<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended December 31, 1995
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------
Commission file number 0-19339
EDMARK CORPORATION
(Exact name of Registrant as specified in its charter)
Washington 91-0858263
- ----------------------------- ----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
6727 185th Ave. N.E., Redmond, WA 98052
- ---------------------------------------- ----------------------------------
(Address of Principal Executive Offices) (Zip Code)
(206) 556-8400
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of January 22, 1996 there were 6,599,975 shares outstanding of the
Registrant's Common Stock, no par value.
Page 1 of 15 sequentially numbered pages.
<PAGE> 2
EDMARK CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - December 31, 1995
(unaudited) and June 30, 1995 3-4
Condensed Statements of Earnings (unaudited) -
Three and Six Months Ended December 31, 1995 and 1994 5
Condensed Statements of Cash Flows (unaudited) -
Six Months Ended December 31, 1995 and 1994 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
EDMARK CORPORATION
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
Assets 1995 1995
------ ------------- ------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and short-term investments $ 29,870,114 8,204,275
Trade accounts receivable, net of allowances
for doubtful accounts and sales returns of
$2,544,634 at December 31, and $1,103,771
at June 30 9,059,753 3,570,732
Inventories 2,000,529 1,685,757
Refundable Federal income taxes 0 59,677
Deferred Federal income taxes 1,065,531 629,601
Prepaid expenses and other
current assets 404,742 308,407
------------ ------------
Total current assets 42,400,669 14,458,449
------------ ------------
Equipment and leasehold improvements, at cost 4,532,769 3,620,715
Less accumulated depreciation
and amortization (1,863,944) (1,388,720)
------------ ------------
Net equipment and
leasehold improvements 2,668,825 2,231,995
------------ ------------
$ 45,069,494 16,690,444
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
EDMARK CORPORATION
Condensed Balance Sheets
(Continued)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------ -----------
(unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Trade accounts payable $ 1,451,798 916,165
Accrued liabilities 2,680,340 1,460,465
Federal income taxes payable 1,314,426 0
Deferred revenue 104,807 626,581
----------- -----------
Total current liabilities 5,551,371 3,003,211
----------- -----------
Stockholders' Equity:
Common stock, no par value 36,144,043 12,962,182
Retained earnings 3,374,080 725,051
----------- -----------
Total stockholders' equity 39,518,123 13,687,233
----------- -----------
$45,069,494 16,690,444
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
EDMARK CORPORATION
Condensed Statements of Earnings
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31, Ended December 31,
----------------------------- ------------------------------
1995 1994 1995 1994
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues $12,706,247 6,696,211 19,638,073 10,833,075
Cost of sales 3,067,304 2,187,298 4,733,006 3,460,790
----------- ----------- ----------- -----------
Gross profit 9,638,943 4,508,913 14,905,067 7,372,285
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing 3,988,845 1,957,028 6,470,251 3,591,105
General and administrative 722,576 527,960 1,352,952 1,002,383
Research and development 1,897,343 975,525 3,937,618 1,964,319
----------- ----------- ----------- -----------
Total operating expenses 6,608,764 3,460,513 11,760,821 6,557,807
----------- ----------- ----------- -----------
Operating income 3,030,179 1,048,400 3,144,246 814,478
Interest income 296,698 83,798 505,536 163,652
----------- ----------- ----------- -----------
Earnings before
income taxes 3,326,877 1,132,198 3,649,782 978,130
Income tax expense 919,487 67,932 1,000,753 67,932
----------- ----------- ----------- -----------
Net earnings $ 2,407,390 1,064,266 2,649,029 910,198
=========== =========== =========== ===========
Net earnings per share $ 0.33 0.17 0.36 0.15
=========== =========== =========== ===========
Weighted average number
of shares outstanding 7,380,223 6,217,082 7,292,110 6,093,588
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE> 6
EDMARK CORPORATION
Condensed Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net cash provided (used) by operating activities $ (603,967) 699,217
------------ ------------
Cash flows from investing activities:
Decrease in short-term investments 2,620,211 2,195,455
Purchase of equipment and leasehold improvements (912,054) (343,515)
------------ ------------
Net cash provided by
investing activities 1,708,157 1,851,940
------------ ------------
Cash flows from financing activities - net
proceeds from sale of common stock and
exercise of stock options and stock warrants 23,181,860 194,063
------------ ------------
Net increase in cash and
cash equivalents 24,286,050 2,745,220
Cash and cash equivalents at beginning of period 4,028,632 477,694
------------ ------------
Cash and cash equivalents at end of period 28,314,682 3,222,914
Short-term investments 1,555,432 4,763,178
------------ ------------
Cash and short-term investments at end of period $ 29,870,114 7,986,092
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
6
<PAGE> 7
EDMARK CORPORATION
Notes to Condensed Financial Statements
(1) BASIS OF PRESENTATION
The unaudited condensed financial statements and related notes have
been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The accompanying
condensed financial statements and related notes should be read in
conjunction with the audited financial statements and notes thereto
included in the Company's 1995 Annual Report to Shareholders.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of only normal recurring accruals, necessary
for a fair presentation of the results for the interim periods
presented.
(2) RECLASSIFICATIONS
Certain reclassifications have been made in the fiscal year 1995
financial statements in order for them to conform to the fiscal year
1996 presentation.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
--------------- ------------
(unaudited)
<S> <C> <C>
Work in Process $ 1,322,504 976,722
Finished Goods 678,025 709,035
--------------- ------------
$ 2,000,529 1,685,757
=============== ============
</TABLE>
(4) EARNINGS PER SHARE
Per share information is based on the weighted average number of common
shares and common share equivalents outstanding during each period
presented. When dilutive, common stock equivalents are calculated using
the treasury stock method.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the financial
statements and the notes thereto and in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations in Edmark
Corporation's Annual Report on Form 10-K for the fiscal year ended June 30,
1995. This analysis has been prepared pursuant to the applicable rules and
regulations of the Securities and Exchange Commission and is not intended to
serve as a basis for projections of future events.
The Company's business is highly seasonal. Generally, sales of products in the
consumer channel are highest during the holiday quarter, the Company's second
fiscal quarter, and weakest during the Company's third fiscal quarter, while
sales of products in the education channel tend to be higher during the
Company's first and fourth fiscal quarters.
The Company's quarterly operating results also fluctuate or may fluctuate as a
result of the number, amount and timing of new product introductions, product
shipments, acceptance by customers of new products, product mix, product
returns, promotional programs, marketing expenditures and product development
expenditures. Net revenues in any quarter are principally dependent on orders
booked and shipped in that quarter. A significant portion of the Company's
operating expense is relatively fixed, and planned expenditures in any given
quarter are based on sales forecasts. Accordingly, if net revenues do not meet
the Company's expectations in any given quarter, operating results could be
adversely affected. In addition, if planned product introductions are delayed
beyond the peak selling seasons, the Company's operating results could be
adversely affected. There can be no assurance that the recent year-to-year and
quarter-to-quarter revenue growth rates realized will be sustained. Any
significant shortfall in net revenues from levels expected by securities
analysts or shareholders could result in substantial volatility in the trading
price of the Company's common stock.
GENERAL
The Company has been developing and publishing educational materials for
children since its inception in 1970. The Company entered the consumer
multimedia educational software market during fiscal 1993, with the release of
its first two titles during the 1992 holiday season. As of December 31, 1995,
the Company had published 13 multimedia educational software titles. During the
quarter, the Company released the fourth title in the Imagination Express
Destination Series, Destination: Ocean, the third title in the Thinkin' Things
Series, Thinkin' Things Collection 3, the first title in a new Strategy Games
Series, Strategy Games of the World, and a Macintosh version of KidDesk Family
Edition. All of the Company's multimedia titles are available for both Windows
and Macintosh
8
<PAGE> 9
computers on CD-ROM. At December 31, 1995, nine of the Company's PC based
multimedia software titles were designed for Windows 95. The Company's Windows
95 products are backward compatible with Windows 3.1.
RESULTS OF OPERATIONS
Net Revenues
Net revenues were comprised of the following ($000s):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
1995 1994 Change 1995 1994 Change
------- ------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Multimedia software products:
Consumer channel $ 9,650 4,577 111% $13,451 6,084 121%
Education channel 1,005 601 67% 1,800 1,136 58%
------- ------- ------- ------
Subtotal 10,655 5,178 106% 15,251 7,220 111%
Special education products 1,513 1,518 -- 3,285 3,613 (9%)
Other 538 0 -- 1,102 0 --
------- ------- ------- ------
Total $12,706 6,696 90% $19,638 10,833 81%
======= ======= ======= ======
</TABLE>
The significant increase in consumer channel sales when compared to the
comparable prior year periods is due primarily to an increase in the number of
products available for sale coupled with broader retail distribution. At the
time of product shipment, the Company establishes allowances for stock
balancing, including stock balancing related to the transition to Windows 95 as
well as the transition from floppy disk to CD-ROM product, price protection and
returns of defective, shelf-worn and damaged products, and for estimated
potential future returns of products. Actual product returns during the current
quarter amounted to $497,000, and the Company's allowance for sales returns at
December 31, 1995, was $2,473,000.
The increase in sales of multimedia software products in the education channel
is due primarily to an increase in the number of products available and expanded
distribution in the education market.
The Company expects sales of its special education products will decline over
time, reflecting the Company's strategic emphasis on its multimedia software
products.
The Company also recognized $538,000 of research and development co-funding
revenue during the quarter related to the previously announced strategic
alliance with Harcourt Brace School Publishers. For the six month period, these
revenues were $1,102,000.
9
<PAGE> 10
Cost of Revenues
Cost of revenues was $3,067,000 in the current quarter, an increase of 40% from
$2,187,000 in the year ago quarter, but a decrease as a percentage of net
revenues to 24% from 33%. For the six month period, cost of revenues was
$4,733,000, an increase of 37% from $3,461,000 in the prior year period, but a
decrease as a percentage of net revenues to 24% from 32%. The decrease as a
percentage of net revenues was primarily due to the relative mix of revenue
shifting to products with higher gross profit margins. Excluding revenues under
the Harcourt Agreement, cost of revenues was 25% in the current quarter and 26%
for the six month period. Costs associated with revenue recognized under the
strategic alliance with Harcourt are included with research and development
expense.
Operating Expenses
Sales and marketing expenses were $3,988,000 in the current quarter, an increase
of 104% from $1,957,000 in the year ago quarter, and increased as a percentage
of net revenues to 31% from 29%. For the six month period, sales and marketing
expenses were $6,470,000, up 80% from $3,591,000 in the prior year period, but
were unchanged as a percentage of net revenues at 33%. The expense increase was
primarily due to increased costs associated with increased sales of the
Company's line of multimedia educational software products.
General and administrative expenses were $723,000 in the current quarter, an
increase of 37% from $528,000 in the year ago quarter, but a decrease as a
percentage of net revenues to 6% from 8%. For the six month period, general and
administrative expenses were $1,353,000, up 35% from $1,002,000 in the prior
year period, but a decrease as a percentage of net revenues to 7% from 9%. The
expense increase was primarily due to higher salaries and costs associated with
the Company's expanded operations. However, these costs increased at a rate less
than the increase in net revenues due to greater economies of scale.
Research and development expenses were $1,897,000 in the current quarter, an
increase of 94% from $976,000 in the year ago quarter, but were unchanged as a
percentage of net revenues at 15%. For the six month period, research and
development expenses were $3,938,000, up 100% from $1,964,000 in the prior year
period, and increased as a percentage of net revenues to 20% from 18%. The
increase in research and development expenses was primarily attributable to
costs associated with continued expansion of the Company's line of multimedia
software products. Salaries and related costs represent a substantial portion of
this expense increase.
Income Taxes
Income tax expense amounted to $919,000 in the quarter and $1,001,000 for the
six month period. The Company's effective tax rate for both the quarter and six
month period differed from the statutory rate due to reductions in valuation
allowances on deferred tax assets and tax exempt interest income.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
On August 9, 1995, the Company consummated a public offering of 1,121,250 shares
of Common Stock, of which 638,873 shares were sold by the Company, which raised
net proceeds of approximately $22.5 million. As of December 31, 1995, the
Company had cash and short-term investments of $29.9 million and working capital
of $36.8 million.
