<PAGE>
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
RHYTHMS NETCONNECTIONS INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
DELAWARE 000-25685 33-0747515
- -------------------------------------------------------------------------------
(State of incorporation (Commission File Number) (IRS Employer
or organization) Identification No.)
6933 SOUTH REVERE PARKWAY, ENGLEWOOD, COLORADO 80112
- -------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (303) 476-4200
----------------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
- -------------------------------------------------------------------------------
(Title of Class)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
PREFERRED STOCK PURCHASE RIGHTS
- -------------------------------------------------------------------------------
(Title of Class)
<PAGE>
Item 1. DESCRIPTION OF SECURITIES TO BE REGISTERED.
On March 27, 1999, the Board of Directors of Rhythms NetConnections Inc.
(the "Company") declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of Common Stock (the "Common Stock"), par
value $0.001 per share, of the Company and for each equivalent share of
Common Stock, on an as-converted basis, of the Preferred Stock par value
$0.001 per share, of the Company. The dividend is payable on April 6, 1999
(the "Record Date") to the stockholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one
one-thousandth of a share (a "Unit") of Series 1 Junior Participating
Preferred Stock, par value $0.001 per share (the "Series 1 Preferred Stock"),
of the Company at a price of $115 per Unit (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a
Rights Agreement dated as of April 2, 1999 (the "Rights Agreement") between
the Company and American Securities Transfer & Trust, Inc., as Rights Agent
(the "Rights Agent").
Until the earlier to occur of (i) the close of business on the first
date of a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") have acquired beneficial ownership
of 15% or more of the outstanding Common Stock or (ii) 10 business days (or
such later date as may be determined by action of the Board of Directors
prior to such time as any Person becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of such outstanding Common
Stock (the earlier of such dates being called the "Distribution Date"), the
Rights will be evidenced, with respect to any of the Common Stock
certificates outstanding as of the Record Date, by such Common Stock
certificate with a copy of this Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Stock certificates issued after the Record Date, upon transfer or new
issuance of Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption
or expiration of the Rights), the surrender for transfer of any certificates
for Common Stock, outstanding as of the Record Date, even without such
notation or a copy of this Summary of Rights being attached thereto, will
also constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to holders of record of the Common Stock as of
the Close of Business on the Distribution Date and such separate Rights
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire at the close of business on April 2, 2009 (the "Final Expiration
Date"), unless the Final Expiration Date is extended or unless the Rights are
earlier redeemed or exchanged by the Company, in each case as described below.
The Purchase Price payable, and the number of Units of Series 1
Preferred Stock or other securities or property issuable, upon exercise of
the Rights are subject to adjustment from time to time to prevent dilution
(i) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series 1 Preferred Stock, (ii) upon the grant to
holders of the Units of Series 1 Preferred Stock of certain rights or
warrants to subscribe for or purchase Units of Series 1 Preferred Stock at a
price, or securities convertible into Units of Series 1 Preferred Stock with
a conversion price, less than the then current market price of the Units of
Series 1 Preferred Stock or (iii) upon the distribution to holders of the
Units of Series 1 Preferred Stock of evidences of indebtedness or assets
(excluding regular periodic cash dividends paid out of earnings or retained
earnings or dividends payable in Units of Series 1 Preferred Stock) or of
subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of Units of Series 1
Preferred Stock issuable upon exercise of each Rights are also subject to
adjustment in the event of a stock split of the Common Stock or a stock
dividend on the Common Stock payable in Common Stock or subdivisions,
consolidations or combinations of the Common Stock occurring, in any such
case, prior to the Distribution Date.
Units of Series 1 Preferred Stock purchasable upon exercise of the
Rights will not be redeemable. Each Unit of Series 1 Preferred Stock will be
entitled to an aggregate dividend of 1,000 times the dividend declared per
share of Common Stock. In the event of liquidation, the holders of the Units
of Series 1 Preferred Stock will be
1.
<PAGE>
entitled to an aggregate payment of 1,000 times the payment made per share of
Common Stock. Each Unit of Series 1 Preferred Stock will have 1,000 votes,
voting together with the Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Common Stock are
exchanged, each Unit of Series 1 Preferred Stock will be entitled to receive
1,000 times the amount received per share of Common Stock. These rights are
protected by customary anti-dilution provisions.
Because of the nature of the dividend, liquidation and voting rights,
the value of the Series 1 Preferred Stock, the Units of Series 1 Preferred
Stock purchasable upon exercise of each Rights should approximate the value
of one share of Common Stock.
In the event that, after the Rights become exercisable, the Company is
acquired in a merger or other business combination transaction with an
Acquiring Person or an affiliate thereof, or 50% or more of its consolidated
assets or earning power are sold to an Acquiring Person or an affiliate
thereof, proper provision will be made so that each holder of a Rights will
thereafter have the right to receive, upon exercise thereof at the then
current exercise price of the Rights, that number of shares of common stock
of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Rights.
In the event that any person or group of affiliated or associated
persons becomes the beneficial owner of 15% or more of the outstanding shares
of Common Stock, proper provision shall be made so that each holder of a
Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise that number of shares of Common Stock or Units of Series 1 Preferred
Stock (or cash, other securities or property) having a market value of two
times the exercise price of the Rights.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
shares of Common Stock, on an as-converted basis, and prior to the
acquisition by such person or group of 50% or more of the outstanding Common
Stock, on an as-converted basis, on an as-converted basis, the Board of
Directors of the Company 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 Unit of Series 1 Preferred Stock (subject to
adjustment) which shall equal, subject to adjustment to reflect stock splits,
stock dividends and similar transactions occurring after the date hereof,
that number obtained by dividing the Purchase Price by the then current per
share market price per Unit of Series 1 Preferred Stock on the earlier of (i)
the date on which any Person becomes an Acquiring Person and (ii) the date on
which a tender or exchange offer is announced by any Person, if upon
consummation thereof such Person would be the Beneficial Owner of 15% or more
of the shares of Company Common Stock then outstanding.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Series 1 Preferred Stock will
be issued (other than fractions which are integral multiples of one
one-thousandth of a share of Series 1 Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts) and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Units of Series 1 Preferred Stock on the last trading day prior to the date
of exercise.
At any time on or prior to the close of business on the first date of a
public announcement that a person or group of affiliated or associated
persons acquire beneficial ownership of 15% or more of the outstanding Common
Stock (unless the Board of Directors extends such ten-day period), the Board
of Directors of the Company may redeem the Rights in whole, but not in part,
at a price of $0.001 per Right (the "Redemption Price). The redemption of
the rights may be made effective at such time on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the
Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price. The Rights are also redeemable under other
circumstances as specified in the Rights Agreement.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights except that from and
after a Distribution Date no such amendment may adversely affect the
interests of the holders of the Rights.
2.
<PAGE>
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 Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the
Company on terms not approved by the Company's Board of Directors, except
pursuant to an offer conditioned on a substantial number of Rights being
acquired. The Rights should not interfere with any merger or other business
combination approved by the Board of Directors since the Rights may be
redeemed by the Company at the Redemption Price prior to the occurrence of a
Distribution Date.
The Rights Agreement, dated as of April 2, 1999, between the Company and
the Rights Agent, specifying the terms of the Rights, is attached hereto as
an exhibit and is incorporated herein by reference. The foregoing
description of the Rights is qualified in its entirety by reference to such
exhibit.
Item 2. EXHIBITS.
1. Rights Agreement, dated as of April 2, 1999, between the Company and
American Securities Transfer & Trust, Inc., which includes the form of
Certificate of Designation for the Series 1 Junior Participating Preferred
Stock as Exhibit A, the form of Rights Certificate as Exhibit B and the
Summary of Rights to Purchase Series 1 Preferred Stock as Exhibit C.
Pursuant to the Rights Agreement, printed Right Certificates will not be
mailed until as soon as practicable after the earlier of (i) the close of
business on the first date of a public announcement that a person or group
has acquired beneficial ownership of 15% or more of the shares of Common
Stock or (ii) the tenth (10th) business day (or such later date as may be
determined by action of the Board of Directors) after a person commences,
or announces its intention to commence, a tender offer or exchange offer
the consummation of which would result in the beneficial ownership by a
person or group of 15% or more of the shares of Common Stock.
3.
<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.
RHYTHMS NETCONNECTIONS INC.
DATE: April 8, 1999 By: /s/ CATHERINE M. HAPKA
---------------------------------------
Name: Catherine M. Hapka
Title: President and CEO
4.
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
1. Rights Agreement, dated as of April 2, 1999, between the Company and
American Securities Transfer & Trust, Inc., which includes the form of
Certificate of Designation for the Series 1 Junior Participating Preferred
Stock as Exhibit A, the form of Rights Certificate as Exhibit B and the
Summary of Rights to Purchase Series 1 Preferred Stock as Exhibit C.
Pursuant to the Rights Agreement, printed Right Certificates will not be
mailed until as soon as practicable after the earlier of (i) the close of
business on the first date of a public announcement that a person or group
has acquired beneficial ownership of 15% or more of the shares of Common
Stock or (ii) the tenth (10th) business day (or such later date as may be
determined by action of the Board of Directors) after a person commences,
or announces its intention to commence, a tender offer or exchange offer
the consummation of which would result in the beneficial ownership by a
person or group of 15% or more of the shares of Common Stock.
<PAGE>
RHYTHMS NETCONNECTIONS INC.
AND
AMERICAN SECURITIES TRANSFER & TRUST, INC.
(RIGHTS AGENT)
RIGHTS AGREEMENT
DATED AS OF APRIL 2, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Appointment of Rights Agent. . . . . . . . . . . . . . . . . . . 5
Section 3. Issue of Rights Certificates.. . . . . . . . . . . . . . . . . . 5
Section 4. Form of Rights Certificates. . . . . . . . . . . . . . . . . . . 7
Section 5. Countersignature and Registration. . . . . . . . . . . . . . . . 7
Section 6. Transfer, Split-Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. . 9
Section 8. Cancellation and Destruction of Rights Certificates. . . . . . .10
Section 9. Reservation and Availability of Preferred Stock. . . . . . . . .11
Section 10. Preferred Stock Record Date. . . . . . . . . . . . . . . . . . .12
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.. . .19
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 Rights Holders. . . . . . . . . . . . . . . . . . .24
Section 17. Rights 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 Rights Certificates. . . . . . . . . . . . . . .28
Section 23. Redemption and Termination.. . . . . . . . . . . . . . . . . . .29
Section 24. Exchange.. . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Section 25. Notice of Certain Events.. . . . . . . . . . . . . . . . . . . .31
Section 26. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Section 27. Supplements and Amendments.. . . . . . . . . . . . . . . . . . .32
Section 28. Successors.. . . . . . . . . . . . . . . . . . . . . . . . . . .33
Section 29. Determinations and Actions by the Board of Directors.. . . . . .33
Section 30. Benefits of This Agreement.. . . . . . . . . . . . . . . . . . .33
Section 31. Severability.. . . . . . . . . . . . . . . . . . . . . . . . . .33
Section 32. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . .34
Section 33. Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . .34
Section 34. Descriptive Headings.. . . . . . . . . . . . . . . . . . . . . .34
EXHIBITS
Exhibit A - Form of Certificate of Designation of Series 1 Junior
Participating Preferred Stock
Exhibit B - Form of Rights Certificate
Exhibit C - Summary of Rights to Purchase Shares of Series 1 Preferred Stock
</TABLE>
(i)
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of April 2, 1999, between RHYTHMS
NETCONNECTIONS INC., a Delaware corporation (the "Company"), and AMERICAN
SECURITIES TRANSFER & TRUST, INC. (the "Rights Agent").
