriate
by the Board of Directors. Upon the effectiveness of any action of the
Board of Directors ordering redemption of the Rights, the Rights will
terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.
The provisions of the Rights Agreement may be amended by the
Company, except that any amendment adopted after the time that a person
becomes an Acquiring Person may not adversely affect the interests of
holders of Rights.
As of October 31, 1997, there were 18,830,590 shares of Common
Stock outstanding. Each outstanding share of Common Stock on the Record
Date will receive one Right. Fifty thousand (50,000) shares of Preferred
Stock will be reserved for issuance in the event of exercise of the Rights.
The Rights have certain anti-takeover effects. The Rights will
cause substantial dilution to a person or group that attempts to acquire
the Company without conditioning the offer on the Rights being redeemed or
a substantial number of Rights being acquired, and under certain
circumstances the Rights beneficially owned by such a person or group may
become void. The Rights should not interfere with any merger or other
business combination approved by the Board of Directors because, if the
Rights would become exercisable as a result of such merger or business
combination, the Board of Directors may, at its option, at
<PAGE>
any time prior to the time that any Person becomes an Acquiring Person,
redeem all (but not less than all) of the then outstanding Rights at the
Redemption Price.
A copy of the Rights Agreement is being filed with the Securities
and Exchange Commission as an exhibit to a Registration Statement on Form
8-A. This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement.