The Company uses its working capital to finance ongoing operations, to fund the
development and introduction of new products and to acquire capital equipment.
During the six month period ended December 31, 1995, the Company's operating
activities used cash of $604,000 to support working capital requirements related
to higher sales volume, and the Company invested $912,000 in equipment and
leasehold improvements.
The Company expects that cash flows from operations and existing cash and
short-term investments will be adequate to meet the Company's cash requirements
for the remainder of fiscal year 1996. The Company's cash and short-term
investments may decline during fiscal year 1996 for several reasons, including
higher planned levels of product development activities compared to fiscal year
1995 and greater working capital requirements associated with higher planned
sales levels.
11
<PAGE> 12
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
On December 5, 1995, a complaint was filed against the Company in the United
States District Court for the District of Massachusetts by Power Industries,
Inc. The complaint alleges that the Company's use of Imagination Express as a
product name has infringed a trademark of Power Industries related to Power
Industries' product, Imagination Station. The suit seeks preliminary and
permanent injunctive relief as well as unspecified compensatory and statutory
damages. The Company intends to vigorously defend the action, and management of
the Company believes the lawsuit will not have a material adverse effect on the
Company's financial position.
Item 2 - Changes in Securities
On November 29, 1995, the Company's Board of Directors adopted a Shareholders
Rights Agreement (the "Rights Plan"). Pursuant to the Rights Plan, the Board
declared a dividend of one right (the "Rights") for each share of Edmark
Corporation common stock, no par value (the "Common Stock"), outstanding on
December 15, 1995 (the "Record Date"). Each share of Common Stock issued after
the Record Date will be issued with an attached Right. The Rights will not
immediately be exercisable and detachable from the Common Stock. The Rights will
become exercisable and detachable only following the acquisition by a person or
a group of 20 percent or more of the outstanding Common Stock or following the
announcement of a tender or exchange offer for 20 percent or more of the
outstanding Common Stock.
The Rights will, if they become exercisable, permit the holders of the Rights to
purchase a certain amount of Common Stock at 50 percent of its value. Where an
acquiring company effects a merger or other control transaction with the
Company, the Rights may also entitle the holder to acquire stock of the
acquiring company at 50 percent of its value. If a person or group acquires 20
percent or more of the Common Stock (or announces a tender or exchange offer for
20 percent or more of the Common Stock), the acquiring person's or group's
Rights become void. After the acquisition by a person or a group of 20 percent
or more of the outstanding Common Stock or following the announcement of a
tender or exchange offer for 20 percent or more of the outstanding Common Stock,
but before that person or group acquires 50 percent or more of the outstanding
Common Stock, the Board may exchange the Rights for one-half that number of
securities that will be issuable at such time upon the exercise of the Right
pursuant to the terms of the Rights Plan, and without payment of the Purchase
Price. In certain circumstances, the Rights may be redeemed by the Company at a
redemption price of $.001 per Right. If not earlier exchanged or redeemed, the
Rights will expire on November 29, 2005.
This summary of the Rights Plan is qualified in its entirety by the Rights Plan,
which is filed as Exhibit 4.2 to this report.
12
<PAGE> 13
Item 3 - Defaults Upon Senior Securities
Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on October 19, 1995. Out
of the Company's 6,584,334 shares of common stock entitled to vote at the
meeting, 5,936,716 were represented, either in person or by proxy.
Proposal Number 1 - Election of Directors
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
------- --- --------
<S> <C> <C>
Frances M. Conley 5,929,972 6,744
Allan Epstein 5,865,895 7,344
Harvey N. Gillis 5,930,077 6,639
Allen D. Glenn 5,930,572 6,144
Douglas J. Mackenzie 5,929,172 6,494
Timothy Mott 5,930,222 6,494
Sally G. Narodick 5,930,572 6,144
W. Hunter Simpson 5,929,258 7,458
Richard S. Thorp 5,928,229 8,487
</TABLE>
Proposal Number 2 - Amendment of the Company's Stock Option Plan to increase the
number of shares available under the Plan from 1,575,000 shares to 1,950,000
shares and to expand the group of employees eligible for awards under the Option
Plan.
<TABLE>
<CAPTION>
Votes
-----
<S> <C>
For 4,034,101
Against 808,756
Abstain 15,891
Total Broker Non Votes 1,077,968
</TABLE>
Proposal Number 3 - Approval of the 1995 Non-Employee Directors' Stock Option
Plan.
<TABLE>
<CAPTION>
Votes
-----
<S> <C>
For 4,295,150
Against 565,201
Abstain 25,715
Total Broker Non Votes 1,050,650
</TABLE>
13
<PAGE> 14
Proposal Number 4 - Amendment of the Articles of Incorporation to increase the
number of shares of common stock, no par value, the Company is authorized to
issue from 10,000,000 to 30,000,000.
<TABLE>
<CAPTION>
Votes
-----
<S> <C>
For 5,256,134
Against 635,646
Abstain 24,555
Total Broker Non Votes 20,381
</TABLE>
Proposal Number 5 - Ratification of Appointment of Auditors
<TABLE>
<CAPTION>
Votes
-----
<S> <C>
For 5,926,235
Against 2,988
Abstain 7,493
</TABLE>
Item 5 - Other Information
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1 Articles of Incorporation (as amended October 23, 1995)
3.2 Bylaws (as amended November 29, 1995)
4.2 Shareholder Rights Agreement dated November 29, 1995
27 Financial Data Schedule
</TABLE>
b) Reports on Form 8-K
There were no reports on Form 8-K filed during the second
quarter ended December 31, 1995.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Edmark Corporation
(Registrant)
Date
January 25, 1996 /S/ Sally G. Narodick
------------------------------------------------
Sally G. Narodick
Chairman and Chief Executive Officer
January 25, 1996 /S/ Paul Bialek
------------------------------------------------
Paul N. Bialek
Vice President - Finance and Administration and
Chief Financial Officer
(Principal Accounting and Financial Officer)
15
<PAGE> 1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
EDMARK CORPORATION
The undersigned secretary of Edmark Corporation hereby certifies that
the following Restated Articles of Incorporation were adopted as the Articles
of Incorporation for this corporation:
ARTICLE I
---------
The name of the corporation is Edmark Corporation.
ARTICLE II
----------
The period of duration of the corporation is perpetual.
ARTICLE III
-----------
The purpose of the corporation is the transaction of any or all lawful
business for which corporations may be incorporated under Title 23A RCW.
ARTICLE IV
----------
The aggregate number of shares which the corporation shall have
authority to issue is 10,000,000 shares of no par common stock.
Capital stock may be issued by the corporation from time to time for
such consideration, including without limitation services, money or property,
as may be authorized by the Board of Directors establishing a price (in money
or other consideration) or a minimum price or general formula or method by
which the price will be determined, except in transactions that do not require
consideration under Title 23A RCW.
ARTICLE V
---------
The address of the registered office of the corporation is 14350
Northeast 21st, Bellevue, Washington 98007, and the name of its registered
agent at that address is Thomas C. Korten.
ARTICLE VI
----------
The number of Directors constituting the initial Board of Directors of
the corporation is five. Thereafter the number of Directors will be as may
from time to time be specified in the Bylaws. The persons who are to serve as
Directors until the next annual meeting of shareholders and until their
respective earlier removed in accordance with law, are:
<PAGE> 2
<TABLE>
<CAPTION>
Name Address
---- --------
<S> <C>
Donald M. Barton 14350 Northeast 21st
Bellevue, Washington 98007
Thomas C. Korten 14350 Northeast 21st
Bellevue, Washington 98007
R. Alex Polson 505 Madison, Suite #209
Seattle, Washington 98104
Stephen I. Sulzbacher 14350 Northeast 21st
Bellevue, Washington 98007
Richard S. Thorp 14350 Northeast 21st
Bellevue, Washington 98007
</TABLE>
ARTICLE VII
-----------
The corporation shall have the right to purchase its own shares to the
extent of unreserved and unrestricted surplus available therefor, whether
capital surplus or earned surplus. The Board of Directors may, from time to
time, distribute to its shareholders out of capital surplus of the corporation
a portion of its assets, in cash or property.
ARTICLE VIII
------------
The power to adopt, alter, amend or repeal the bylaws or adopt new
bylaws, subject to repeal or change by action of the shareholders, is vested in
the Board of Directors.
ARTICLE IX
----------
The corporation reserves the right to amend, change or repeal any
provision of these Articles of Incorporation in the manner now or later
prescribed by law, and all rights conferred upon shareholders herein are
subject to this reserved power. Any contract, transaction, or act of the
corporation or of the directors or of any officer of the corporation which is
ratified by a majority of a quorum of the shareholders of the corporation at
any annual meeting or any special meeting called for that purpose, will insofar
as permitted by law, be as valid and as binding as though ratified by every
shareholder of the corporation.
ARTICLE X
---------
The original incorporator was Gordon B. Bleil whose address on the
date of incorporation was Post Office Box 62, Redmond, Washington 98052.
The shareholders will not be entitled to cumulate their votes at any
election of directors.
2
<PAGE> 3
The shareholders will not have preemptive rights to acquire additional
shares or securities convertible into shares offered for sale or otherwise
issued by the corporation.
ARTICLE XII
-----------
The corporation may enter into contracts and otherwise transact
business as vendor, purchaser or otherwise, with its directors, officers and
shareholders and with corporations, associations, firms and entities in which
they are or may become interested as directors, officers, shareholders, members
or otherwise, as freely as though those adverse interests did not exist, even
though the vote, action or presence of those directors, officers or
shareholders may be necessary to obligate the corporation upon those contracts
or transactions. In the absence of fraud, none of those contracts or
transactions will be void or voidable and none of those directors, officers or
shareholders will be held liable to account to the corporation for any profit
or benefit realized by them through those contracts or transactions despite
those interests or their fiduciary relationship, if any, to the corporation.
In the case of directors and officers of the corporation (but not in the case
of shareholders who are not directors or officers), for these provisions to be
available to those directors or officers, the nature of their interests (but
not necessarily the details or extent) must have been disclosed or known to the
Board of Directors of the corporation at or prior to the meetings or time at
which the contracts or transactions were authorized or confirmed. A general
notice that directors or officers of the corporation are interested in any
other corporation, association, firm or entity will be sufficient disclosure
with respect to all contracts and transactions with the other corporation,
association, firm or entity.
ARTICLE XIII
------------
Any person who is or was a director or officer of the corporation
(including any domestic or foreign predecessor entity of the corporation in a
merger, consolidation or other transaction in which the predecessor's existence
ceased upon consummation of the transaction), and any person who, while a
director or officer of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan, shall be indemnified by the
penalties, fines, liabilities and claims, and amounts paid in settlement of any
thereof (including attorneys' fees and any expense of establishing a right to
indemnification and advances of expenses) to the fullest extent required by the
Washington Business Corporation Act and to the fullest extent of the
corporation's power to indemnify as provided in the Washington Business
Corporation Act. The corporation shall have the power to indemnify any other
employee or agent of the corporation (including any such predecessor entity),
to the fullest extent permitted by the Washington Business Corporation Act.
The
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corporation shall have the power to indemnify any officer who is not a director
of the corporation and any employee or agent of the corporation who is not a
director to such further extent as is consistent with law. The corporation may
purchase and maintain insurance on behalf of any person to the fullest extent
permitted by the Washington Business Corporation Act.
IN WITNESS WHEREOF, the undersigned has executed these Restated
Articles in duplicate this 30th day of June, 1985.
/s/ KRISTY A. HIGH
-----------------------------------
Secretary
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
Kristy A. High, being first duly sworn, upon oath deposes and says:
She is the Secretary of Edmark Corporation, and is authorized to verify this
document on behalf of the corporation; that she has read the foregoing Restated
Articles of Incorporation, knows the contents thereof and believes the same to
be true and to correctly set forth without change the corresponding provisions
of the Articles of Incorporation as heretofore amended; and that these Restated
Articles of Incorporation supersede the original Articles of Incorporation and
all amendments thereto.