WHEREAS, effective March 27, 1999 (the "Rights Dividend Declaration
Date"), the Board of Directors authorized and declared a distribution of one
Right (each, a "Right") for each share of Common Stock (as hereinafter
defined) and Prior Preferred Stock (as hereinafter defined) of the Company
outstanding as of the Close of Business (as hereinafter defined) on April 6,
1999 (the "Record Date"), each Right initially representing the right to
purchase one one-thousandth of a share (a "Unit") of Preferred Stock (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 share of Common Stock that shall become outstanding (except
that no additional Rights shall be issued with respect to shares of Common
Stock that become outstanding due to conversion of Prior Preferred Stock)
between the Record Date and the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date (as such terms are hereinafter
defined).
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms 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 shares of Common Stock
of the Company then outstanding but shall not include the Company, any
Subsidiary (as such term is hereinafter defined) of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding shares of Common Stock for or pursuant to the terms of any such plan.
Notwithstanding the foregoing:
(i) no Person shall become an "Acquiring Person" as the result of an
acquisition of shares of Common Stock 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 shares of Common Stock
of the Company then outstanding; PROVIDED, HOWEVER, that if a Person shall
become the Beneficial Owner of 15% or more of the shares of Common Stock of the
Company then outstanding by reason of share purchases by the Company and shall,
after such share purchases by the Company, become the Beneficial Owner of any
additional shares of Common Stock of the Company (or, in the case of the members
of the Investor Group, become the Beneficial Owner of any additional shares of
Common Stock of the Company), then such Person shall be deemed to be an
"Acquiring Person" hereunder; and
(ii) 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 (a), has become such
inadvertently, and such Person divests as promptly as practicable a sufficient
number of shares of Common Stock so that such Person would no longer
<PAGE>
be an "Acquiring Person" (as defined pursuant to the foregoing provisions of
this paragraph (a)), then such Person shall not be deemed to be an "Acquiring
Person" for any purpose of this Agreement.
"Adjustment Shares" has the meaning set forth in Section 11(a)(ii).
"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 such term is hereinafter defined).
A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to
"beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, for purposes of Section
13(d) of the Exchange Act and Rule 13d-3 thereunder (or any comparable or
successor law or regulation); or
(ii) 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 or not in writing, 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 the 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; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; PROVIDED, FURTHER, HOWEVER, that a
Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own,"
any security under this subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such security if such agreement,
arrangement or understanding: (x) arises solely from a revocable proxy given in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the Exchange Act and the Exchange
Act Regulations, and (y) is not reportable by such Person on Schedule 13D under
the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (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 or not in writing, 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 subparagraph (i) of this paragraph (e)) or disposing of any
securities of the Company; provided, however, that in no case shall an
officer or director of the Company be deemed (A) the Beneficial Owner of any
securities beneficially owned by another officer or director of the Company
solely by reason of actions undertaken by such persons in their capacity as
officers or directors of the Company or (B) the Beneficial Owner of
securities held of record by the trustee of any employee benefit plan of the
Company or any Subsidiary of the Company for the benefit of any employee of
the Company or any
2.
<PAGE>
Subsidiary of the Company, other than the officer or director, by reason of
any influence that such officer or director may have over the voting of the
securities held in the plan;
Notwithstanding anything in this definition of "Beneficial Owner" and
"beneficially own" to the contrary, the phrase "then outstanding," when used
with reference to a Person who is the Beneficial Owner of securities of the
Company, shall mean the number of such securities then issued and outstanding
together with the number of such securities not then actually issued and
outstanding which such Person would be deemed to beneficially own hereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday, or a day
on which banking institutions in the State of Colorado or the state in which the
principal office of the Rights Agent is located are authorized or obligated by
law or executive order to close.
"Close of Business" on any given date shall mean 5:00 P.M., Colorado time,
on such date; provided, however, that if such date is not a Business Day it
shall mean 5:00 P.M., Colorado time, on the next succeeding Business Day.
"Common Stock" when used with reference to the Company shall mean the
shares of common stock, par value $0.001, of the Company. "Common Stock"
when used with reference to any Person other than the Company shall mean the
capital stock (or other equity interest) with the greatest voting power of
such other Person or, if such other Person is a Subsidiary of another Person,
the Person or Persons which ultimately control such first-mentioned Person.
"Company" shall have the meaning set forth in the recitals to this
Agreement.
"current per share market price" shall have the meaning set forth in
Section 11(d)(i) hereof.
"Current Value" shall have the meaning set forth in Section 11(a)(iii)
hereof.
"Distribution Date" shall have the meaning set forth in Section 3(a)
hereof.
"equivalent preferred shares" shall have the meaning set forth in Section
11(b) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Act Regulations" shall mean the General Rules and Regulations
under the Exchange Act.
"Exchange Ratio" shall have the meaning set forth in Section 24 hereof.
"Expiration Date" shall have the meaning set forth in Section 7(a) hereof.
"Final Expiration Date" shall have the meaning set forth in Section 7(a)
hereof.
"NASDAQ" shall have the meaning set forth in Section 11(d) hereof.
"Person" shall mean any individual, firm, corporation or other entity, and
shall include any successor (by merger or otherwise) of such entity.
3.
<PAGE>
"Preferred Stock" shall mean shares of Series 1 Preferred Stock, par value
$0.001, of the Company having the rights and preferences set forth in the Form
of Certificate of Designation attached to this Agreement as Exhibit A.
"preferred stock equivalents" shall have the meaning set forth in Section
11(a)(iii) hereof.
"Prior Preferred Stock" shall mean shares of Series A, B, C and D Preferred
Stock, par value $0.001, of the Company.
"Purchase Price" shall have the meaning set forth in Section 7(b) hereof.
"Record Date" shall have the meaning set forth in the recitals to this
Agreement.
"Redemption Date" shall have the meaning set forth in Section 7(a) hereof.
"Redemption Price" shall have the meaning set forth in Section 23(a)
hereof.
"Right" shall have the meaning set forth in the recitals to this Agreement.
"Rights Agent" shall have the meaning set forth in the recitals to this
Agreement.
"Rights Certificate" shall have the meaning set forth in Section 3(a)
hereof.
"Rights Dividend Declaration Date" shall have the meaning set forth in the
recitals to this Agreement.
"Section 11(a)(ii) Event" shall mean any event described in Section
11(a)(ii)(A), (B) or (C) hereof.
"Section 11(a)(ii) Trigger Date" shall have the meaning set forth in
Section 11(a)(iii) hereof.
"Section 13 Event" shall mean any event described in clause (x), (y) or (z)
of Section 13(a) hereof.
"Section 24(a) Exchange Ratio" has the meaning set forth in Section 24(a)
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) of the Exchange Act) by the Company or an
Acquiring Person that an Acquiring Person has become such.
"Spread" shall have the meaning set forth in Section 11(a)(iii) hereof.
"Subsidiary" of any Person shall mean 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.
4.
<PAGE>
"Summary of Rights" shall have the meaning set forth in Section 3(b)
hereof.
"Trading Day" shall have the meaning set forth in Section 11(d)(i) hereof.
"Triggering Event" shall mean any Section 11(a)(ii) Event or any Section 13
Event.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints
the Rights Agent to act as agent for the Company 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 RIGHTS CERTIFICATES.
(a) Until the earlier of (i) the Close of Business on the Shares
Acquisition Date and (ii) the Close of Business on the tenth Business Day (or
such later date as may be determined by action of the Company's Board of
Directors prior to such time as any Person becomes an Acquiring Person and of
which the Company will give the Rights Agent prompt written notice) after the
date that a tender or exchange offer 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 shares of Common Stock for or
pursuant to the terms of any such plan) is first published or sent or given
within the meaning of Rule 14d-4(a) of the Exchange Act Regulations or any
successor rule 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 shares of Common Stock for or pursuant to the terms of any such plan) to
commence, a tender or exchange offer, if upon consummation thereof such Person
would be the Beneficial Owner of 15% or more of the shares of Company Common
Stock then outstanding (the earlier of (i) and (ii) above being the
"Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for shares of Common
Stock registered in the names of the holders thereof (which certificates shall
also be deemed to be Rights Certificates) and not by separate Rights
Certificates, and (y) the right to receive Rights Certificates will be
transferable only in connection with the transfer of shares of Common Stock. As
soon as practicable after the Distribution Date, the Company will notify the
Rights Agent thereof and 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 shares of Common Stock as of the Close of Business on
the Distribution Date, at the address of such holder shown on the records of the
Company, a Rights Certificate, in substantially the form of Exhibit B hereto (a
"Rights Certificate"), evidencing one Right for each share of Common Stock so
held. As of the Distribution Date, the Rights will be evidenced solely by such
Rights Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Preferred Stock,
in substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of shares of Common
Stock as of the Close of Business on the Record Date, at the address of such
holder shown on the records of the Company. With respect to certificates for
shares of Common Stock 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 a copy
5.
<PAGE>
of the Summary of Rights attached thereto. Until the Distribution Date (or
the Expiration Date), the surrender for transfer of any certificate for
shares of Common Stock outstanding on the Record Date, with or without a copy
of the Summary of Rights attached thereto, shall also constitute the transfer
of the Rights associated with the shares of Common Stock represented thereby.
(c) Certificates for shares of Common Stock which become outstanding
(including, without limitation, reacquired shares of Common Stock referred to in
the last sentence of this paragraph (c)) after the Record Date but prior to the
earlier of the Distribution Date and the Expiration Date shall have impressed
on, printed on, written on or otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder
hereof to certain rights as set forth in a Rights Agreement
between Rhythms NetConnections Inc. and American Securities
Transfer & Trust, Inc., dated as of April 2, 1999 (the
"Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on
file at the principal executive offices of Rhythms
NetConnections Inc. 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. Rhythms NetConnections Inc. will mail to
the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request
therefor. Under certain circumstances, as set forth in the
Rights Agreement, Rights issued to any Person who becomes an
Acquiring Person (as defined in the Rights Agreement),
whether currently held by or on behalf of such person or by
any subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of the Distribution Date and the Expiration Date, the Rights associated
with the shares of Common Stock represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights associated with the
shares of Common Stock represented thereby. In the event that the Company
purchases or acquires any shares of Common Stock after the Record Date but prior
to the Distribution Date, any Rights associated with such shares of Common Stock
shall be deemed cancelled and retired so that the Company shall not be entitled
to exercise any Rights associated with the shares of Common Stock which are no
longer outstanding.