/s/ KRISTY A. HIGH
-----------------------------------
SUBSCRIBED AND SWORN to before me on 1st day of July, 1985.
/s/ PEGGY J. YOUNG
-----------------------------------
[Notary Signature]
NOTARY PUBLIC for the State of
Washington, residing at
Kent, WA
-----------------------------------
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<PAGE> 5
ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
EDMARK CORPORATION
Pursuant to the provisions of RCW 23A.16 of the Washington Business
Corporation Act, the undersigned corporation hereby adopts the following
Articles of Amendment to its Articles of Incorporation:
FIRST. The name of the corporation is Edmark Corporation.
SECOND. Article IV of the Articles of Incorporation is amended by
adding a new third paragraph reading as follows:
As of the close of business on November 30, 1989, each
outstanding share of no par common stock of the corporation has been
reclassified into one share of no par common stock for each three
issued and outstanding shares of no par common stock, but without any
corresponding change in the aggregate number of shares which the
corporation shall continue to have authority to issue.
THIRD. The date of adoption of the Amendment by the shareholders of the
corporation is November 21, 1989.
FOURTH. The number of shares outstanding at the time of the adoption of the
Amendment was 5,434,947 of no par common stock of which 5,434,947 were entitled
to vote on the Amendment.
<PAGE> 6
FIFTH. 4,243,810 shares voted for the Amendment and 52,258 shares voted
against the Amendment.
EDMARK CORPORATION
By /s/ KRISTY A. HIGH
---------------------------
Kristy A. High
Its Secretary
11/29/89
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ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
EDMARK CORPORATION
Pursuant to RCW 23B.10.060 of the Washington Business Corporation Act,
the undersigned corporation hereby submits the following amendment to the
corporation's Articles of Incorporation.
1. The name of the corporation is Edmark Corporation.
2. The first paragraph of Article IV of the Company's Articles of
Incorporation is hereby amended to read in its entirety as follows:
ARTICLE IV
The aggregate number of shares which the corporation shall have
the authority to issue is 30,000,000 shares of no par common stock.
3. This amendment does not provide for an exchange,
reclassification, or cancellation of issued shares.
4. The date of the adoption of the amendment was October 19, 1995.
5. The amendment was duly approved by the shareholders of the
Company in accordance with the provisions of RCW 23B.10.030 and RCW 23B.10.040.
6. This amendment will be effective upon filing with the
Washington Secretary of State.
DATED: October 19, 1995.
EDMARK CORPORATION
By /s/ Sally G. Narodick
----------------------------
Sally G. Narodick, Chairman
and Chief Executive Officer
<PAGE> 1
BYLAWS
OF
EDMARK CORPORATION
(AS AMENDED AND RESTATED NOVEMBER 29, 1995)
ARTICLE I
Registered Office and Registered Agent
The registered office of the corporation shall be located in the State
of Washington at such place as may be fixed from time to time by the Board of
Directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identical with the registered
office. Any change in the registered agent or registered office shall be
effective upon filing such change with the office of the Secretary of State of
the State of Washington.
ARTICLE II
Shareholders' Meetings
Section 1. Annual Meetings. The annual meeting of the shareholders
of this corporation, for the purpose of election of directors and for such
other business as may come before it, shall be held in the month of November of
each year, at such time and place as may be fixed from time to time by the
Board of Directors. The failure to hold an annual meeting at the time stated
in these Bylaws does not affect the validity of any corporate action. If the
election of directors shall not be held during the month designated hereby for
any annual meeting for the shareholders, or at any adjournment thereof, the
Board of Directors shall cause the election to be held at a special meeting of
the shareholders as soon thereafter as conveniently may be.
Section 2. Special Meetings. Special meetings of the shareholders of
this corporation may be called at any time by the holders of 10% of all shares
of the corporation entitled to vote on any issue proposed to be considered at
the meeting, or by the Chairman, or by the Board of Directors. Only business
within the purpose or purposes described in the meeting notice may be conducted
at a special meeting of shareholders. The Board of Directors may designate any
place as the place of any special meeting called by the Chairman or the Board
of Directors, and special meetings called at the request of shareholders shall
be held at such place as may be determined by the Board of Directors and placed
in the notice of such meetings.
Section 3. Notice of Meetings. Written notice of annual or special
meetings of shareholders stating the place, day, and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called, shall be given by the Secretary, or persons authorized to call the
meeting, to each shareholder of record entitled to vote at the meeting. In the
case of an annual meeting, such notice shall be given not less than ten (10)
nor more than sixty (60) days prior to the date of the meeting, except that
notice of an annual meeting to act on an amendment to the Articles of
Incorporation, a plan of merger or share exchange, a proposed sale, lease,
exchange or other disposition of all or substantially all of the assets of the
corporation other than in the usual or regular course of business, or the
dissolution of the corporation shall be given no fewer than twenty (20) days
nor more than sixty
<PAGE> 2
(60) days before the meeting date. In the case of a special meeting, such
notice shall be given not less than fifty-five (55) nor more than sixty (60)
days prior to the date of the meeting.
Section 4. Waiver of Notice. Notice of the time, place, and purpose
of any meeting may be waived in writing (either before or after such meeting)
and will be waived by any shareholder by attendance of the shareholder in
person or by proxy, unless the shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting. Any
shareholder waiving notice of meeting shall be bound by the proceedings of the
meeting in all respects as if due notice thereof had been given.
Section 5. Quorum and Adjourned Meetings. Unless the Articles of
Incorporation or applicable law provide otherwise, a majority of the
outstanding shares of the corporation entitled to vote, represented in person
or by proxy, shall constitute a quorum at a meeting of shareholders. Once a
share is represented at a meeting, other than to object to holding the meeting
or transacting business, it is deemed to be present for the remainder of the
meeting and any adjournment thereof unless a new record date is set or is
required to be set for the adjourned meeting. A majority of the shares
represented at a meeting, even if less than a quorum, may adjourn the meeting
from time to time without further notice. At a reconvened meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the original meeting. Business may continue to
be transacted at a duly organized meeting and at any adjournment of such
meeting (unless a new record date is or must be set for the adjourned meeting),
notwithstanding the withdrawal of enough shares from either meeting to leave
less than a quorum.
Section 6. Proxies. At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder or by the
shareholder's duly authorized attorney in fact. Such proxy shall be filed with
the Secretary of the corporation before or at the time of the meeting. No
proxy shall be valid after eleven (11) months from the date of its execution,
unless otherwise provided in the proxy.
Section 7. Voting Record. After fixing a record date for a
shareholders' meeting, the corporation shall prepare an alphabetical list of
the names of all shareholders on the record date who are entitled to notice of
the shareholders' meeting. The list shall show the address of, and number of
shares held by, each shareholder. A shareholder, shareholder's agent, or a
shareholder's attorney may inspect the shareholder list, beginning ten (10)
days prior to the shareholders' meeting and continuing through the meeting, at
the corporation's principal office or at a place identified in the meeting
notice in the city where the meeting will be held during regular business hours
and at the shareholder's expense. The shareholder list shall be kept open for
inspection during such meeting or any adjournment.
Section 8. Voting of Shares. Except as otherwise provided by
applicable law, in the Articles of Incorporation or in these Bylaws, every
shareholder of record shall have the right at every shareholders' meeting to
one vote for every share standing in the shareholders' name on the books of the
corporation. Notwithstanding the foregoing, the shares of the corporation may
not be voted if they are owned, directly or indirectly, by another corporation,
and the corporation owns, directly or indirectly, a majority of shares of the
other corporation entitled
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to vote for directors of the other corporation. If a quorum exists, action on
a matter, other than election of directors, is approved by the shareholders if
the votes cast favoring the action exceed the votes cast opposing the action,
unless the Articles of Incorporation or applicable law require a greater number
of affirmative votes.
Section 9. Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or any
adjournment thereof, or entitled to receive payment of any dividend, the Board
of Directors may fix in advance a record date for any such determination of
shareholders, such date to be not more than seventy (70) days and, in the case
of a meeting of shareholders, not less than ten (10) days, prior to the date on
which the particular action requiring such determination of shareholders is to
be taken. If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the day before the date on which
notice of the meeting is mailed or the date on which the resolution of the
Board of Directors declaring such dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this Section, such determination shall apply to
any adjournment thereof, unless the Board of Directors fixes a new record date,
which it must do if the meeting is adjourned more than one hundred twenty (120)
days after the date fixed for the original meeting.
Section 10. Nomination of Directors. Only persons who are nominated
in accordance with the following procedures shall be eligible for election as
directors of this corporation. Nominations of persons for election to the
Board of Directors may be made at any annual meeting of shareholders (a) by or
at the direction of the Board of Directors (or any duly authorized committee
thereof) or (b) by any shareholder of this corporation (i) who is a shareholder
of record on the date of the giving of the notice provided for in this Section
10 and on the record date for the determination of shareholders entitled to
vote at the annual meeting, and (ii) who timely complies with the notice
procedures and form of notice set forth in this Section 10.
To be timely, a shareholder's notice must be given to the Secretary
of this corporation and must be delivered to or mailed and received at the
principal executive offices of this corporation not less than sixty (60) days
nor more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of shareholders; provided, however, that in the event
that the annual meeting is called for a date that is not within thirty (30)
days before or after the anniversary date, or no annual meeting was held in the
immediately preceding year, notice by the shareholder in order to be timely
must be so received no later than the close of business on the tenth (10th) day
following the day on which the notice of the annual meeting date was mailed to
shareholders or other public disclosure of the annual meeting date was made,
whichever first occurs.
To be in proper form, a shareholder's notice must be in written form
and must set forth (a) as to each person whom the shareholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class or series and number of shares of capital
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<PAGE> 4
stock of this corporation which are owned beneficially or of record by the
person, and (iv) any other information relating to the person that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder, and (b)
as to the shareholder giving the notice (i) the name and record address of the
shareholder, (ii) the class or series and number of shares of capital stock of
this corporation which are owned beneficially or by record by the shareholder,
(iii) a description of all arrangements or understandings between the
shareholder and each proposed nominee and any other person or persons
(including their names) pursuant to which the nomination(s) are to be made by
the shareholder, (iv) a representation that the shareholder intends to appear
in person or by proxy at the meeting to nominate the person named in its
notice, and (v) any other information relating to the shareholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. The notice must be accompanied by a written consent of
each proposed nominee to be named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of this
corporation unless nominated in accordance with the procedures set forth in
this Section 10. If the Chairman of the meeting determines that a nomination
was not made in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the nomination was defective and the defective
nomination shall be disregarded.
Section 11. Business at Annual Meetings. No business may be
transacted at an annual meeting of shareholders, other than business that is
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the annual meeting by
or at the direction of the Board of Directors (or any duly authorized committee
thereof), or (c) otherwise properly brought before the annual meeting by any
shareholder of this corporation (i) who is a shareholder of record on the date
of the giving of the notice provided for in this Section 11 and on the record
date for the determination of shareholders of record on the date for the
determination of shareholders entitled to vote at the annual meeting, and (ii)
who timely complies with the notice procedures and form of notice set forth in
this Section 11.
To be timely, a shareholder's notice must be given to the Secretary of
this corporation and must be delivered to or mailed and received at the
principal executive offices of this corporation not less than sixty (60) days
nor more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of shareholders; provided, however, that in the event
that the annual meeting is called for a date that is not within thirty (30)
days before or after the anniversary date, or no annual meeting was held in the
immediately preceding year, notice by the shareholder in order to be timely
must be so received no later than the close of business on the tenth (10th) day
following the day on which the notice of the annual meeting date was mailed to
shareholders or other public disclosure of the annual meeting date was made,
whichever first occurs.
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To be in proper form, a shareholder's notice must be in written form
and must set forth as to each matter the shareholder proposes to bring before
the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting the business
at the annual meeting, (ii) the name and record address of the shareholder,
(iii) the class or series and number of shares of capital stock of this
corporation which are owned beneficially or of record by each shareholder, (iv)
a description of all arrangements or understandings between the shareholder and
any other person or persons (including their names) in connection with the
proposal of the business, and (v) a representation that the shareholder intends
to appear in person or by proxy at the annual meeting to bring such business
before the meeting.
No business shall be conducted at the annual meeting of shareholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 11, provided, however, that, once the
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 11 shall be deemed to preclude
discussion by any shareholder of any such business. If the Chairman of the
annual meeting determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the business was not properly brought before the
meeting and the business shall not be transacted.
Section 12. Acceptance of Votes. If the name signed on a vote,
consent, waiver or proxy appointment does not correspond to the name of a
shareholder of the corporation, the corporation may accept the vote, consent,
waiver or proxy appointment, and give effect to it as the act of the
shareholder if: (i) the shareholder is an entity and the name signed purports
to be that of an officer, partner or agent of the entity; (ii) the name signed
purports to be that of an administrator, executor, guardian or conservator
representing the shareholder; (iii) the name signed purports to be that of a
receiver or trustee in bankruptcy of the shareholder; (iv) the name signed
purports to be that of a pledgee, beneficial owner or attorney-in-fact of the
shareholder; or (v) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all
co-owners.
ARTICLE III
Directors
Section 1. General Powers. All corporate powers shall be exercised
by or under the authority of, and the business and affairs of the corporation
shall be managed under the direction of, the Board of Directors except as
otherwise provided by the laws under which this corporation is formed or in the
Articles of Incorporation.
Section 2. Number. The number of Directors of the corporation shall
be nine (9). The number of Directors can be increased or decreased from time
to time by amending this Section, provided that no decrease in the number of
Directors shall shorten the term of any incumbent director.
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Section 3. Tenure and Qualifications. Each Director shall hold
office until the next annual meeting of shareholders, unless earlier removed.
Despite the expiration of a Director's term, the Director continues to serve
until the Director's successor shall have been elected and qualified or until
there is a decrease in the number of Directors. Directors need not be
residents of the State of Washington or shareholders of the corporation.
Section 4. Election. The Directors shall be elected by the
shareholders at their annual meeting each year; and if, for any cause, the
Directors shall not have been elected at an annual meeting, they may be elected
at a special meeting of shareholders called for that purpose in the manner
provided by these Bylaws.
Section 5. Vacancies. In case of any vacancy in the Board of
Directors, including a vacancy resulting from an increase in the number of
directors, the vacancy may be filled by the Board of Directors (even if they do
not constitute a quorum) or by the shareholders. A Director elected to fill a
vacancy shall be elected for the unexpired term of such Director's predecessor
in office. A vacancy on the Board of Directors created by reason of an
increase in the number of Directors may be filled by election by the Board of
Directors for a term of office continuing only until the next election of
Directors by the shareholders.
Section 6. Resignation. A Director may resign at any time by
delivering written notice to the Board of Directors, the Chairman or the
Secretary of the corporation. A resignation shall be effective when the notice
is delivered unless the notice specifies a later effective date.
Section 7. Removal of Directors. At a special meeting of
shareholders called expressly for that purpose, the entire Board of Directors,
or any member thereof, may be removed, with or without cause, by a vote of the
holders of a majority of shares then entitled to vote at an election of
Directors.
Section 8. Meetings.
(a) The annual meeting of the Board of Directors shall be
held immediately after the annual shareholders' meeting at the same place as
the annual shareholders' meeting or at such other place and at such other time
as may be determined by the Directors. No notice of the annual meeting of the
Board of Directors shall be necessary.
(b) Regular meetings of the Board of Directors shall be
held at such place and on such day and hour as shall from time to time be fixed
by the Chairman or by the Board of Directors. No other notice of regular
meetings of the Board of Directors shall be necessary.
(c) Special meetings of the Board of Directors may be
called at any time and place upon the call of the Chairman, the Secretary, or
any two (2) or more Directors. Notice of the time and place of each special
meeting shall be given orally or in writing by the Secretary, or the persons
calling the meeting, at least two (2) days in advance of the time of the
meeting. The purpose of the meeting need not be given in the notice. Notice
of any special meeting may be waived in writing or by telegram (either before
or after such meeting) and will
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be waived by any Director by attendance thereat, unless the Director attends
for the express purpose of objecting to the meeting as unlawfully called or
convened.
(d) At any meeting of the Board of Directors, any
business may be transacted, and the Board of Directors may exercise all of its
powers.
Section 9. Quorum and Voting.
(a) A majority the Directors fixed by Section 2 of this
Article III shall constitute a quorum. If less than a quorum is present, a
majority of the Directors present may adjourn any meeting from time to time
until a quorum is obtained, and no further notice thereof need be given.
(b) If a quorum is present when a vote is taken, the
affirmative vote of a majority of the Directors present at the meeting is the
act of the Board of Directors.
Section 10. Compensation. By resolution of the Board of Directors,
the Directors may be paid their expenses, if any, of attendance at each meeting
of the Board of Directors and at each meeting of a committee of the Board of
Directors, and may be paid a fixed sum for attendance at such each meeting, a
stated salary as Director or both. No such payment shall preclude any Director
from serving the corporation in any other capacity and receiving compensation
therefor.
Section 11. Presumption of Assent. A Director of the corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless:
(a) The Director objects at the beginning of the meeting,
or promptly upon the Director's arrival, to holding it or transacting business
at the meeting;
(b) The Director's dissent or abstention from the action
taken is entered in the minutes of the meeting; or
(d) The Director delivers written notice of the
Director's dissent or abstention to the presiding officer of the meeting before
its adjournment or to the corporation within a reasonable time after
adjournment of the meeting.
The right of dissent or abstention is not available to a Director who votes in
favor of the action taken.
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ARTICLE IV
Special Measures Applying to Both
Shareholder and Director Meetings
Section 1. Actions by Written Consent. Any corporate action required
or permitted by the Articles of Incorporation, Bylaws, or the laws under which
the corporation is formed, to be voted upon or approved at a duly called
meeting of the Directors, committee of Directors, or shareholders may be
accomplished without a meeting if one or more unanimous written consents of the
respective Directors or shareholders, setting forth the actions so taken, shall
be signed, either before or after the action taken, by all the Directors,
committee members or shareholders, as the case may be. Action taken by
unanimous written consent of the Directors or a committee of the Board of
Directors is effective when the last Director or committee member signs the
consent, unless the consent specifies a later effective date. Action taken by
unanimous written consent of the shareholders is effective when all consents
have been delivered to the corporation, unless the consent specifies a later
effective date.
Section 2. Meetings by Conference Telephone. Members of the Board of
Directors, members of a committee of Directors, or shareholders may participate
in their respective meetings by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time; participation in a meeting by
such means shall constitute presence in person at such meeting.
Section 3. Written or Oral Notice. Oral notice may be communicated
in person, or by telephone, wire or wireless equipment, which does not transmit
a facsimile of the notice. Oral notice is effective when communicated.
Written notice may be transmitted by mail, private carrier, or personal
delivery; telegraph or teletype; or telephone, wire or wireless equipment which
transmits a facsimile of the notice. Written notice to a shareholder is
effective when mailed, if mailed with first class postage prepaid and correctly
addressed to the shareholder's address shown in the corporation's current
record of shareholders. In all other instances, written notice is effective on
the earliest of the following: (a) when dispatched to the person's address,
telephone number, or other number appearing on the records of the corporation
by telegraph, teletype or facsimile equipment; (b) when received; (c) five days
after deposit in the United States mail, as evidenced by the postmark, if
mailed with first class postage, prepaid and correctly addressed; or (d) on the
date shown on the return receipt, if sent by registered or certified mail,
return receipt requested, and the receipt is signed by or on behalf of the
addressee. In addition, notice may be given in any manner not inconsistent
with the foregoing provisions and applicable law.
ARTICLE V
Officers
Section 1. Officers Designated. The corporation shall have such
offices and officers as designated from time to time by the Board of Directors.
Such officers of the corporation may include a Chairman, President, one or more
Vice Presidents (the number thereof to be determined by the Board of
Directors), a Secretary, and a Treasurer, each of whom shall be
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appointed by the Board of Directors. Such other officers and assistant
officers as may be deemed necessary may be appointed by the Board of Directors.
Any two or more offices may be held by the same person.
Section 2. Election, Qualification and Term of Office. Each of the
officers shall be appointed by the Board of Directors. The officers shall be
appointed by the Board of Directors at each annual meeting of the Board of
Directors. Except as hereinafter provided, each of said officers shall hold
office from the date of his appointment until the next annual meeting of the
Board of Directors and until a successor shall have been duly appointed and
qualified.
Section 3. Powers and Duties.
(a) Chairman. The Chairman of the corporation shall
have general supervision and control over the business and affairs of the
corporation subject to the authority of the Board of Directors. The Chairman
may sign, with any other proper officer of the corporation thereunto authorized
by the Board of Directors, certificates for shares of the corporation, any
deeds, mortgages, bonds, contracts, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these bylaws to some other officer or agent of the corporation or shall be
required by law to be otherwise signed or executed; and in general shall
perform all duties incident to such office and such other duties as may be
prescribed by the Board of Directors from time to time.
(b) The President. In the absence of the Chairman or in
the event of the Chairman's death, inability or refusal to act, the President
shall perform the duties of the Chairman and when so acting, shall have all of
and be subject to all the restrictions upon the Chairman. The President may
sign, with any other proper officer of the corporation thereunto authorized by
the Board of Directors, certificates for shares of the corporation; and shall
perform such other duties as from time to time may be assigned by the Chairman
or by the Board of Directors.
(c) The Vice President. In the absence of the Chairman
and the President or in the event of the death, inability or refusal to act of
both of them, the Executive Vice President, if one is designated, and otherwise
the Vice Presidents in the order designated at the time of their election, or
in the absence of any designation, then in the order of their election shall
perform the duties of the President and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
President shall perform such other duties as from time to time may be assigned
to such Vice President by the President or by the Board of Directors.
(d) Secretary. The Secretary shall: (1) keep the
minutes of the shareholders' and of the Board of Directors' meetings in one or
more books provided for that purpose and authenticate the records of the
corporation; (2) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (3) be custodian of the
corporate records and of the seal of the corporation (if any) and affix the
seal of the corporation to all documents as may be required; (4) keep a
register of the post office address of each shareholder
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which shall be furnished to the Secretary by such shareholder; (5) sign with
the Chairman, the President, or a Vice President, certificates for shares of
the corporation, the issuance of which shall have been authorized by resolution
of the Board of Directors; (6) have general charge of the stock transfer books
of the corporation; and (7) in general perform all duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to the Secretary by the Chairman or by the Board of Directors.
(e) The Treasurer. The Treasurer shall: (1) have charge
and custody of and be responsible for all funds and securities of the
corporation; (2) receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the name
of the corporation in such banks, trust companies or other depositories as
shall be selected in accordance with the provisions of Article VI of these
bylaws; and (3) in general perform all of the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to the
Treasurer by the Chairman or by the Board of Directors. If required by the
Board of Directors, the Treasurer shall give a bond for the faithful discharge
of the Treasurer's duties in such sum and with such surety or sureties as the
Board of Directors shall determine.
(f) Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries, when authorized by the Board of Directors, may sign with
the Chairman, the President or a Vice President certificates for shares of the
corporation or contracts, deeds or mortgages the issuance or execution of which
shall have been authorized by a resolution of the Board of Directors. The
Assistant Treasurers shall respectively, if required by the Board of Directors,
give bonds for the faithful discharge of their duties in such sum and with such
surety or sureties as the Board of Directors shall determine. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or
by the Chairman or the Board of Directors.
Section 4. Removal. The Board of Directors shall have the right to
remove any officer whenever in its judgment the best interests of the
corporation will be served thereby, but such removal shall be without prejudice
to the contract rights (if any) of the person so removed. Appointment of an
officer or agent shall not of itself create any contract rights.
Section 5. Vacancies. The Board of Directors shall fill any office
which becomes vacant with a successor who shall hold office for the unexpired
term and until a successor shall have been duly appointed and qualified.