Section 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to purchase Units
of Preferred Stock and of assignment to be printed on the reverse thereof) shall
be substantially the same as Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the 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 or transaction reporting system on
which the Rights may from time to
6.
<PAGE>
time be listed, or to conform to usage. Subject to the provisions of Section
11 and Section 22 hereof, the Rights Certificates shall entitle the holders
thereof to purchase the number of Units of Preferred Stock as shall be set
forth therein at the price per Unit of Preferred Stock set forth therein, but
the number of such Units of Preferred Stock and the Purchase Price shall be
subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant hereto 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 of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such or (iii) a transferee of an Acquiring Person (or of any 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
such Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which a majority of the Board
of Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect avoidance of Section 7(e)
hereof shall contain (to the extent feasible) the following legend:
The Rights represented by this Rights 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 between Rhythms NetConnections Inc. and American
Securities Transfer & Trust, Inc., as Rights Agent, dated as
of April 2, 1999 (the "Rights Agreement"). Accordingly,
this Rights Certificate and the Rights represented hereby
may become null and void in the circumstances specified in
Section 7(e) of the Rights Agreement.
Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of the Company by
its Chairman of the Board, its President, any of its Vice Presidents, or its
Treasurer or Chief Financial Officer, 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 Rights 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 Rights Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights 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 Rights Certificates had not ceased to be such officer
of the Company; and any Rights Certificate may be signed on behalf of the
Company by any person who, at the actual date of the execution of such Rights
Certificate, shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
7.
<PAGE>
(b) 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 Rights Certificates issued hereunder. Such books shall show
the names and addresses of the respective holders of the Rights Certificates,
the number of Rights evidenced on its face by each of the Rights Certificates
and the date of each of the Rights Certificates.
Section 6. TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES.
(a) Subject to the provisions of Sections 4(b), 7(e) and 14 hereof, at any
time after the Close of Business on the Distribution Date, and at or prior to
the Close of Business on the Expiration Date, any Rights Certificate or Rights
Certificates may be transferred, split up, combined or exchanged for another
Rights Certificate or Rights Certificates, entitling the registered holder to
purchase a like number of Units of Preferred Stock (or, following a Triggering
Event, other securities, cash or other assets, as the case may be) as the Rights
Certificate or Rights Certificates surrendered then entitled such holder to
purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Rights Certificate or Rights Certificates shall make such request
in writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Rights 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 Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the
Rights Agent shall, subject to Sections 4(b), 7(e) and 14 hereof, countersign
and deliver to the person entitled thereto a Rights Certificate or Rights
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
Rights 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 Rights 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 Rights Certificate if mutilated, the Company will make and deliver a new
Rights Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Rights Certificate so lost, stolen, destroyed
or mutilated.
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS.
(a) Except as provided in Sections 23(c) and 7(e), the registered holder
of any Rights 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 Rights Certificate, with the form of
election to purchase and certification 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 for each Unit of
Preferred Stock as to which the Rights are
8.
<PAGE>
exercised, at or prior to the earliest of (i) the Close of Business on the
tenth anniversary hereof (the "Final Expiration Date"), (ii) the time at
which the Rights are redeemed as provided in Section 23 hereof (the
"Redemption Date"), or (iii) the time at which such Rights are exchanged as
provided in Section 24 hereof (the earlier of (i), (ii) and (iii) being the
"Expiration Date").
(b) The Purchase Price for each Unit of Preferred Stock pursuant to the
exercise of a Right shall initially be $115, shall be subject to adjustment from
time to time as provided in Sections 11 and 13 hereof and shall be payable in
lawful money of the United States of America in accordance with paragraph (c)
below.
(c) Upon receipt of a Rights Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by payment of
the Purchase Price for the number of Units of Preferred Stock (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 Rights
Certificate in accordance with Section 9 hereof in cash, or by certified check
or cashier's check payable to the order of the Company, the Rights Agent shall,
subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any
transfer agent of the Preferred Stock (or make available, if the Rights Agent is
the transfer agent for the Preferred Stock) a certificate or certificates for
the number of Units of Preferred Stock 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 total number of Units of
Preferred Stock issuable upon exercise of the Rights hereunder with a depositary
agent, requisition from the depositary agent of a depositary receipt or
depositary receipts representing such number of Units of Preferred Stock as are
to be purchased (in which case certificates for the Units of Preferred Stock
represented by such receipt or receipts shall be deposited by the transfer agent
with the depositary agent) and the Company hereby directs 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 Rights Certificate, registered in such name or names
as may be designated by such holder and (iv) when appropriate, after receipt
thereof, deliver such cash to or upon the order of the registered holder of such
Rights Certificate. The payment of the Purchase Price (as such amount may be
reduced (including to zero) pursuant to Section 11(a)(iii) hereof) may be made
in cash or by certified bank check or bank draft payable to the order of the
Company. In the event that the Company is obligated to issue other securities
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 other property are available for distribution by
the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate shall exercise
less than all the Rights evidenced thereby, a new Rights Certificate evidencing
a number of Rights equivalent to the number of Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Rights
Certificate or to such registered holder's duly authorized assigns, subject to
the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first 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
9.
<PAGE>
of any such Associate or Affiliate) who becomes a transferee after the
Acquiring Person becomes such, (iii) a transferee of an Acquiring Person (or
of any 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 regarding the transferred Rights or (B) a
transfer which the a majority of the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect the avoidance of this Section 7(e) or (iv) any
subsequent transferee shall become null and void without any further action
and no holder of such Rights shall have any rights whatsoever with respect to
such Rights, whether under any provision of this Agreement or otherwise. The
Company shall use all reasonable efforts to ensure that the provisions of
this Section 7(e) and Section 4(b) hereof are complied with, but shall have
no liability to any holder of Rights Certificates or to any other Person as a
result of its failure to make any determinations with respect to an Acquiring
Person or any of such Acquiring Person's 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 such registered holder shall have (i)
completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All
Rights Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and
no Rights Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Rights Agreement. The Company
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any other Rights Certificate
purchased or acquired by the Company otherwise than upon the exercise
thereof. The Rights Agent shall deliver all cancelled Rights Certificates to
the Company, or shall, at the written request of the Company, destroy such
cancelled Rights Certificates, and in such case shall deliver a certificate
of destruction thereof to the Company.
Section 9. RESERVATION AND AVAILABILITY OF PREFERRED STOCK.
(a) The Company covenants and agrees that it will use its best efforts to
cause to be reserved and kept available out of and to the extent of its
authorized and unissued Units of Preferred Stock not reserved for another
purpose that will be sufficient to permit the exercise in full of all
outstanding Rights. Upon the occurrence of any events resulting in an increase
in the aggregate number of shares of Preferred Stock (or other equity securities
of the Company) issuable upon exercise of all outstanding Rights above the
number then reserved, the Company shall make appropriate increases in the number
of shares so reserved.
10.
<PAGE>
(b) If the Units of Preferred Stock to be issued and delivered upon the
exercise of the Rights are at any time listed on a national securities exchange
or included for quotation on any transaction reporting system, the Company shall
during the period from the Distribution Date to the Expiration Date use its best
efforts to cause all shares reserved for such issuance to be listed on such
exchange or included for quotation on any such transaction reporting system upon
official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a Section
11(a)(ii) Event in which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, 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 earlier of (A) the date as of which the Rights are no
longer exercisable for such securities and (B) the Expiration Date. The Company
will also take such action as may be appropriate under, or to ensure compliance
with, the securities or "blue sky" laws of the various states in connection with
the exercisability of the Rights. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction, unless the requisite qualification in such jurisdiction shall have
been obtained, or an exemption therefrom shall be available and until a
registration statement has been declared effective.
(d) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all Units of Preferred Stock (and, following the
occurrence of a Triggering Event, any other securities that may be delivered
upon exercise of Rights) shall, at the time of delivery of the certificates for
such Units of Preferred Stock (subject to payment of the Purchase Price), be
duly and validly authorized and issued and fully paid and non-assessable.
(e) 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 Rights Certificates or of
any Units of Preferred Stock 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 Rights Certificates to a person other
than, or the issuance or delivery of certificates or depositary receipts for
Units of Preferred Stock in a name other than that of, the registered holder of
the Rights Certificate evidencing Rights surrendered for exercise or to issue or
to deliver any certificates or depositary receipts for Units of Preferred Stock
upon the exercise of any Rights until any such tax shall have been paid (any
such tax being payable by the holder of such Rights 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 STOCK RECORD DATE. Each person in whose name any
certificate for Units of Preferred Stock (or, following the occurrence of a
Triggering Event, other securities) is issued upon the exercise of Rights shall
for all purposes be deemed to have become the holder of record of the Units of
Preferred Stock (or, following the occurrence of a Triggering Event, other
securities) represented thereby on, and such certificate shall be dated, the
date upon which the Rights Certificate evidencing such Rights was duly
surrendered and payment of the Purchase
11.
<PAGE>
Price (and any applicable transfer taxes) was made; provided, however, that
if the date of such surrender and payment is a date upon which the Preferred
Stock (or, following the occurrence of a Triggering Event, other securities)
transfer books of the Company are closed, such person shall be deemed to have
become the record holder of such shares on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Stock transfer
books of the Company are open; provided further, however, that if delivery of
Units of Preferred Stock is delayed pursuant to Section 9(c), such Persons
shall be deemed to have become the record holders of such Units of Preferred
Stock only when such Units first become deliverable. Prior to the exercise
of the Rights evidenced thereby, the holder of a Rights Certificate shall not
be entitled to any rights of a stockholder of the Company with respect to
securities 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. Prior
to the exercise of the Rights evidenced thereby, the holder of a Rights
Certificate shall not be entitled to any rights of a holder of a Unit of
Preferred Stock for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributionsor
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 and kinds of securities 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 Stock payable in shares
of Preferred Stock, (B) sub-divide the outstanding shares of Preferred Stock,
(C) combine the outstanding Preferred Stock into a smaller number of shares
Preferred Stock or (D) issue any shares of its capital stock in a
reclassification of the Preferred Stock (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),
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 Rights exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Rights had been exercised immediately prior to such
date and at a time when the Preferred Stock transfer books of the Company were
open, such holder 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 this 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 that
(A) any Acquiring Person or any Associate or Affiliate of any Acquiring
Person, at any time after the date of this Agreement, directly or indirectly,
shall (1) merge into the Company or otherwise combine with the Company and
the Company shall be the continuing or surviving corporation of
12.