Section 6. Compensation. The salaries and other compensation of all
officers of the corporation shall be fixed by the Board of Directors, or in
such other manner as the Board of Directors may determine.
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<PAGE> 11
ARTICLE VI
Committees
Section 1. Appointment. The Board of Directors by resolution adopted
by a majority of all Directors then in office, may designate two or more of its
members to constitute one or more committees of Directors. The creation,
delegation of authority to, or action by a committee does not alone constitute
compliance by a Director with the standards of conduct required under
applicable law.
Section 2. Authority. Each committee of the Board of Directors shall
have and may exercise all of the authority of the Board of Directors except to
the extent, if any, that such authority shall be limited by the resolution
appointing the committee and except also that the committee shall not have the
authority to: (1) authorize or approve distributions, except according to a
general formula or method prescribed by the Board of Directors; (2) approve or
recommend to shareholders actions or proposals required by applicable law to be
approved by shareholders; (3) fill vacancies on the Board of Directors or any
committee thereof; (4) amend all or any portion of the Articles of
Incorporation; (5) adopt, amend or repeal these Bylaws; (6) approve a plan of
merger not requiring shareholder approval; or (7) authorize or approve the
issuance or sale or contract for sale of shares, or determine the designation
and relative rights, preferences and limitations of a class or series of
shares, unless explicitly authorized to do so by the Board of Directors, within
limits specifically prescribed by the Board of Directors.
Section 3. Tenure and Qualifications. Each member of a committee
shall hold office until the next regular annual meeting of the Board of
Directors following the member's designation, and until the member's successor
is designated as a member of the committee and is elected and qualified.
Section 4. Meetings. Regular meetings of any committee may be held
without notice at such times and places as the committee may fix from time to
time by resolution. Special meetings of the any committee may be called by any
member thereof upon not less than one day's notice stating the place, date and
hour of the meeting, which notice may be written or oral. Any member of a
committee may waive notice of any meeting. The attendance at or participation
in any committee meeting by a member of the committee waives any required
notice to the committee meeting unless the member of the committee, at the
beginning of the meeting or promptly upon the members' arrival, objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to any action taken at the meeting. The notice
of a meeting of a committee need not state the business proposed to be
transacted at the meeting.
Section 5. Quorum. A majority of the members of any committee shall
constitute a quorum for the transaction of business at any meeting thereof, and
the affirmative vote of a majority of the members present at a meeting at which
a quorum is present shall constitute the act of the committee.
Section 6. Vacancies. Any vacancy in a committee may be filled by a
resolution adopted by a majority of all Directors then in office.
11
<PAGE> 12
Section 7. Resignations and Removal. Any member of a committee may
be removed at any time with or without cause by the Board of Directors. Any
member of a committee may resign from the committee at any time by giving
written notice to the Board of Directors, the Chairman or the Secretary of the
corporation, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 8. Procedure. Each committee shall elect a presiding officer
from its members and may fix its own rules of procedure which shall not be
inconsistent with these Bylaws.
ARTICLE VII
Contracts, Loans, Checks and Deposits
Section 1. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or
confined to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in
the name of the corporation, shall be signed by such officer or officers, agent
or agents of the corporation and in such manner as shall from time to time be
determined by the Board of Directors.
Section 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VIII
Certificates for Shares and Their Transfer
Section 1. Issuance, Form and Execution of Certificates. No shares
of the corporation shall be issued unless authorized by the Board of Directors.
Such authorization shall include the maximum number of shares to be issued, the
consideration to be received for each share, the value of any noncash
consideration, and a statement that the Board of Directors has determined that
such consideration is adequate. Certificates for shares of the corporation
shall be in such form as is consistent with the provisions of the applicable
law and shall state: (1) The name of the corporation and that the corporation
is organized under the laws of this state; (2) The name of the person to whom
issued; and (3) The number and class of shares and the designation of the
series, if any, which such certificate represents. They shall be signed by two
officers of the corporation, and the seal of the corporation may be affixed
thereto. The signatures of such officers upon a Certificate for shares of the
corporation may be facsimiles if the Certificate is
12
<PAGE> 13
manually signed on behalf of a transfer agent, or registered by a registrar,
other than the corporation itself or one of its employees. Certificates may be
issued for fractional shares.
Section 2. Transfers. Transfer of shares of the corporation shall be
made only on the corporation's records of shareholders, by the recordholder of
the certificate, or the holder's legal representative or attorney in fact who
shall furnish proper evidence of authority to transfer, and on surrender for
cancellation of the Certificate for such shares. The person who is recorded in
the shareholder records of the corporation as the owner of shares shall be
deemed by the corporation to be the owner of such shares for all purposes.
Section 3. Loss or Destruction of Certificates. In case of loss or
destruction of any certificate of shares, another may be issued in its place
upon proof of such loss or destruction and upon the giving of a satisfactory
indemnity bond to the corporation. A new certificate may be issued without
requiring any bond, when in the judgment of the Board of Directors it is proper
to do so.
ARTICLE IX
Books and Records
Section 1. Books of Accounts, Minutes and Share Register. The
corporation shall keep as permanent records minutes of all meetings of its
shareholders and Board of Directors, a record of all actions taken by the
shareholders or Board of Directors without a meeting, and a record of all
actions taken by a committee of the Board of Directors exercising the authority
of the Board of Directors on behalf of the corporation. The corporation shall
maintain appropriate accounting records. The corporation or its agent shall
maintain a record of its shareholders, in a form that permits preparation of a
list of the names and addresses of all shareholders, in alphabetical order by
class of shares showing the number and class of shares held by each. The
corporation shall keep a copy of the following records at its principal office:
the Articles or Restated Articles of Incorporation and all amendments to them
currently in effect; the Bylaws or Restated Bylaws and all amendments to them
currently in effect; the minutes of all shareholders' meetings, and records of
all actions taken by shareholders without a meeting, for the past three years;
its financial statements for the past three years, including balance sheets
showing in reasonable detail the financial condition of the corporation as of
the close of each fiscal year, and an income statement showing the results of
its operations during each fiscal year prepared on the basis of generally
accepted accounting principles or, if not, prepared on a basis explained
therein; all written communications to shareholders generally within the past
three years; a list of the names and business addresses of its current
directors and officers; and its most recent annual report delivered to the
Secretary of State of Washington.
Section 2. Copies of Resolutions. Any person dealing with the
corporation may rely upon a copy of any of the records of the proceedings,
resolutions, or votes of the Board of Directors or shareholders, when certified
by the Chairman, President or Secretary.
13
<PAGE> 14
ARTICLE X
Fiscal Year
The fiscal year of the corporation shall begin on July 1 and end on
June 30 of each year.
ARTICLE XI
Dividends
The Board of Directors may, from time to time, declare and the
corporation may pay dividends on its outstanding shares in the manner, and upon
the terms and conditions provided by law and its Articles of Incorporation.
ARTICLE XII
Indemnification of Directors, Officers and Others
Section 1. Right to Indemnification. Each person (including a
person's personal representative) who was or is made a party or is threatened
to be made a party to or is otherwise involved (including, without limitation,
as a witness) in any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, administrative, investigative or by or in
the right of the corporation, or otherwise (hereinafter a "proceeding"), by
reason of the fact that he or she (or a person of whom he or she is a personal
representative) is or was a director, officer, trustee, employee or agent of
the corporation or any predecessor or is or was serving at the request of the
corporation or any predecessor as a director, officer, partner, trustee,
employee, agent or in any other relationship or capacity whatsoever, of any
other foreign or domestic corporation, partnership, joint venture, employee
benefit plan or trust or other trust, enterprise or other private or
governmental entity, board, commission, body or other unit whatsoever
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action or inaction in an official capacity as a director, officer, partner,
trustee, employee, agent, or in any other relationship or capacity whatsoever,
or otherwise, shall be indemnified and held harmless by the corporation to the
fullest extent not prohibited by the Washington Business Corporation Act, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment does not prohibit the
corporation from providing broader indemnification rights than prior to the
amendment), against all expenses, liabilities, and losses (including but not
limited to attorneys' fees, judgments, claims, fines, ERISA and other excise
and other taxes and penalties, and other adverse effects and amounts paid in
settlement), reasonably incurred or suffered by the indemnitee; provided,
however, that no such indemnity shall indemnify any person from or on account
of acts or omissions of such person finally adjudged to be intentional
misconduct or a knowing violation of law, or from or on account of conduct of a
director finally adjudged to be in violation of RCW 23B.08.310, or from or on
account of any transaction with respect to which it was finally adjudged that
such person personally received a benefit in money, property, or services to
which the person was not legally entitled; and further provided, however, that,
except as provided in Section 2 of this Article with respect to suits relating
to rights to indemnification, the corporation shall indemnify any
14
<PAGE> 15
indemnitee in connection with a proceeding (or part thereof) initiated by the
indemnitee only if such proceeding (or part thereof) was authorized by the
board of directors of the corporation.
The right to indemnification granted in this Article is a contract
right and includes the right to be paid by the corporation the expenses
incurred in connection with any proceeding in advance of its final disposition
(hereinafter an "advance of expenses"); provided, however, that an advance of
expenses received by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee unless required by the Board of Directors) shall be made only
upon (i) receipt by the corporation of a written undertaking (hereinafter an
"undertaking") by or on behalf of such indemnitee, to repay advances of
expenses if and to the extent it shall ultimately be determined by order of a
court having jurisdiction (which determination shall become final upon
expiration of all rights to appeal), hereinafter a "final adjudication", that
the indemnitee is not entitled to be indemnified for such expenses under this
Article, and (ii) receipt by the corporation of written affirmation by the
indemnitee of his or her good faith belief that he or she has met the standard
of conduct necessary for indemnification by the corporation under this Article
as authorized by the Washington Business Corporation Act.
Section 2. Right of Indemnitee to Bring Suit. If any claim for
indemnification under Section 1 of this Article is not paid in full by the
corporation within sixty days after a written claim has been received by the
corporation, except in the case of a claim for an advance of expenses, in which
case the applicable period shall be twenty days, the indemnitee may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim. If the indemnitee is successful in whole or in part in any such
suit, or in any suit in which the corporation seeks to recover an advance of
expenses, the corporation shall also pay to the indemnitee all the indemnitee's
expenses in connection with such suit. The indemnitee shall be presumed to be
entitled to indemnification under this Article upon the corporation's receipt
of indemnitee's written claim (and in any suits relating to rights to
indemnification where the required undertaking and affirmation have been
received by the corporation), and thereafter the corporation shall have the
burden of proof to overcome that presumption. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel, or
shareholders) to have made a determination prior to the commencement of such
suit that the indemnitee is entitled to indemnification, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or shareholders) that the indemnitee is not entitled to
indemnification, shall be a defense to the suit or create a presumption that
the indemnitee is not so entitled. It shall be a defense to a claim for an
amount of indemnification under this Article (other than a claim for advances
of expenses prior to final disposition of a proceeding where the required
undertaking and affirmation have been received by the corporation) that the
claimant has not met the standards of conduct applicable (if any) under the
Washington Business Corporation Act to entitle the claimant to the amount
claimed, but the corporation shall have the burden of proving such defense. If
requested by the indemnitee, determination of the right to indemnity and amount
of indemnity shall be made by final adjudication (as defined above) and such
final adjudication shall supersede any determination made in accordance with
RCW 23B.08.550.
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<PAGE> 16
Section 3. Non-Exclusivity of Rights. The rights to indemnification
(including, but not limited to, payment, reimbursement and advances of
expenses) granted in this Article shall not be exclusive of any other powers or
obligations of the corporation or of any other rights which any person may have
or hereafter acquire under any statute, the common law, the corporation's
articles of incorporation or bylaws, agreement, vote of shareholders or
disinterested directors, or otherwise. Notwithstanding any amendment to or
repeal of this Article, any indemnitee shall be entitled to indemnification in
accordance with the provisions hereof with respect to any acts or omissions of
such indemnitee occurring prior to such amendment or repeal.
Section 4. Insurance, Contracts and Funding. The corporation may
maintain insurance, at its expense, to protect itself and any person (including
a person's personal representative) who is or was a director, officer, employee
or agent of the corporation or any predecessor or who is or was a director,
officer, partner, trustee, employee, agent, or in any other relationship or
capacity whatsoever, of any other foreign or domestic corporation, partnership,
joint venture, employee benefit plan or trust or other trust, enterprise or
other private or governmental entity, agency, board, commission, body or other
unit whatsoever, against any expense, liability or loss, whether or not the
power to indemnify such person against such expense, liability or loss is now
or hereafter granted to the corporation under the Washington Business
Corporation Act. The corporation may grant indemnity, and may enter into
contracts granting indemnity, to any such person, whether or not in furtherance
of the provisions of this Article, and may create trust funds, grant security
interests and use other means (including, without limitation, letters of
credit) to secure and ensure the payment of indemnification amounts.
Section 5. Separability of Provisions. If any provision or
provisions of this Article shall be held to be invalid, illegal or
unenforceable for any reason whatsoever (i) the validity, legality and
enforceability of the remaining provisions of this Article (including without
limitation, all portions of any paragraphs of this Article containing any such
provision held to be invalid, illegal or unenforceable, that are not themselves
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby, and (ii) to the fullest extent possible, the provisions of this
Article (including, without limitation, all portions of any paragraph of this
Article containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
be construed so as to give effect to the intent manifested by the provision
held invalid, illegal or unenforceable.
Section 6. Partial Indemnification. If a claimant is entitled to
indemnification by the corporation for some or a portion of expenses,
liabilities or losses, but not for the total amount thereof, the corporation
shall nevertheless indemnify the claimant for the portion of such expenses,
liabilities and losses to which the claimant is entitled.
Section 7. Successors and Assigns. All obligations of the
corporation to indemnify any director or officer: (i) shall be binding upon
all successors and assigns of the corporation (including any transferee of all
or substantially all of its assets and any successor by merger or otherwise by
operation of law), (ii) shall be binding on and inure to the benefit of the
spouse, heirs, personal representatives and estate of the director or officer,
and (iii) shall continue as to any indemnitee who has ceased to be a director,
officer, partner, trustee, employee or agent (or other relationship or
capacity). The corporation shall not effect any sale of substantially all of
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<PAGE> 17
its assets, merger, consolidation or other reorganization unless the surviving
entity agrees in writing to assume all such obligations of the corporation.
ARTICLE XIII
Corporate Seal
The Board of Directors may provide for a corporate seal which shall
have inscribed thereon the name of the corporation, the year and state of
incorporation and the words "corporate seal."
ARTICLE XIV
Amendment of Bylaws
These Bylaws may be amended, altered, or repealed and new bylaws may
be adopted by the Board of Directors at any regular or special meeting of the
Board of Directors.
17
<PAGE> 1
EDMARK CORPORATION
SHAREHOLDER RIGHTS AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. CERTAIN DEFINITIONS................................................. 1
SECTION 2. APPOINTMENT OF RIGHTS AGENT......................................... 7
SECTION 3. ISSUE OF RIGHTS AND RIGHT CERTIFICATES.............................. 8
SECTION 4. FORM OF RIGHT CERTIFICATES.......................................... 9
SECTION 5. EXECUTION, COUNTERSIGNATURE AND
REGISTRATION........................................................ 10
SECTION 6. TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE
OF RIGHT CERTIFICATES; LOST, STOLEN, DESTROYED
OR MUTILATED RIGHT CERTIFICATES;
UNCERTIFICATED RIGHTS............................................... 10
SECTION 7. EXERCISE OF RIGHTS; EXPIRATION DATE OF RIGHTS....................... 11
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT
CERTIFICATES........................................................ 13
SECTION 9. RESERVATION AND AVAILABILITY OF COMMON
SHARES.............................................................. 13
SECTION 10. COMMON SHARES RECORD DATE........................................... 14
SECTION 11. CERTAIN ADJUSTMENTS IN RIGHTS; EXCHANGE OF
RIGHTS FOR SHARES; BUSINESS COMBINATIONS............................ 14
SECTION 12. CERTAIN ADJUSTMENTS................................................. 19
SECTION 13. CERTIFICATE OF ADJUSTMENT........................................... 20
SECTION 14. ADDITIONAL COVENANTS................................................ 20
SECTION 15. FRACTIONAL RIGHTS AND FRACTIONAL SHARES............................. 20
SECTION 16. RIGHTS OF ACTION.................................................... 21
SECTION 17. TRANSFER AND OWNERSHIP OF RIGHTS AND RIGHT
CERTIFICATES........................................................ 22
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 18. RIGHT CERTIFICATE HOLDER NOT DEEMED A
SHAREHOLDER................................................................. 22
SECTION 19. CONCERNING THE RIGHTS AGENT................................................. 22
SECTION 20. MERGER OR CONSOLIDATION OR CHANGE OF RIGHTS
AGENT....................................................................... 22
SECTION 21. DUTIES OF RIGHTS AGENT...................................................... 23
SECTION 22. CHANGE OF RIGHTS AGENT...................................................... 24
SECTION 23. ISSUANCE OF ADDITIONAL RIGHTS AND RIGHT
CERTIFICATES................................................................ 25
SECTION 24. REDEMPTION AND TERMINATION.................................................. 26
SECTION 25. NOTICES..................................................................... 27
SECTION 26. SUPPLEMENTS AND AMENDMENTS.................................................. 27
SECTION 27. SUCCESSORS.................................................................. 28
SECTION 28. BENEFITS OF THIS RIGHTS AGREEMENT;
DETERMINATIONS AND ACTIONS BY THE COMPANY'S
BOARD OF DIRECTORS.......................................................... 28
SECTION 29. SEVERABILITY; CONFLICT WITH OTHER AGREEMENTS................................ 29
SECTION 30. GOVERNING LAW............................................................... 29
SECTION 31. DESCRIPTIVE HEADINGS........................................................ 29
EXHIBIT A..............................................................................................1-A
Form of Rights Certificate...................................................1-A
Form of Assignment...........................................................5-A
Form of Election to Purchase.................................................6-A
</TABLE>
ii
<PAGE> 4
EDMARK CORPORATION
SHAREHOLDER RIGHTS AGREEMENT
THIS SHAREHOLDER RIGHTS AGREEMENT is dated as of November 29, 1995 and
is between Edmark Corporation, a Washington corporation (the "Company"), and
First Interstate Bank of Washington, N.A., as Rights Agent (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one Right (as hereinafter defined) for each share of Common Stock,
no par value of the Company (the "Common Stock") outstanding at the Close of
Business (as hereinafter defined) on December 15, 1995 (the "Record Date") and
has authorized the issuance of one Right (as such number may hereafter be
adjusted pursuant to the provisions of this Rights Agreement) with respect to
each share of Common Stock that shall become outstanding between the Record Date
and the earliest of the Distribution Date, the Redemption Date or the Expiration
Date (as such terms are hereinafter defined); provided, however, that Rights may
be issued with respect to shares of Common Stock that shall become outstanding
after the Distribution Date and prior to the earlier of the Redemption Date or
the Expiration Date in accordance with the provisions of Section 23. Each Right
shall initially represent the right to purchase one Common Share.
Accordingly, in consideration of the premises and the mutual agreements
set forth in this Rights Agreement, the Company and the Rights Agent hereby
agree as follows:
SECTION 1. CERTAIN DEFINITIONS
For purposes of this Rights Agreement, the following terms have the
meanings indicated:
"Acquiring Person" shall mean any Person which, alone or together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
20% or more of the Common Shares then outstanding, but shall not include (a) the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or any of its Subsidiaries, or any Person holding Common Shares for or pursuant
to the terms of any such employee benefit plan or (b) any such Person who has
become such a Beneficial Owner solely because (i) of a change in the aggregate
number of Common Shares outstanding since the last date on which such Person
acquired Beneficial Ownership of any Common Shares or (ii) it acquired such
Beneficial Ownership in the good-faith belief that such acquisition would not
(y) cause such Beneficial Ownership to exceed 20% of the Common Shares then
outstanding and such Person relied in good faith in computing the percentage of
its Beneficial Ownership on publicly filed reports or documents of the Company
that are inaccurate or out-of-date or (z) otherwise cause a Distribution Date or
the adjustment provided for in Section 11(a) to occur. Notwithstanding clause
(b) of the prior sentence, if any Person that is not an Acquiring Person due to
such clause (b) does not reduce its percentage of Beneficial Ownership of Common
Shares to below 15% by the Close of Business on the fifth Business Day after
notice from the Company (the date of notice being the first day) that such
Person's Beneficial Ownership of Common Stock so exceeds 15%, such Person shall,
at the end of such five Business Day period, become an Acquiring Person (and
such clause (b) shall no longer apply to such Person). For purposes of this
definition, the determination whether any Person acted in "good faith" shall be
conclusively determined by the
<PAGE> 5
Company's Board of Directors, acting by a vote of those directors of the Company
whose approval would be required to redeem the Rights under Section 24.
"Affiliate" and "Associate" when used with reference to any Person,
shall have the respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the date
of this Rights Agreement.
A Person shall be deemed the "Beneficial Owner" of, and shall be deemed
to "beneficially own" and shall be deemed to have "Beneficial Ownership" of, any
securities:
(a) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire within 60
days of such time pursuant to any agreement, arrangement or
understanding (whether or not in writing), or upon the exercise of
conversion rights, exchange 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 payment or exchange;
(b) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of
or has "beneficial ownership" of (as determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Exchange Act), including
pursuant to any agreement, arrangement or understanding (whether or not
in writing); provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security under
this subparagraph (b) as a result of an agreement, arrangement or
understanding to vote such security (1) arising solely from a revocable
proxy or consent given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the Exchange Act
and the applicable rules and regulations thereunder, or (2) made in
connection with the Exchange Act and the applicable rules and
regulations thereunder, or (3) made in connection with, or to otherwise
participate in, a proxy or consent solicitation made, or to be made,
pursuant to, and in accordance with, the applicable provisions of the
Exchange Act and the applicable rules and regulations thereunder,
whether or not such agreement, arrangement or understanding described
in clause (1) or (2) above is also then reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(c) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliates 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) for
the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in clause (1) to subparagraph (b) of this
definition) or disposing of any voting securities of the Company;
provided, however, that nothing in this definition shall cause a person
engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities
acquired
2
<PAGE> 6
through such person's participation in good faith in a firm commitment
underwriting until the expiration of forty days after the date of such
acquisition.
"Book Value," when used with reference to Common Shares issued by any
Person, shall mean the amount of such Person's equity applicable to each Common
Share, determined (a) in accordance with generally accepted accounting
principles in effect on the date as of which such Book Value is to be
determined, (b) using all the consolidated assets and all the consolidated
liabilities of such Person on the date as of which such Book Value is to be
determined, except that no value shall be included in such assets for goodwill
arising from consummation of a business combination, and (c) after given effect
to (i) the exercise of all rights, options and warrants to purchase such Common
Shares (other than the Rights), and the conversion of all securities convertible
into such Common Shares, at an exercise or conversion price, per Common Share,
that is less than such Book Value before giving effect to such exercise or
conversion (whether or not exercisability or convertibility is conditioned upon
occurrence of a future event), (ii) all dividends and other distributions on the
capital stock of such Person declared prior to the date as of which such Book
Value is to be determined and to be paid or made after such date, and (iii) any
other agreement, arrangement or understanding (written or oral), or transaction
or other action prior to the date as of which such Book Value is to be
determined that would have the effect of thereafter reducing such Book Value.
"Business Combination" shall have the meaning set forth in Section
11(c)(i).
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in New York, New York, or
Seattle, Washington, are authorized or obligated by law or executive order to
close.
"Close of Business" on any given date shall mean 5:00 p.m., New York
City time, on such date; provided, however, that if such date is not a Business
Day, "Close of Business" shall mean 5:00 p.m., New York City time, on the next
succeeding Business Day.