<PAGE>
such merger or combination and shares of Company Common Stock shall remain
outstanding and unchanged, (2) in one transaction or a series of
transactions, transfer any assets to the Company or any of its Subsidiaries
in exchange (in whole or in part) for shares of Company Common Stock, for
other equity securities of the Company or any such Subsidiary, or for
securities exercisable for or convertible into shares of equity securities of
the Company or any of its Subsidiaries (whether shares of Company Common
Stock or otherwise) or otherwise obtain from the Company or any of its
Subsidiaries, with or without consideration, any additional shares of such
equity securities or securities exercisable for or convertible into such
equity securities other than pursuant to a pro rata distribution to all
holders of shares of Company Common Stock, (3) sell, purchase, lease,
exchange, mortgage, pledge, transfer or otherwise acquire or dispose of, in
one transaction or a series of transactions, to, from or with the Company or
any of its Subsidiaries or any employee benefit plan maintained by the
Company or any of its Subsidiaries or any trustee or fiduciary with respect
to such plan acting in such capacity, assets (including securities) on terms
and conditions less favorable to the Company or such Subsidiary or plan than
those that could have been obtained in arm's-length negotiations with an
unaffiliated third party, other than pursuant to a transaction set forth in
Section 13(a) hereof, (4) sell, purchase, lease, exchange, mortgage, pledge,
transfer or otherwise acquire or dispose of, in one transaction or a series
of transactions, to, from or with the Company or any of its Subsidiaries or
any employee benefit plan maintained by the Company or any of its
Subsidiaries or any trustee or fiduciary with respect to such plan acting in
such capacity (other than transactions, if any, consistent with those engaged
in, as of the date hereof, by the Company and such Acquiring Person or such
Associate or Affiliate), 50% or more of the Company's assets (including
securities or intangible assets) other than pursuant to a transaction set
forth in Section 13(a) hereof, (5) receive, or any designee, agent or
representative of such Acquiring Person or any Affiliate or Associate of such
Acquiring Person shall receive, any compensation from the Company or any of
its Subsidiaries other than compensation for full-time employment as a
regular employee at rates in accordance with the Company's (or its
Subsidiaries') past practices, or (6) receive the benefit, directly or
indirectly (except proportionately as a holder of shares of Company Common
Stock or as required by law or governmental regulation), of any loans,
advances, guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Company or any of its
Subsidiaries or any employee benefit plan maintained by the Company or any of
its Subsidiaries or any trustee or fiduciary with respect to such plan acting
in such capacity; or (B) any Person shall become an Acquiring Person, unless
the event causing the Person to become an Acquiring Person is a transaction
set forth in Section 13(a); or (C) during such time as there is an Acquiring
Person, there shall be any reclassification of securities (including any
reverse stock split), or recapitalization of the Company, or any merger or
consolidation of the Company with any of its Subsidiaries or any other
transaction or series of transactions involving the Company or any of its
Subsidiaries, other than a transaction or transactions to which the
provisions of Section 13(a) apply (whether or not with or into or otherwise
involving an Acquiring Person), which has the effect, directly or indirectly,
of increasing by more than 1% the proportionate share of the outstanding
shares of any class of equity securities of the Company or any of its
Subsidiaries that is directly or indirectly beneficially owned by any
Acquiring Person or any Person or any Associate or Affiliate of any Acquiring
Person;
then promptly following the occurrence of an event described in Section
11(a)(ii)(A), (B) or (C) (a "Section 11(a)(ii) Event"), proper provision
shall be made so that each holder of a Right,
13.
<PAGE>
except as provided in Section 7(e) hereof, shall thereafter have the right to
receive for each Right, upon exercise thereof in accordance with the terms of
this Agreement and payment of the then-current Purchase Price, in lieu of the
number of Units of Preferred Stock for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event, such
number of Units of Preferred Stock as shall equal the result obtained by
multiplying the then-current Purchase Price by the then number of Units of
Preferred Stock for which a Right was exercisable (or would have been
exercisable if the Distribution Date had occurred) immediately prior to the
first occurrence of a Triggering Event, and dividing that product by 50% of
the current per share market price (determined pursuant to Section 11(d)
hereof) for shares of Common Stock on the date of occurrence of the
Triggering Event (such number of Units of Preferred Stock being hereinafter
referred to as the "Adjustment Shares").
(iii) In the event that the number of Units of Preferred Stock which
are authorized by the Company's Amended and Restated Certificate of
Incorporation but not outstanding or reserved for issuance for purposes other
than upon exercise of the Rights are not sufficient to permit the exercise in
full of the Rights, or if any necessary regulatory approval for such issuance
has not been obtained by the Company, the Company shall, in lieu of issuing
Units of Preferred Stock in accordance with Section 11(a)(ii) hereof: (A)
determine the excess of (1) the value of the Units of Preferred Stock issuable
upon the exercise of a Right (the "Current Value") over (2) the Purchase Price
(such excess being referred to as the "Spread") and (B) with respect to each
Right, make adequate provision to substitute for such Units of Preferred Stock,
upon exercise of the Rights, (1) cash, (2) a reduction in the Purchase Price,
(3) other equity securities of the Company (including, without limitation,
Common Stock or shares or units of shares of any series of preferred stock which
the Board of Directors of the Company has deemed to have the same value as the
Units of Preferred Stock (such shares or units of preferred stock are herein
called "preferred stock equivalents")), except to the extent that the Company
has not obtained any necessary regulatory approval for such issuance, (4) debt
securities of the Company, except to the extent that the Company has not
obtained any necessary regulatory approval for such issuance, (5) other assets
or (6) any combination of the foregoing, having an aggregate value equal to the
Current Value, where such aggregate value has been determined by the Board of
Directors of the Company based upon the advice of a nationally recognized
investment banking firm selected by the Board of Directors of the Company;
PROVIDED, HOWEVER, if the Company shall not have made adequate provision to
deliver value pursuant to clause (B) above within thirty (30) days following the
later of (x) occurrence of a Section 11(a)(ii) Event, and (y) the date on which
the Company's right of redemption pursuant to Section 23(a) expires (the later
of (x) and (y) being referred to herein as the "Section 11(a)(iii) Trigger
Date"), then the Company shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the Purchase Price, Units
of Preferred Stock (to the extent available), except to the extent that the
Company has not obtained any necessary regulatory approval for such issuance,
and then, if necessary, cash, which Units and/or cash have an aggregate value
equal to the Spread.
(b) In the event that the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Units of Preferred
Stock entitling them (for a period expiring within 45 calendar days after
such record date) to subscribe for or purchase Units of Preferred Stock (or
shares having the same rights, privileges and preferences as the Preferred
Stock ("equivalent preferred stock")) or securities convertible into Units of
Preferred Stock or
14.
<PAGE>
equivalent preferred stock at a price per Unit of Preferred Stock or
equivalent preferred share (or having a conversion price per share, if a
security convertible into Units of Preferred Stock or equivalent preferred
stock) less than the then current per share market price of a Unit of
Preferred Stock (as determined pursuant to Section 11(d)) on such record
date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the number of
Units of Preferred Stock outstanding on such record date plus the number of
Units of Preferred Stock which the aggregate offering price of the total
number of Units of Preferred Stock and/or equivalent preferred stock 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 Units of Preferred Stock
outstanding on such record date plus the number of additional Units of
Preferred Stock and/or equivalent preferred stock to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible). In case such subscription price may be
paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
a majority of the Board 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 and the holders of the Rights. Units of Preferred
Stock 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 isued, 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 a distribution to
all holders of Units of Preferred Stock (including any such distribution made
in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness, cash
(other than a regular quarterly cash dividend) assets (other than a dividend
payable in Units of Preferred Stock but including any dividend payable in
equity securities other than Preferred Stock) or subscription rights or
warrants (excluding those referred to in Section 11(d) 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 (as determined pursuant to Section 11(d)) of the Preferred
Stock on such record date, less the fair market value (as determined in good
faith by a majority of the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent
and shall be binding on the Rights Agent and the holder of rights) of the
cash, assets or evidences of indebtedness to be distributed or of such
subscription rights or warrants distributable in respect of a share of
Preferred Stock and the denominator of which shall be such current per share
market price (as determined pursuant to Section 11(d)) of a share of
Preferred Stock. Such adjustments shall be made successively whenever such a
record date is fixed; and in the event that such distribution is not so made,
the Purchase Price shall again be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "current
per share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the
15.
<PAGE>
thirty (30) consecutive Trading Days (as such term is hereinafter defined)
immediately prior to 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, or (B) any subdivision,
combination or reclassification of such Security and prior to the expiration
of thirty (30) Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the "current per share market
price" shall be appropriately adjusted to reflect the "current market price"
per share equivalent of such Security. The closing price for each day shall
be the last sale price, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the Nasdaq
National Market System ("NASDAQ") or, if the Security is not listed or
admitted to trading on the NASDAQ, 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 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 a
majority of the Board of Directors. If on any such date no market maker is
making a market in the Security, the "current per share market price" of such
Security on such date as determined in good faith by the Board of Directors
of the Company as provided for above 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 Stock shall be determined in accordance
with the method set forth in Section 11(d)(i). If the "current per share market
price" of the Preferred Stock cannot be determined in the manner provided above
or if the Preferred Stock is not publicly held or listed or traded in a manner
described in clause (i) of this Section 11(d), the "current per share market
price" of the Preferred Stock shall be conclusively deemed to be an amount equal
to $1,000 (as such amount may be appropriately adjusted for such events as stock
splits, stock dividends and recapitalizations with respect to shares of Company
Common Stock occurring after the date of this Agreement) multiplied by the
current market price per share of Company Common Stock. If shares of neither
the Company Common Stock nor Preferred Stock is publicly held or so listed or
traded, "current per share market price" of the Preferred Stock 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 and shall be binding on the Rights Agent and the holders of the
Rights.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
16.
<PAGE>
Section 11 shall be made to the nearest cent or to the nearest one
one-thousandth of a share of Preferred Stock or one one-hundredth 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 Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)(ii)
hereof, the holder of any Rights thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Units of Preferred
Stock, thereafter the number of such other shares so receivable upon exercise of
any Rights and the Purchase Price thereof 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 Stock contained in Section 11(a), (b),
(c), (d), (e), (g), (h), (i), (j), (k), (l) and (m), and the provisions of
Sections 7, 9, 10, 13 and 14 with respect to the Preferred Stock 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 Units of Preferred Stock
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 Units of Preferred
Stock (calculated to the nearest one-millionth of a share of Preferred Stock)
obtained by dividing (i) the product obtained by multiplying (x) the number of
Units of Preferred Stock 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 by, (ii) the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(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 Units of Preferred Stock 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 Units of
Preferred Stock 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
one-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
Rights Certificates have been issued, shall be at least ten days later than
the date of the public announcement. If Rights 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 Rights Certificates on such record date Rights
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
17.