"Common Shares," when used with reference to the Company prior to a
Business Combination, shall mean the shares of Common Stock of the Company, no
par value, or any other shares of capital stock of the Company into which the
Common Stock shall be reclassified or changed. "Common Shares," when used with
reference to any Person (other than the Company prior to a Business
Combination), shall mean shares of capital stock of such Person (if such Person
is a corporation) of any class or series, or units of equity interests in such
Person (if such Person is not a corporation) of any class or series, the terms
of which do not limit (as a maximum amount and not merely in proportional terms)
the amount of dividends or income payable or distributable on such class or
series or the amount of assets distributable on such class or series upon any
voluntary or involuntary liquidation, dissolution or winding up of such Person
and do not provide that such class or series is subject to redemption at the
option of such Person, or any shares of capital stock or units of equity
interests into which the foregoing shall be reclassified or changed; provided,
however, that, if at any time there shall be more than one such class or series
of capital stock or equity interests of such Person, "Common Shares" of such
Person shall include all such classes and series substantially in the proportion
of the total number of shares or other units of each such class or series
outstanding at such time.
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<PAGE> 7
"Common Stock" shall have the meaning set forth in the introductory
paragraph of this Rights Agreement.
"Company" shall have the meaning set forth in the introductory
paragraph of this Rights Agreement; provided, however, that if there is a
Business Combination, "Company" shall have the meaning set forth in Section
11(c)(iii).
The term "control" with respect to any Person shall mean the power to
direct the management and policies of such Person, directly or indirectly, by or
through stock ownership, agency or otherwise, or pursuant to or in connection
with an agreement, arrangement or understanding (written or oral) with one or
more other Persons by or through stock ownership, agency or otherwise; and the
term "controlling" and "controlled" shall have meanings correlative to the
foregoing.
"Continuing Director" shall mean any member of the Board of Directors
of the Company, while such Person is a member of the Board of Directors of the
Company, who is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a nominee or representative of an Acquiring Person or of
any such Affiliate or Associate, if (i) such Person was a member of the Board of
Directors of the Company prior to the date of this Agreement or (ii) such
Person's nomination for election or election to the Board of Directors of the
Company is recommended or approved by a majority of the then Continuing
Directors.
"Distribution Date" shall have the meaning set forth in Section 3(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as in
effect on the date in question, unless otherwise specifically provided in this
Rights Agreement.
"Exchange Consideration" shall have the meaning set forth in Section
11(b)(i).
"Expiration Date" shall have the meaning set forth in Section 7(a).
"Fully Diluted Basis" shall mean that, for purposes of calculating any
Person's percentage ownership of the Common Stock, except as described below,
all outstanding options or warrants to acquire Common Stock, or securities
convertible or exchangeable into Common Stock, shall be assumed to be exercised,
converted and exchanged into the shares of Common Stock into which they,
pursuant to their terms, may then or thereafter upon the passage of time be
exercised, converted or exchanged. For purposes of determining the aggregate
shares of outstanding Common Stock, unexercised stock options issued to
employees or directors for compensatory purposes pursuant to an employee stock
option or other stock incentive plan approved by a majority of the Continuing
Directors of the Board of Directors of the Common Stock shall not be deemed to
have been exercised except that for purposes of determining the aggregate shares
of Common Stock held by such Person, all such stock options held by such Person
shall be deemed to be exercised.
"Group" shall mean any Group as defined by Sections 13(d)(3) and
14(d)(2) of the Exchange Act.
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<PAGE> 8
"Involuntary Acquisition" shall mean, with respect to any Person, the
purchase or acquisition of beneficial ownership of Common Stock by such Person
as a result of any stock split, dividend, distribution, rights offering by the
Company or any Subsidiary of the Company, recapitalization of the Company,
reclassification or other change in the terms of the Securities held by such
Person, adjustment in the conversion or exchange ratio of any convertible or
exchangeable security or exercise, conversion or exchange of any option, right,
warrant or convertible or exchangeable security held by such Person.
"Major Part," when used with reference to the assets of the Company and
its Subsidiaries as of any date, shall mean assets (a) having a fair market
value aggregating 50% or more of the total fair market value of all the assets
of the Company and its Subsidiaries (taken as a whole) as of the date in
question, (b) accounting for 50% or more of the total value (net of depreciation
and amortization) of all the assets of the Company and its Subsidiaries (taken
as a whole) as would be shown on a consolidated or combined balance sheet of the
Company and its Subsidiaries as of the date in question, prepared in accordance
with generally accepted accounting principles then in effect, or (c) accounting
for 50% or more of the total amount of net income or revenues of the Company and
its Subsidiaries (taken as a whole) as would be shown on a consolidated or
combined statement of income of the Company and its Subsidiaries for the period
of 12 months ending on the last day of the Company's monthly accounting period
next preceding the date in question, prepared in accordance with generally
accepted accounting principles then in effect.
"Market Value," when used with reference to Common Shares on any date,
shall mean the average of the daily closing prices, par share, of such Common
Shares for the period that is the shorter of (a) 30 consecutive Trading Days
immediately prior to the date in question and (b) the number of consecutive
Trading Days beginning on the Trading Day immediately after the date of the
first public announcement of the event requiring a determination of the Market
Value and ending on the Trading Day immediately prior to the record date of such
event; provided, however, that, in the event that the Market Value of such
Common Shares is to be determined in whole or in part during a period following
the announcement by the issuer of such Common Shares of any action of the type
described in Section 12(a) that would require an adjustment thereunder, then,
and in each such case, the Market Value of such Common Shares shall be
appropriately adjusted to reflect the effect of such action on the market price
of such Common Shares. The closing price for each Trading Day shall be the
closing price quoted on the composite tape for securities listed on the New York
Stock Exchange, or, if such securities are not listed on such exchange, on the
principal United States securities exchange registered under the Exchange Act
(or any recognized foreign stock exchange) on which such securities are listed
or, if such securities are not listed on any such exchange, the average of the
closing bid and asked quotations with respect to a share of such securities on
the National Association of Securities Dealers, Inc. Automated Quotations System
or such other system then in use or, if no such quotations are available, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in such securities selected by the Company's Board
of Directors. If on any such Trading Day no market maker is making a market in
such securities, the closing price of such securities on such Trading Day shall
be deemed to be the fair value of such securities as determined in good faith by
the Company's Board of Directors
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<PAGE> 9
(whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent, the holders of Rights and all
other Persons).
"Permitted Offer" shall mean (i) a tender offer or an exchange offer
for all outstanding shares of Common Stock at a price and on terms determined by
at least a majority of the Continuing Directors who are not officers or
employees of the Company, after receiving advice from one or more investment
banking firms, to be (a) at a price and on terms that are fair to and in the
best interests of the Company's shareholders (taking into account all factors
that such members of the Board deem relevant including, without limitation,
prices that could reasonably be achieved if the Company or its assets were sold
in an orderly basis designed to realize maximum value) and (b) otherwise in the
best interests of the Company and its shareholders, or (ii) a tender offer or
exchange offer resulting in acceptance by shareholders holding, in aggregate,
90% or more of the outstanding Common Stock (other than shares beneficially
owned by the Acquiring Person, by its Affiliate, and by officers and directors
of the Company).
"Person" shall mean an individual, corporation, limited liability
company, partnership, joint venture, association, trust, unincorporated
organization or other entity.
"Principal Party" shall mean the Surviving Person in a Business
Combination; provided, however, that, if such Surviving Person is a direct or
indirect Subsidiary of any other Person, "Principal Party" shall mean the Person
which is the ultimate parent of such Surviving Person and which is not itself a
Subsidiary of another Person. In the event ultimate control of such Surviving
Person is shared by two or more Persons, "Principal Party" shall mean that
Person which is immediately controlled by such two or more Persons.
"Purchase Price" with respect to each Right shall mean $100.00, subject
to adjustment as provided herein, and shall be payable in lawful money of the
United States of America. All references herein to the Purchase Price shall mean
the Purchase Price as in effect at the time in question.
"Record Date" shall have the meaning set forth in the introductory
paragraph of this Rights Agreement.
"Redemption Date" shall have the meaning set forth in Section 24(a).
"Redemption Price" with respect to each Right shall mean $.001, as such
amount may from time to time be adjusted in accordance with Section 12. All
references in this Rights Agreement to the Redemption Price shall mean the
Redemption Price as in effect at the time in question.
"Registered Common Shares" shall mean Common Shares that are, as of the
date of consummation of a Business Combination, and have continuously been for
the 12 months immediately preceding such date, registered under Section 12 of
the Exchange Act.
"Right Certificate" shall mean a certificate evidencing a Right in
substantially the form attached to this Rights Agreement as Exhibit A.
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<PAGE> 10
"Right" shall mean the right to purchase Common Shares (or other
securities) as provided in this Rights Agreement.
"Securities Act" shall mean the Securities Act of 1933, as in effect on
the date in question, unless otherwise specifically provided in this Rights
Agreement.
"Subsidiary" shall mean a Person, at least a majority of the total
outstanding voting power being the power under ordinary circumstances (and not
merely upon the happening of a contingency) to vote in the election or directors
of such Person (if such Person is a corporation) of which is owned, directly or
indirectly, by another Person or by one or more other subsidiaries of such other
Person or by such other Person or by one or more other Subsidiaries of such
other Person.
"Surviving Person" shall mean (a) the Person which is the continuing or
surviving Person in a consolidation or merger specified in Section 11(c)(i)(A)
or 11(c)(i)(B) or (b) the Person to which the Major Part of the assets of the
Company and its Subsidiaries is sold, leased, exchange or otherwise transferred
or disposed of in a transaction specified in Section 11(c)(i)(C); provided,
however, that if the Major Part of the assets of the Person and its subsidiaries
is sold, leased, exchanged or otherwise transferred or disposed of in one or
more related transactions specified in Section 11(c)(i)(C) to more than one
Person, the "Surviving Person" in such case shall mean the Person that acquired
assets of the Company and/or its Subsidiaries with the greatest fair market
value in such transaction or transactions.
"Trading Day" shall mean a day on which the principal national
securities exchange (or principal recognized foreign stock exchange, as the case
may be) on which any securities or Rights, as the case may be, are listed or
admitted to trading is open for the transaction of business or, if the
securities or Rights in question are not listed or admitted to trading on any
national securities exchange (or recognized foreign stock exchange, as the case
may be), a Business Day.
SECTION 2. APPOINTMENT OF RIGHTS AGENT
The Company hereby appoints the Rights Agent to act as agent for the
Company and the holders of the Rights (who prior to the Distribution Date shall
also be the holders of the Common Stock) in accordance with the terms and
conditions of this Rights Agreement, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint one or more co-Rights
Agents as it may deem necessary or desirable (the term "Rights Agent" being used
in this Rights Agreement to refer, collectively, to the Rights Agent together
with any such co-Rights Agents). In the event the Company appoints one or more
co-Rights Agents, the respective duties of the Rights Agent and any co-Rights
Agents shall be as the Company shall determine.
SECTION 3. ISSUE OF RIGHTS AND RIGHT CERTIFICATES
(a) One Right shall be associated with each Common Share outstanding on
the Record Date, each additional Common Share that shall become outstanding
between the Record Date
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<PAGE> 11
and the earliest of the Distribution Date, the Redemption Date and the
Expiration Date and each additional Common Share with which Rights are issued
after the Distribution Date but prior to the earlier of the Redemption Date and
the Expiration Date as provided in Section 23; provided, however, that if the
number of outstanding Rights are combined into a smaller number of outstanding
Rights pursuant to Section 12(a) the appropriate fractional right determined
pursuant to such Section shall thereafter be associated with each such Common
Share.