<PAGE>
distributed to such holders of record in substitution and replacement for the
Rights Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates to be so distributed shall be issued,
executed and counter-signed in the manner provided for herein and shall be
registered in the names of the holders of record of Rights 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 Units of Preferred Stock issuable upon the exercise of the Rights, the
Rights Certificates theretofore and thereafter issued may continue to express
the Purchase Price per Unit and the number of Units of Preferred Stock which
were expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then par value of the number of Units of Preferred
Stock 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 number of
Units of Preferred Stock 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 Rights exercised after such record date of that
number of Units of Preferred Stock and other capital stock or securities of the
Company, if any, issuable upon such exercise over and above the Units of
Preferred Stock and 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 (fractional or otherwise) 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 (i) consolidation or subdivision of the Preferred Stock, (ii)
issuance wholly for cash of any Unit of Preferred Stock at less than the current
market price, (iii) issuance wholly for cash of Preferred Stock or securities
which by their terms are convertible into or exchangeable for Preferred Stock,
(iv) dividends on Preferred Stock payable in Preferred Stock or (v) issuance of
rights, options or warrants referred to in this Section 11, hereafter made by
the Company to holders of Units of its Preferred Stock shall not be taxable to
such stockholders.
(n) The Company shall not, at any time after the Distribution Date, (i)
consolidate with any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section 11(o)), (ii) merge with or into any
other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o)), or (iii) sell or transfer (or permit any
Subsidiary to sell or transfer), in one transaction, or a series of
transactions, assets or earning power aggregating more than 50% of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to
any other Person or Persons (other than the Company and/or any of its
Subsidiaries in one or more transactions each of which complies with Section
11(o)), if
18.
<PAGE>
(x) at the time of or immediately after such consolidation, merger or sale
there are any rights, warrants or other instruments or securities outstanding
or agreements in effect which would substantially diminish or otherwise
eliminate the benefits intended to be afforded by the Rights or (y) prior to,
simultaneously with or immediately after such consolidation, merger or sale,
the Person which constitutes, or would constitute the "Principal Party" for
purposes of Section 13(a) shall have distributed or otherwise transferred to
its stockholders or other persons holding an equity interest in such Person
Rights previously owned by such Person or any of its Affiliates and
Associates; provided, however, this Section 11(n) shall not affect the
ability of any Subsidiary of the Company to consolidate with, merge with or
into, or sell or transfer assets or earning power to, any other Subsidiary of
the Company.
(o) After the Distribution Date, the Company shall not, except as
permitted by Section 23 or Section 26, take (or permit any Subsidiary to take)
any action if at the time such action is taken it is reasonably foreseeable that
such action will diminish substantially or otherwise eliminate the benefits
intended to be afforded by the Rights.
(p) 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 outstanding shares of Common Stock payable in shares of Common
Stock or (ii) effect a subdivision, combination or consolidation of the
Common Stock (by reclassification or otherwise than by payment of dividends
in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in any such case the number of Units of Preferred Stock
purchasable after such event upon proper exercise of each Right shall be
determined by multiplying the number of Units of Preferred Stock so
purchasable immediately prior to such event by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately before
such event and the denominator of which is the number of shares of Common
Stock outstanding immediately after such event. The adjustments provided for
in this Section 11(p) shall be made successively whenever such a dividend is
declared or paid or such a subdivision, combination or consolidation is
effected.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF
SHARES. Whenever an adjustment is made as provided in Sections 11 and 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 shares of Common Stock or Units of Preferred Stock a copy of such
certificate and (c) mail a brief summary thereof to each holder of a Rights
Certificate in accordance with Section 25 hereof. Notwithstanding the
foregoing sentence, the failure by the Company to make such certification or
give such notice shall not affect the validity of or the force or effect of
the requirement for such adjustment. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment contained
therein and shall not be deemed to have knowledge of such adjustment unless
and until it shall have received such certificate.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(a) Except as provided in Section 13(b) hereof, in the event that,
following a Shares Acquisition Date, directly or indirectly, (x) the Company
shall consolidate with, or merge with and into, any other Person (other than
a Subsidiary of the Company in a transaction which complies with Section
11(o)), and the Company shall not be the continuing or surviving
19.
<PAGE>
corporation of such consolidation or merger, (y) any Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o))
shall consolidate with the Company, or merge with and into the Company and
the Company shall be the continuing or surviving corporation of such
consolidation or merger and, in connection with such consolidation or merger,
all or part of the shares of Common Stock shall be changed into or exchanged
for stock or other securities of any other Person 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) to any Person or
Persons (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o)), in one or more transactions, directly or
indirectly, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole), (any
such event being a "Section 13 Event"), then, and in each such case, proper
provision shall be made so that: (i) each holder of a Right, except as
provided in Section 7(e), shall thereafter have the right to receive, upon
the exercise thereof at the then current Purchase Price, such number of
validly authorized and issued, fully paid and non-assessable shares of Common
Stock of the Principal Party (as such term is hereinafter defined), which
shares shall not be subject to any liens, encumbrances, rights of first
refusal, transfer restrictions or other adverse claims, as shall be equal to
the result obtained by (1) multiplying the then current Purchase Price by the
number of Units of Preferred Stock for which a Right is exercisable
immediately prior to the first occurrence of a Section 13 Event (or, if a
Section 11(a)(ii) Event has occurred prior to the first occurrence of a
Section 13 Event, multiplying the number of such Units of Preferred Stock for
which a Right would be exercisable hereunder but for the occurrence of such
Section 11(a)(ii) Event by the Purchase Price which would be in effect
hereunder but for such first occurrence) and (2) dividing that product
(which, following the direct occurrence of a Section 13 Event, shall be the
"Purchase Price" for all purposes of this Agreement) by 50% of the current
per share market price (determined pursuant to Section 11(d)) of the shares
of Common Stock of such Principal Party on the date of consummation of such
Section 13 Event; (ii) such Principal Party shall thereafter be liable for,
and shall assume, by virtue of such Section 13 Event, all the obligations and
duties of the Company pursuant to this Agreement; (iii) the term "Company"
shall, for all purposes of this Agreement, thereafter be deemed to refer to
such Principal Party, it being specifically intended that the provisions of
Section 11 shall apply only to such Principal Party following the first
occurrence of a Section 13 Event; (iv) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number
of shares of its Common Stock) in connection with the consummation of any
such transaction as may be necessary to ensure that the provisions of this
Agreement shall thereafter be applicable to its shares of Common Stock
thereafter deliverable upon the exercise of the Rights; and (v) the
provisions of Section 11(a)(ii) shall be of no further effect following the
first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (x) or (y)
of the first sentence of Section 13(a), (A) the Person that is the issuer of
any securities into which shares of Company Common Stock are converted in
such merger or consolidation, or, if there is more than one such issuer, the
issuer of shares of Common Stock that has the highest aggregate current
market price (determined pursuant to Section 11(d)) and (B) if no securities
are so issued, the Person that is the other party to such merger or
consolidation, or, if there is more than one such
20.
<PAGE>
Person, the Person the Common Stock of which has the highest aggregate
current market price (determined pursuant to Section 11(d)); and
(ii) in the case of any transaction described in clause (z) of the
first sentence of Section 13(a), the Person that is the party receiving the
largest portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if each Person that is a party to such
transaction or transactions receives the same portion of the assets or earning
power transferred pursuant to such transaction or transactions or if the Person
receiving the largest portion of the assets or earning power cannot be
determined, whichever Person the Common Stock of which has the highest aggregate
current market price (determined pursuant to Section 11(d)); provided, however,
that in any such case, (1) if the Common Stock of such Person is not at such
time and has not been continuously over the preceding twelve-month period
registered under Section 12 of the Exchange Act ("Registered Common Stock"), or
such Person is not a corporation, and such Person is a direct or indirect
Subsidiary of another Person that has Registered Common Stock outstanding,
"Principal Party" shall refer to such other Person; (2) if the Common Stock of
such Person is not Registered Common Stock or such Person is not a corporation,
and such Person is a direct or indirect Subsidiary of another Person but is not
a direct or indirect Subsidiary of another Person which has Registered Common
Stock outstanding, "Principal Party" shall refer to the ultimate parent entity
of such first-mentioned Person; (3) if the Common Stock of such Person is not
Registered Common Stock or such Person is not a corporation, and such Person is
directly or indirectly controlled by more than one Person, and one or more of
such other Persons has Registered Common Stock outstanding, "Principal Party"
shall refer to whichever of such other Persons is the issuer of the Registered
Common Stock having the highest aggregate current per share market price
(determined pursuant to Section 11(d)); and (4) if the Common Stock of such
Person is not Registered Common Stock or such Person is not a corporation, and
such Person is directly or indirectly controlled by more than one Person, and
none of such other Persons has Registered Common Stock outstanding, "Principal
Party" shall refer to whichever ultimate parent entity is the corporation having
the greatest stockholders' equity or, if no such ultimate parent entity is a
corporation, shall refer to whichever ultimate parent entity is the entity
having the greatest net assets.
(c) The Company shall not consummate any such consolidation, merger, sale
or transfer unless the Principal Party shall have a sufficient number of
authorized shares of Common Stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13, and unless 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 the Principal Party will:
(i) (A) file on an appropriate form, as soon as practicable
following the execution of such agreement, a registration statement under
the Securities Act with respect to the shares of Common Stock that may be
acquired upon exercise of the Rights, (B) cause such registration statement
to remain effective (and to include a prospectus complying with the
requirements of the Securities Act) until the Expiration Date, and (C) as
soon as practicable following the execution of such agreement take such
action as may be required to ensure that any acquisition of such shares of
Common Stock upon the exercise of the Rights complies with any applicable
state securities or "blue sky" laws; and
21.
<PAGE>
(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.
(d) In case the Principal Party which is to be a party to a transaction
referred to in this Section 13 has a provision in any of its authorized
securities or in its Certificate of Incorporation or Bylaws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue, in connection with, or
as a consequence of, the consummation of a transaction referred to in this
Section 13, shares of Common Stock of such Principal Party at less than the
then current market price per share (determined pursuant to Section 11(d)) or
securities exercisable for, or convertible into, shares of Common Stock of
such Principal Party at less than such then current marker price (other than
to holders of Rights pursuant to this Section 13) or (ii) providing for any
special payment, tax or similar provisions in connection with the issuance of
the shares of Common Stock of such Principal Party pursuant to the provisions
of this Section 13, then, in such event, the Company shall not consummate any
such transaction unless prior thereto the Company and such Principal Party
shall have executed and delivered to the Rights Agent a supplemental
agreement providing that the provision in question of such Principal Party
shall have been cancelled, waived or amended, or that the authorized
securities shall be redeemed, so that the applicable provision will have no
effect in connection with, or as a consequence of, the consummation of the
proposed transaction.
(e) The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers. In the
event that a Section 13 Event shall occur at any time after the occurrence of
a Section 11(a)(ii) Event, 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 Rights Certificates which evidence fractional Rights. In lieu
of such fractional Rights, there shall be paid to the registered holders of
the Rights 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 NASDAQ or, if the Rights are not listed or admitted to trading
on the NASDAQ, 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 Rights selected by the Directors. If on any such date
no such market maker is making a market in the Rights, the
22.
<PAGE>
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
Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights or
to distribute certificates which evidence fractional Preferred Stock (other
than fractions which are integral multiples of one one-thousandth of a share
of Preferred Stock). Fractions of Preferred Stock in integral multiples of
one one-thousandth of a share of Preferred Stock 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,
HOWEVER, 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 Stock
represented by such depositary receipts. In lieu of fractional shares of
Preferred Stock that are not integral multiples of one one-thousandth of a
share of Preferred Stock, the Company shall pay to the registered holders of
Rights 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 a share of Preferred Stock as determined pursuant to Section 11(d).
(c) The holder of a Right by the acceptance of the Right expressly
waives such holder's right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).
Section 15. RIGHTS OF ACTION. All rights of action in respect of
this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of
the Rights Certificates (and, prior to the Distribution Date, the registered
holders of certificates representing shares of Common Stock); and any
registered holder of any Rights Certificate (or, prior to the Distribution
Date, a certificate representing shares of Common Stock), without the consent
of the Rights Agent or of the holder of any other Rights Certificate (or,
prior to the Distribution Date, of a certificate representing shares of
Common Stock), may, in such holder's own behalf and for such holder's own
benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of,
such holder's right to exercise the Rights evidenced by such Rights
Certificate in the manner provided in such Rights 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 hereunder, and
injunctive relief against actual or threatened violations of the obligations
of any Person subject to this Agreement.
Section 16. AGREEMENT OF RIGHTS 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 shares of the Company's Common Stock;
23.
<PAGE>
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office of the Rights Agent designated for such purpose, duly endorsed or
accompanied by a proper instrument of transfer;
(c) subject to Sections 6(a) and 7(f) hereof, the Company and the
Rights Agent may deem and treat the person in whose name the Rights
Certificate (or, prior to the Distribution Date, the associated Common Stock
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on
the Rights Certificates or the associated Common Stock certificate made by
anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be affected by
any notice to the contrary; 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 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; provided, however, the Company
must use its best efforts to have any such order, decree or ruling lifted or
otherwise overturned as soon as possible.
Section 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Units of Preferred
Stock or any other securities of the Company which may at any time be
issuable upon the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Rights Certificate be construed to confer
upon the holder of any Rights Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to
give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting stockholders (except as provided in
Section 25 hereof), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Rights 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 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 gross negligence, or willful misconduct on the
part of the Rights Agent, for any action taken, suffered or omitted by the
Rights Agent in connection with the execution, acceptance and administration
of this Agreement and the exercise and performance hereunder of its duties,
including the costs and expenses of defending against and appealing any claim
of liability in the premises. The indemnity provided herein shall survive
the termination of this Agreement and the expiration of the Rights. The
costs and expenses incurred in enforcing this right of indemnification shall
be paid by the Company.
24.
<PAGE>
The Rights Agent may conclusively rely upon and 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 and
the exercise and performance of its duties hereunder in reliance upon any
Rights Certificate or certificate for Units of Preferred Stock or shares of
Common Stock or for other securities of the Company, instrument of assignment
or transfer, power of attorney, endorsement, affidavit, letter, notice,
direction, consent, certificate, statement, or other paper or document
believed by it to be genuine and to be signed, executed and, where necessary,
verified or acknowledged, by the proper person or persons, or otherwise upon
the advice of counsel as set forth in Section 20 hereof.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on
the part of any of the parties hereto, provided that such corporation would
be eligible for appointment as a successor Rights Agent under the provisions
of Section 21 hereof. In case at the time such successor Rights Agent shall
succeed to the agency created by this Agreement any of the Rights
Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of the predecessor
Rights Agent and deliver such Rights Certificates so counter-signed; and in
case at that time any of the Rights Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Rights
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 Rights
Certificates shall have the full force provided in the Rights Certificates
and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at
that time any of the Rights Certificates shall not have been countersigned,
the Rights Agent may countersign such Rights Certificates either in its prior
name or in its changed name; and in all such cases such Rights Certificates
shall have the full force provided in the Rights 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 and no implied duties or obligations shall be read into this
Agreement against the Rights Agent, by all of which the Company and the
holders of Rights Certificates, by their acceptance thereof, shall be bound:
(a) Before the Rights Agent acts or refrains from acting, it may
consult with legal counsel of its choice (who may be legal counsel for the
Company), and the advice or opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken, suffered or omitted by it in good faith and in accordance with such
advice or opinion.
25.
<PAGE>
(b) Whenever in the administration, exercise and 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, suffering or omitting any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the 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 and any
other Person only for its own gross negligence 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 Rights
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 liability or responsibility
in respect of the legality, validity or enforceability of this Agreement or
the execution and delivery hereof (except the due execution hereof by the
Rights Agent) or in respect of the legality, validity or enforceability or
the execution of any Rights Certificate (except its counter-signature thereof
and has actual knowledge of such change or adjustment); nor shall it be
liable or responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall
it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii) 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 Rights
Certificates after receipt of the certificate described in Section 12 hereof
or has actual knowledge of such change or adjustment); nor shall it by any
act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Units of Preferred Stock to be issued
pursuant to this Agreement or any Rights Certificate or as to whether any
Preferred Stock 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 administration, exercise and performance of
its duties hereunder from any one of the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Secretary or the
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be responsible
or liable for any action taken, suffered or omitted 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
26.
<PAGE>
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 Rights 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 (5) Business Days after the date any officer of the Company
actually received such application, 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 become pecuniarily interested in any transaction
in which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent
from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any
such act, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its
rights if the Rights Agent in good faith believes that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise, transfer, split up, combination or exchange, the
certification on the form of assignment or form of election to purchase, as
the case may be, that the Rights evidenced by the Rights Certificate are not
owned by an Acquiring Person, or an Affiliate or Associate thereof, has
either not been completed or in any manner indicates any other response
thereto, 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.
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 thirty (30) days' notice in writing mailed to the Company
and to each transfer agent of the Common Stock or Preferred Stock (as to
which the Rights Agent has received prior written notice) by registered or
certified mail, and the Company shall mail notice thereof to the holders of
the Rights Certificates by first-class mail. The Company may remove the
Rights Agent or any successor Rights Agent upon thirty (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 Stock or Preferred Stock (as
to which the Rights Agent has received prior written notice) by registered or
certified mail, and to the holders
27.
<PAGE>
of the Rights 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 thirty (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 Rights Certificate (who shall, with such notice, submit
such holder's Rights Certificate for inspection by the Company), then the
registered holder of any Rights Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the
United States or of any state of the United States, in good standing,
authorized under such laws to exercise corporate trust or stock transfer
powers, and 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 $50 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 Stock or
Preferred Stock, and mail a notice thereof in writing to the registered
holders of the Rights 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 RIGHTS CERTIFICATES. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights 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 Rights
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the Expiration Date, the Company
(a) shall, with respect to shares of Common Stock so issued or sold pursuant
to the exercise of stock options or under any employee benefit plan or
arrangement or upon the exercise, conversion or exchange of securities of the
Company currently outstanding or issued at any time in the future by the
Company and (b) may, in any other case, if deemed necessary or appropriate by
the Board of Directors of the Company, issue Rights Certificates representing
the appropriate number of Rights in connection with such issuance or sale;
PROVIDED, HOWEVER, that (i) no such Rights Certificate shall be issued and
this sentence shall be null and void AB INITIO if, and to the extent that,
such issuance or this sentence would create a significant risk of or result
in material adverse tax consequences to the Company or the Person to whom
such Rights Certificate would be issued or would create a significant risk of
or result in such options' or employee plans' or arrangements' failing to
qualify for otherwise available special tax treatment and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate
adjustment shall otherwise have been made in lieu of the issuance thereof.
28.
<PAGE>
Section 23. REDEMPTION AND TERMINATION.
(a) The Company may, at its option, upon approval by a majority of the
Board of Directors, at any time prior to the earlier of (i) the Shares
Acquisition Date, or (ii) the Final Expiration Date redeem all but not less
than all the then outstanding Rights at a redemption price of $0.001 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"), and the Company
may, at its option, pay the Redemption Price either in cash, shares of Common
Stock (based on the current per share market price thereof (as determined
pursuant to Section 11(d) hereof) at the time of redemption), or any other
form of consideration deemed appropriate by the Board of Directors. 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 a majority of the Board
of Directors in its sole discretion may establish.
(b) Immediately upon the action of a majority of the Board of Directors
of the Company ordering the redemption of the Rights pursuant to paragraph
(a) of this Section 23, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
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 a majority of the Board of Directors ordering the
redemption of the Rights, the Company shall give notice of such redemption to
the Rights Agent and 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 Stock. Any notice which
is mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice. Each such notice of redemption will state
the method by which the payment of the Redemption Price will be made.
Neither the 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 or in Section 24 hereof, and
other than in connection with the purchase of shares of Common Stock prior to
the Distribution Date.
(c) Notwithstanding anything contained in this Agreement to the
contrary, the Rights shall not be exercisable pursuant to Section 7(a) at any
time when the Rights are redeemable hereunder.
Section 24. EXCHANGE.
(a) The Company, at its option, upon approval by a majority of the
Company's Board of Directors, at any time after any Person becomes an
Acquiring Person, may 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 Units of Preferred
Stock at an exchange ratio equal to, subject to adjustment to reflect stock
splits, stock dividends and similar transactions occurring after the date
hereof, that number obtained by dividing the Purchase Price by the then
current per share market price per Unit of Preferred Stock on the earlier of
(i) the date on which any Person becomes an Acquiring Person and (ii) the
date on which a tender or exchange offer by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan maintained
by the Company or any of its Subsidiaries or any trustee or
29.
<PAGE>
fiduciary with respect to such plan acting in such capacity) is first
published or sent or given within the meaning of Rule 14d-4(a) of the
Exchange Act Regulations or any successor rule, if upon consummation thereof
such Person would be the Beneficial Owner of 15% or more of the shares of
Common Stock then outstanding (such exchange ratio being hereinafter referred
to as the "Section 24(a) Exchange Ratio"). Notwithstanding the foregoing,
the Company may not effect such exchange at any time after any Person (other
than the Company, any Subsidiary of the Company, any employee benefit plan
maintained by the Company or any of its Subsidiaries, or any trustee or
fiduciary with respect to such plan acting in such capacity), together with
all Affiliates and Associates of such Person, becomes the Beneficial Owner of
50% or more of the shares of Common Stock then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (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 Units of
Preferred Stock equal to the number of such Rights held by such holder
multiplied by the Section 24(a) 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 Units of Preferred Stock for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 7(e) hereof) held by each holder of Rights.
(c) In the event that the number of shares of Preferred Stock which are
authorized by the Company's Certificate of Incorporation but not outstanding
or reserved for issuance for purposes other than upon exercise of the Rights
are not sufficient to permit any exchange of Rights as contemplated in
accordance with this Section 24, the Company shall take all such action as
may be necessary to authorize additional shares of Preferred Stock for
issuance upon exchange of the Rights or make adequate provision to substitute
(1) cash, (2) Company Common Stock or other equity securities of the Company,
(3) debt securities of the Company, (4) other assets, or (5) any combination
of the foregoing, having an aggregate value equal to the Adjustment Spread,
where such aggregate value has been determined by a majority of the Company's
Board of Directors.
(d) The Company shall not be required to issue fractions smaller than
or to distribute certificates which evidence fractions smaller than one
one-thousandth of a share of Preferred Stock. In lieu thereof, the Company
shall pay to the registered holders of the Rights Certificates with regard to
which such fractional Units would otherwise be issuable an amount in cash
equal to the same fraction of the current market value (as determined
pursuant to Section 11(d)(i) hereof) of one Unit of Preferred Stock.
30.
<PAGE>
Section 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose (i) to pay any dividend payable
in stock of any class to the holders of its Preferred Stock or to make any
other distribution to the holders of its Preferred Stock (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its
Preferred Stock rights or warrants to subscribe for or to purchase any
additional Units of Preferred Stock or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of
its Preferred Stock (other than a reclassification involving only the
subdivision of outstanding Preferred Stock), (iv) to effect any consolidation
or merger into or with any other Person (other than a Subsidiary of the
Company in a transaction which complies with Section 11(o)), 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 Stock payable in shares of Common Stock or to effect a
subdivision, combination or consolidation of the shares of Common Stock (by
reclassification or otherwise than by payment of dividends in shares of
Common Stock), then, in each such case, the Company shall give to each holder
of a Rights 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 shares of Common Stock and/or
shares of Preferred Stock, if any such date is to be fixed, and such notice
shall be so given in the case of any action covered by claue (i) or (ii)
above at least ten (10) days prior to the record date for determining holders
of the shares of Preferred Stock for purposes of such action, and in the case
of any such other action, at least ten (10) days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the shares of Common Stock and/or shares of Preferred Stock,
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 Rights 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. In the event any Person becomes an Acquiring Person, the
Company will promptly notify the Rights Agent thereof.
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 Rights
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:
Rhythms NetConnections Inc.
6933 South Revere Parkway
Englewood, Colorado 80112
Attention: President
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
Rights Certificate to or
31.
<PAGE>
on the Rights Agent shall be sent by registered or certified mail and shall
be deemed given upon receipt and addressed (until another address is filed in
writing with the Company) as follows:
American Securities Transfer & Trust, Inc.
1825 Lawrence Street, Suite 444
Denver, Colorado 80202-1817
Attention: Gregory D. Tubbs
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the
registry books of the Company.
Section 27. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution
Date, the Company may supplement or amend this Agreement in any respect,
without the approval of any holders of Rights, by action of its Board of
Directors, and the Rights Agent shall, if the Company so directs, execute
such supplement or amendment. From and after the Distribution Date, the
Company may from time to time supplement or amend this Agreement without the
approval of any holders of Rights, by action of its Board of Directors, in
order (i) to cure any ambiguity, (ii) to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, (iii) to shorten or lengthen any time period hereunder or
(iv) to change or supplement the provisions hereunder in any manner which the
Company may deem necessary or desirable and which shall not adversely affect
the interests of the holders of Rights Certificates (other than an Acquiring
Person or an Affiliate or Associate of an Acquiring Person), including,
without limitation, to change the Purchase Price, the Redemption Price, any
time periods herein specified, and any other term hereof, 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.
Upon receipt of a certificate from an appropriate officer of the Company that
the proposed supplement or amendment is consistent with this Section 27 and,
after such time as any Person has become an Acquiring Person, that the
proposed supplement or amendment does not adversely affect the interests of
the holders of Rights, the Rights Agent shall execute such supplement or
amendment.
Section 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS.
For all purposes of this Agreement, any calculation of the number of
shares of Common Stock outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares
of Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the Exchange Act.
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 of Directors, 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
32.
<PAGE>
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, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing),
which are done or made by the Board of Directors in good faith, shall (x) be
final, conclusive and binding on the Company, the Rights Agent, the holders
of the Rights Certificates and all other parties and (y) not subject the
Board of Directors to any liability to the holders of the Rights.]
Section 30. 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 Rights
Certificates (and, prior to the Distribution Date, shares of Common Stock)
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 Rights Certificates (and,
prior to the Distribution Date, shares of Common Stock).
Section 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated; provided, however, that notwithstanding anything in this
Agreement to the contrary, if any such term, provision, covenant or
restriction is held by such court or authority to be invalid, void or
unenforceable and the Board of Directors of the Company determines in its
good faith judgment that severing the invalid language from this Agreement
would adversely affect the purpose or effect of this Agreement, the right of
redemption set forth in Section 23 hereof shall be reinstated and shall not
expire until the tenth Business Day following the date of such determination
by the Board of Directors of the Company.
Section 32. GOVERNING LAW. This Agreement and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of California 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 33. 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.
Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the
several sections of this Agreement are inserted or convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
33.
<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: RHYTHMS NETCONNECTIONS INC.
By /s/ John A. Denniston By /s/ Catherine M. Hapka
------------------------------------ ------------------------------
Name: John A. Denniston Name: Catherine M. Hapka
Title: Esquire Title: President and CEO
ATTEST: AMERICAN SECURITIES TRANSFER &
TRUST, INC., as Rights Agent
By /s/ Kellie Gwinn By /s/ Laura Sisneros
------------------------------------ ------------------------------
Name: Kellie Gwinn Name: Laura Sisneros
Title: Senior Vice President Trust Title: Vice President Trust
Officer Officer
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE>
EXHIBIT A
FORM
of
CERTIFICATE OF DESIGNATION
of
SERIES 1 JUNIOR PARTICIPATING PREFERRED STOCK
of
RHYTHMS NETCONNECTIONS INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
-----------------------
Rhythms NetConnections Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on March 27, 1999;
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the
Certificate of Incorporation, the Board of Directors hereby creates a series
of Preferred Stock, par value $0.001 per share (the "Preferred Stock"), of
the Corporation and hereby states the designation and number of shares, and
fixes the relative rights, preferences, and limitations thereof as follows:
Series 1 Junior Participating Preferred Stock:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series 1 Junior Participating Preferred Stock" (the "Series 1
Preferred Stock") and the number of shares constituting the Series 1
Preferred Stock shall be One Million (1,000,000). Such number of shares may
be increased or decreased by resolution of the Board of Directors; PROVIDED,
that no decrease shall reduce the number of shares of Series 1 Preferred
Stock to a number less than the number of shares then outstanding plus the
number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding
securities issued by the Corporation convertible into Series 1 Preferred
Stock.
A-1
<PAGE>
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Series 1 Preferred Stock with respect to dividends, each holder of a share
of Series 1 Preferred Stock, in preference to the holders of shares of
Common Stock, par value $0.001 per share (the "Common Stock"), of the
Corporation, and of any other junior stock, shall be entitled to receive,
when declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the last 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 Series 1 Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to, subject to the provision for
adjustment hereinafter set forth, One Thousand (1,000) times the aggregate
per share amount of all cash dividends, and One Thousand (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 or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of a
share or fraction of Series 1 Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of Series 1
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
shares of Series 1 Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided, however, that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any
Quarterly Distribution Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1.15 per share of Series 1 Preferred Stock
shall nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(C) Dividends shall begin to accrue and be cumulative on each
outstanding share of Series 1 Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such
share of Series 1 Participating Preferred Stock, unless the date of issue
of such share is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such share shall begin to accrue
from the date of issue of such share, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders
A-2
<PAGE>
of shares of Series 1 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 1
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 1 Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series 1 Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series 1 Preferred Stock shall entitle the holder thereof to
One Thousand (1,000) votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the number
of votes per share to which holders of shares of Series 1 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, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series 1 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 stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series 1 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 1 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 1 Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
A-3
<PAGE>
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series 1 Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the
Series 1 Preferred Stock, except dividends paid ratably on the shares
of Series 1 Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series 1 Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such junior
stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series 1 Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series 1 Preferred Stock, or any shares of
stock ranking on a parity with the Series 1 Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(A) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series 1 Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(A) Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (1) to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series 1 Preferred Stock unless, prior
thereto, the holders of shares of Series 1 Preferred Stock shall have
received One Thousand Dollars ($1,000) per share, plus an amount equal to
accrued and unpaid
A-4
<PAGE>
dividends and distributions thereon, whether or not declared, to the
date of such payment, provided that the holders of shares of Series 1
Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth,
equal to 1,000 times the aggregate amount to be distributed per share to
holders of shares of Common Stock, or (2) to the holders of shares of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series 1 Preferred Stock, except
distributions made ratably on the Series 1 Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of
all such shares are entitled upon such liquidation, dissolution or
winding up. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series 1 Preferred Stock
were entitled immediately prior to such event under the proviso in
clause (1) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstandng immediately prior to such event.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full to the Series 1 Liquidation Preference
and the liquidation preferences of all other series of Preferred Stock, if
any, which rank on a parity with the Series 1 Participating Preferred
Stock, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common
Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (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 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 each share of
Series 1 Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to One Thousand (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 declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
A-5
<PAGE>
Common Stock (by reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series 1 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. NO REDEMPTION. The shares of Series 1 Preferred Stock shall
not be redeemable.
Section 9. RANK. The Series 1 Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all
series of any other class of the Corporation's Preferred Stock.
Section 10. AMENDMENT. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Series 1 Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of at least a majority of the outstanding shares of Series 1
Preferred Stock, voting together as a single class.
A-6
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation by its Chief Financial Officer this 2nd day of April 1999.
-----------------------------------
Name: Scott C. Chandler
Title: Chief Financial Officer
<PAGE>
EXHIBIT B
Form of Rights Certificate
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER ____________________ OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT THE OPTION OF THE COMPANY AT $.__ PER RIGHT
AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY
OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF
AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS
RIGHTS 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 RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME
NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SUCH
AGREEMENT.](*)/
Rights Certificate
Rhythms NetConnections 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 __________ (the "Rights Agreement"), between Rhythms
NetConnections Inc., a Delaware corporation (the "Company"), and American
Securities Transfer & Trust, Inc. (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., California time, on ________________
at the office of the Rights Agent designated for such purpose, or at the office
of its successor as Rights Agent, one one-thousandth (a "Unit") of a fully paid
non-assessable share of Series 1 Junior Participating
(*) The portion of the legend in bracket shall be inserted only if
applicable and shall replace the preceding sentence.
B-1
<PAGE>
Preferred Stock, par value $.001 per share (the "Series 1 Preferred Stock") of
the Company, at a purchase price of $115 per Unit of Series 1 Preferred Stock
(the "Purchase Price"), upon presentation and surrender of this Rights
Certificate with the Form of Election to Purchase duly executed. The number of
Rights evidenced by this Rights Certificate (and the number of Units of Series 1
Preferred Stock which may be purchased upon exercise hereof) set forth above,
and the Purchase Price set forth above, are the number and Purchase Price as of
____________ based on the Series 1 Preferred Stock as constituted at such date.
As provided in the Rights Agreement, the Purchase Price and the number of Units
of Series 1 Preferred Stock which may be purchased upon the exercise of the
Rights evidenced by this Rights Certificate are subject to modification and
adjustment upon the happening of certain events.
This Rights 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 Rights Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Rights Certificate or Rights Certificates of like tenor
and date evidencing Rights entitling the holder to purchase a like aggregate
number of Series 1 Preferred Stock as the Rights evidenced by the Rights
Certificate or Rights Certificates surrendered shall have entitled such holder
to purchase. If this Rights Certificate shall be exercised in part, the holder
shall be entitled to receive upon surrender hereof another Rights Certificate or
Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Company at a redemption price of $.001
per Right.
No fractional shares of Series 1 Preferred Stock will be issued upon the
exercise of any Rights or Rights evidenced hereby (other than fractions which
are integral multiples of one one-thousandth of a share of Series 1 Preferred
Stock, which may, at the election of the Company, be evidenced by depositary
receipts), but in lieu thereof a cash payment will be made, as provided in the
Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Units of Series 1
Preferred Stock or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Rights or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
B-2
<PAGE>
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the signature of the proper officers of the Company and its
corporate seal. Dated as of ______________.
RHYTHMS NETCONNECTIONS INC.
ATTEST:
By By
-------------------------------- -----------------------------------
Name: Name:
Title: Title:
Countersigned:
,
- -------------------------------------
as Rights Agent
By
--------------------------------
Authorized Signatory
B-3
<PAGE>
Form of Reverse Side of Rights Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED ____________________ hereby sells, assigns and transfers
unto
- -------------------------------------------------------------------------------
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: __________, ____
----------------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a participant in a Securities Transfer
Association Inc. recognized signature guarantee medallion program.
B-4
<PAGE>
CERTIFICATE
The undersigned hereby certifies that the Rights evidenced by this Rights
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
---------------------------------------------
Signature
--------------------------------
NOTICE
The signature in the foregoing Form of Assignment must conform to the name
as written upon the face of this Rights Certificate in every particular, without
alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the Form of Assignment is
not completed, the Company and the Rights Agent will deem the beneficial owner
of the Rights evidenced by this Rights Certificate to be an Acquiring Person or
an Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment will not be honored.
B-5
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Rights Certificate.)
To Rhythms NetConnections Inc.
The undersigned hereby irrevocably elects to exercise ____________________
Rights represented by this Rights Certificate to purchase the units of Series 1
Preferred Stock issuable upon the exercise of such Rights and requests that
certificates for such Series 1 Preferred Stock 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 Rights
Certificate, a new Rights Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
--------------------------------------------------
(Please print name and address)
Dated: __________, ____
--------------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a participant in a Securities Transfer
Association Inc. recognized signature guarantee medallion program.
B-6
<PAGE>
CERTIFICATE
The undersigned hereby certifies that the Rights evidenced by this Rights
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
---------------------------------------------
Signature
-------------------------------------
NOTICE
The signature in the foregoing Form of Election to Purchase must conform to
the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the Form of Election to
Purchase, as the case may be, is not completed, the Company and the Rights Agent
will deem the beneficial owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement) and such Election to Purchase will not be
honored.
B-7
<PAGE>
Exhibit C
RHYTHMS NETCONNECTIONS INC.
SUMMARY OF RIGHTS TO PURCHASE
SHARES OF SERIES 1 PREFERRED STOCK
On March 27, 1999, the Board of Directors of Rhythms NetConnections Inc.
(the "Company") declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of Common Stock (the "Common Stock"), par
value $0.001 per share, and Preferred Stock (the "Preferred Stock"), par value
$0.001 per share, of the Company. The dividend is payable on April 6, 1999 (the
"Record Date") to the stockholders of record on that date. Each Right entitles
the registered holder to purchase from the Company one one-thousandth of a share
(a "Unit") of Series 1 Junior Participating Preferred Stock, par value $0.001
per share (the "Series 1 Preferred Stock"), of the Company at a price of $115
per Unit (the "Purchase Price"), subject to adjustment. The description and
terms of the Rights are set forth in a Rights Agreement dated as of April 2,
1999 (the "Rights Agreement") between the Company and American Securities
Transfer & Trust, Inc., as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 15% or more of the outstanding
Common Stock or (ii) 10 business days (or such later date as may be determined
by action of the Board of Directors prior to such time as any Person becomes an
Acquiring Person) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 15% or more of such
outstanding Common Stock (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Stock certificates outstanding as of the Record Date, by such Common
Stock certificate with a copy of this Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Stock. Until the Distribution
Date (or earlier redemption or expiration of the Rights), new Common Stock
certificates issued after the Record Date, upon transfer or new issuance of
Common Stock will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Stock,
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights being attached thereto, will also constitute the transfer of
the Rights associated with the Common Stock represented by such certificate. As
soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Rights Certificates") will be mailed to holders of
record of the Common Stock as of the Close of Business on the Distribution Date
and such separate Rights Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire at the close of business on April 2, 2009 (the "Final Expiration
Date"), unless the Final Expiration Date
C-1
<PAGE>
is extended or unless the Rights are earlier redeemed or exchanged by the
Company, in each case as described below.
The Purchase Price payable, and the number of Units of Preferred Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event
of a stock dividend on, or a subdivision, combination or reclassification of,
the Preferred Stock, (ii) upon the grant to holders of the Units of Preferred
Stock of certain rights or warrants to subscribe for or purchase Units of
Preferred Stock at a price, or securities convertible into Units of Preferred
Stock with a conversion price, less than the then current market price of the
Units of Preferred Stock or (iii) upon the distribution to holders of the
Units of Preferred Stock of evidences of indebtedness or assets (excluding
regular periodic cash dividends paid out of earnings or retained earnings or
dividends payable in Units of Preferred Stock) or of subscription rights or
warrants (other than those referred to above).
The number of outstanding Rights and the number of Units of Preferred
Stock issuable upon exercise of each Right are also subject to adjustment in
the event of a stock split of the Common Stock or a stock dividend on the
Common Stock payable in Common Stock or subdivisions, consolidations or
combinations of the Common Stock occurring, in any such case, prior to the
Distribution Date.
Units of Preferred Stock purchasable upon exercise of the Rights will
not be redeemable. Each Unit of Preferred Stock will be entitled to a
dividend equal to any dividend declared per share of Common Stock. In the
event of liquidation, each Unit of Preferred Stock will be entitled to a
payment equal to any payment made per share of Common Stock. Each Unit of
Preferred Stock will have one vote, voting together with the Common Stock.
Finally, in the event of any merger, consolidation or other transaction in
which shares of Common Stock are exchanged, each Unit of Preferred Stock will
be entitled to receive an amount equal to the amount received per share of
Common Stock. These rights are protected by customary anti-dilution
provisions.
Because of the nature of the dividend, liquidation and voting rights,
the value of each Unit of Preferred Stock purchasable upon exercise of the
Rights should approximate the value of one share of Common Stock.
In the event that, after the Rights become exercisable, the Company is
acquired in a merger or other business combination transaction with an
Acquiring Person or an affiliate thereof, or 50% or more of its consolidated
assets or earning power are sold to an Acquiring Person or an affiliate
thereof, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon exercise thereof at the then
current exercise price of the Rights, that number of shares of common stock
of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Rights.
In the event that any person or group of affiliated or associated
persons becomes the beneficial owner of 15% or more of the outstanding shares
of Common Stock, proper provision shall be made so that each holder of a
Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise that number of shares of Common Stock or Units of Preferred Stock
(or cash, other securities or property) having a market value of two times
the exercise price of the Rights.
C-2
<PAGE>
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
shares of Common Stock and prior to the acquisition by such person or group
of 50% or more of the outstanding Common Stock, the Board of Directors of the
Company may exchange all or part of the Rights (other than Rights owned by
such person or group which have become void) for Units of Preferred Stock at
an exchange ratio of (subject to adjustment) which shall equal, subject to
adjustment to reflect stock splits, stock dividends and similar transactions
occurring after the date hereof, that number obtained by dividing the
Purchase Price by the then current per share market price per Unit of
Preferred Stock on the earlier of (i) the date on which any Person becomes an
Acquiring Person and (ii) the date on which a tender or exchange offer is
announced by any Person, if upon consummation thereof such Person would be
the Beneficial Owner of 15% or more of the shares of Company Common Stock
then outstanding.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Preferred Stock will be issued
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock, which may, at the election of the Company, be
evidenced by depositary receipts) and, in lieu thereof, an adjustment in cash
will be made based on the market price of the Units of Preferred Stock on the
last trading day prior to the date of exercise.
At any time within ten (10) business days after a person or group of
affiliated or associated persons acquire beneficial ownership of 15% or more
of the outstanding Common Stock (unless the Board of Directors extend such
ten-day period), the Board of Directors of the Company may redeem the Rights
in whole, but not in part, at a price of $0.001 per Right (the "Redemption
Price"). The redemption of the rights may be made effective at such time on
such basis and with such conditions as the Board of Directors in its sole
discretion may establish. Immediately upon any redemption of the Rights, the
right to exercise the Rights will terminate and the only right of the holders
of Rights will be to receive the Redemption Price. The Rights are also
redeemable under other circumstances as specified in the Rights Agreement.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights except that from and
after a Distribution Date no such amendment may adversely affect the
interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the
Company on terms not approved by the Company's Board of Directors, except
pursuant to an offer conditioned on a substantial number of rights being
acquired. The Rights should not interfere with any merger or other business
combination approved by the Board of Directors because the Rights may be
redeemed by the Company at the Redemption Price prior to the occurrence of a
Distribution Date.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement. A copy of the
Rights Agreement is available free of charge from the Company. This summary
description of the Rights does not
C-3
<PAGE>
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is hereby incorporated herein by reference.
C-4