(b) Until the earlier of (i) the Close of Business on the tenth
Business Day after the Date that the Company learns that a Person has become an
Acquiring Person and (ii) the Close of Business on such date, if any, as may be
designated by the Company's Board of Directors following the commencement of, or
first public disclosure of an intent to commence, 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 any of its Subsidiaries, or any Person holding
Common Shares for or pursuant to the terms of any such employee benefit plan)
for outstanding Common Shares, if upon consummation of such tender or exchange
offer such Person could be the Beneficial Owner of 20% or more of the
outstanding Common Shares (the Close of Business on the earlier of dates set
forth in (i) and (ii) being the "Distribution Date"), (y) the Rights will be
evidenced by the certificates for Common Shares registered in the names of the
holders thereof and not by separate Right Certificates and (z) the Rights,
including the right to receive Right Certificates, will be transferable only in
connection with the transfer of Common Shares. As soon as practicable after the
Distribution Date, the Rights Agent will send, by first-class, postage-prepaid
mail, to each record holder of Common Shares as of the Distribution Date, at the
address of such holder shown on the records of the Company, a Right Certificate
evidencing one whole Right for each Common Share (or for the number of Common
Shares with which one whole Right is then associated if the number of Rights per
Common Share held by such record holder has been adjusted in accordance with the
proviso in Section 3(a)). If the number of Rights associated with each Common
Share has been adjusted in accordance with the proviso in Section 3(a), at the
time of distributing the Right Certificates the Company may make any necessary
and appropriate rounding adjustments so that Right Certificates representing
only whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Right in accordance with Section 15(a). As of and after the
Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(c) With respect to any certificate for Common Shares, until the
earliest of the Distribution Date, the Redemption Date and the Expiration Date,
the Rights associated with the Common Shares represented by any such certificate
shall be evidenced by such certificate alone, the registered holders of the
associated Rights and the surrender for transfer of any such certificate shall
also constitute the transfer of the Rights associated with the Common Shares
represented thereby.
(d) Certificates issued for Common Shares after the Record Date
(including, without limitation, upon transfer or exchange of outstanding Common
Shares), but prior to the earliest of the Distribution Date, the Redemption Date
and the Expiration Date, shall have printed on, written on or otherwise affixed
to them the following legend:
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<PAGE> 12
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in the Edmark Corporation Shareholder
Rights Agreement dated as of November 29, 1995, as it may be amended
from time to time (the "Rights Agreement"), between Edmark Corporation
("Edmark") and First Interstate Bank of Washington, N.A., as Rights
Agent (or between Edmark and any successor Rights Agent under 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 Edmark. 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.
Edmark will mail to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.
Rights beneficially owned by Acquiring Persons or their Affiliates or
Associates (as such terms are defined in the Rights Agreement) and by
any subsequent holder of such Rights are null and void and
nontransferable.
Notwithstanding the requirements of this paragraph (d), the omission of a legend
shall not affect the enforceability of any part of this Rights Agreement or the
rights of any holder of Rights.
SECTION 4. FORM OF RIGHT CERTIFICATES
The Right Certificates (and the form of election to purchase and form
of assignment to be printed on the reverse side thereof) shall be in
substantially the form set forth as Exhibit A 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 we are not
inconsistent with the provisions of this Rights Agreement, or as may be required
to comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Sections 7, 11 and 23, the Right Certificates, whenever issued,
shall be dated as of the Distribution Date, and on their face shall entitle the
holders thereof to purchase such number of Preferred Shares as shall be set
forth therein for the Purchase Price set forth therein.
SECTION 5. EXECUTION, COUNTERSIGNATURE AND REGISTRATION
(a) The Right Certificates shall be executed on behalf of the Company
by the Chairman and Chief Executive Officer, the Chief Financial Officer or a
Vice President of the Company, either manually or by facsimile signature. The
Right Certificates shall be manually countersigned by the Rights Agent and shall
not be valid or obligatory for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Right Certificates shall
cease to be such an officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates may
nevertheless by countersigned by the Rights Agent and issued and delivered by
the Company with the same force and effect as though the person who signed such
Right Certificate had not ceased to be such an officer of the Company; and any
Right Certificate may be signed on behalf of the Company by any person who, at
the actual date of execution of such Right Certificate,
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<PAGE> 13
shall be a proper officer of the Company to sign such Right Certificate,
although at the date of execution of this Rights Agreement any such person was
not such an officer of the Company.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office in Seattle, Washington, books for
registration and transfer of the Right Certificates issued under this Rights
Agreement. Such books shall show the names and addresses of the respective
holders of the Right Certificates, the number of Rights evidenced by each Right
Certificate, the certificate number of each Right Certificate and the date of
each Right Certificate.
SECTION 6. TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; LOST, STOLEN, DESTROYED OR MUTILATED RIGHT
CERTIFICATES; UNCERTIFICATED RIGHTS
(a) Subject to the provisions of Section 7(e) and 15, at any time after
the Distribution Date, and at or prior to the Close of Business on the earlier
of the Redemption Date and the Expiration Date, any Right Certificate or Right
Certificates may be transferred, split up, combined or exchanged for another
Right Certificate or Right Certificates representing, in the aggregate, the same
number of Rights as the Right Certificate or the Right Certificates surrendered
then represented. Any registered holder desiring to transfer, split up, combine
or exchange any Right Certificate shall make such request in writing delivered
to the Rights Agent and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchange at the principal
office of the Rights Agent; provided, however, that neither the Rights Agent nor
the Company shall be obligated to take any action whatsoever with respect to the
transfer of any Right Certificate surrendered for transfer until the registered
holder shall have completed and signed the certification contained in the form
of assignment on the reverse side of such Right Certificate and shall have
provided such additional evidence of the identify of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonable request. Thereupon the Rights Agent shall, subject to the
provisions of Sections 7(a) and 15, countersign and deliver to the Person
entitled thereto a Right Certificate or Right Certificates, as the case may be,
as so requested. The Company may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any
transfer, split-up, combination or exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a valid Right Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Right Certificate of like tenor and deliver such new Right
Certificate to the Rights Agent for delivery to the registered owner in lieu of
the Right Certificate so lost, stolen, destroyed or mutilated.
(c) Notwithstanding any other provision of this Rights Agreement, the
Company and the Rights Agent may amend this Rights Agreement to provide for
uncertificated Rights in addition to or in place of Rights evidenced by Right
Certificates.
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<PAGE> 14
SECTION 7. EXERCISE OF RIGHTS; EXPIRATION DATE OF RIGHTS
(a) Subject to Section 7(a) and except as otherwise provided in this
Rights Agreement (including Section 11), each Right shall entitled the
registered holder thereof, upon exercise thereof as provided in this Rights
Agreement, to purchase for the Purchase Price, at any time after the
Distribution Date and at or prior to the earlier of (i) the Close of Business on
November 29, 2005 (the Close of Business on such date being the "Expiration
Date"), and (ii) the Redemption Date, upon payment of the Purchase Price, one
Common Share, subject to adjustment from time to time as provided in Sections 11
and 12.
(b) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided in this Rights Agreement)
in whole or in part at any time after the Distribution Date, upon surrender of
the Right Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the Rights Agent at the principal office of the Rights
Agent in Seattle, Washington, together with payment of the Purchase Price for
the Common Shares as to which the Rights are exercised, at or prior to the
earlier of (i) the Expiration Date and (ii) the Redemption Date.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the Common Shares to be purchased together
with an amount equal to any applicable transfer tax, in lawful money of the
United States of America, in cash, certified check or money order payable to the
order of the Company, equal to the Purchase Price of the Rights the holder
elects to exercise. The Rights Agent shall thereupon (i) either (A) promptly
requisition from any transfer agent of the Common Shares (or make available, if
the Rights Agent is the transfer agent) certificates for the number of Common
Shares to be purchased and the Company hereby irrevocably authorized its
transfer agent to comply with all such requests or (B) if the Company shall have
elected to deposit the Common Shares with a depositary agent under a depositary
arrangement, promptly requisition from the depositary agent depositary receipts
representing the number of Common Shares to be purchased (in which case
certificates for the Common Shares to be represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the Company will
direct the depositary agent to comply with all such requests, (ii) when
appropriate, promptly requisition from the Company the amount of cash to be paid
in lieu of the issuance of fractional shares in accordance with Section 15,
(iii) promptly after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered holder of such
Right Certificate, registered in such name or names as may be designated by such
holder, and (iv) when appropriate, after receipt promptly deliver such cash to
or upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise fewer than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to the registered holder of such Right
Certificate or to his or her duly authorized assigns, subject to the provisions
of Section 15.
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<PAGE> 15
(e) Notwithstanding anything in this Rights Agreement to the contrary,
any Rights that are at any time beneficially owned by an Acquiring Person or any
Affiliate or Associate of an Acquiring Person shall be null and void and
nontransferable, and any holder of any such Right (including any purported
transferee or subsequent holder) shall not have any right to exercise or
transfer any such Right.
(f) Notwithstanding anything in this Rights Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of any Right Certificates 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 Right
Certificate surrendered for such exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
(g) The Company may temporarily suspend, for a period of time not to
exceed 90 calendar days after the Distribution Date, the exercisability of the
Rights in order to prepare and file a registration statement under the
Securities Act, on an appropriate form, with respect to the Common Shares
purchasable upon exercise of the Rights and permit such registration statement
to become effective, provided, however, that no such suspension shall remain
effect after, and the Rights shall without any further action by the Company or
any other Person become exercisable immediately upon, the effectiveness of such
registration statement. Upon any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended and shall issue a further public announcement at such time
as the suspension is not longer in effect. Notwithstanding any provision in this
Rights Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction if the requisite qualification under the blue sky or securities
laws of such jurisdiction shall not have been obtained or the exercise of the
Rights shall not be permitted under applicable law.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES
All Right Certificates surrendered or presented for the purpose of
exercise, transfer, split-up, combination or exchange shall, and any Right
Certificate surrendered or presented for any purpose that represents Rights that
have become null and void and nontransferable pursuant to Section 7(e) shall, if
surrendered or presented to the Company or to any of its agents, be delivered to
the Rights Agent for cancellation or in canceled form, or, if surrendered or
presented to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
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 Right Certificate purchased or acquired by the Company. The Rights Agent
shall deliver all canceled Right Certificates to the Company, or shall, at the
Company's written request, destroy such canceled Right Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
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<PAGE> 16
SECTION 9. RESERVATION AND AVAILABILITY OF COMMON SHARES
(a) The Company covenants and agrees that it will use its best efforts
to reserve and that number of authorized and unissued Common Shares sufficient
to permit the exercise in full of all outstanding Rights.
(b) In the event that there shall not be sufficient authorized and
unissued Common Shares to permit the exercise or exchange of Rights in
accordance with Section 11, the Company covenants and agrees that it will use
its best efforts to have authorized additional Common Shares for issuance upon
the exercise or exchange of Rights pursuant to Section 11.
(c) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all Common Shares delivered upon exercise or
exchange of Rights shall, at the time of delivery of the certificates for such
Common Shares (subject to the payment of the Purchase Price), be duly and
validly authorized and issued and fully paid and non-assessable shares.
(d) So long as the Common Shares issuable upon the exercise or exchange
of Rights are to be listed on any national securities exchange or on Nasdaq, the
Company covenants and agrees to use its best efforts to cause, from and after
such time as the Rights become exercisable or exchangeable, all Common Shares
reserved for such issuance to be listed on such securities exchange or on
Nasdaq, upon official notice of issuance upon such exercise or exchange.
(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 that may be
payable in respect of the issuance or delivery of Right Certificates or of any
Common Shares upon the exercise or exchange of Rights. The Company shall not,
however, be required to pay any transfer tax that may be payable in respect of
any transfer or delivery of Right Certificates to a Person other than or in
respect of the issuance or delivery of certificates for the Common Shares in a
name other than that of, the registered holder of the Right Certificate
evidencing Rights surrendered for exercise or exchange or to issue or deliver
any certificates for Common Shares upon the exercise or exchange of any Rights
until any such tax shall have been paid (any such tax being payable by the
holder of such Right Certificate at the time of surrender) or until it has been
established to the Company's satisfaction that no such tax is due.
SECTION 10. COMMON SHARES RECORD DATE
Each Person in whose name any certificate for Common Shares is issued
upon the exercise or exchange of Rights shall for all purposes be deemed to have
become the holder of record of the Common Shares represented thereby on, and
such certificate shall be dated, the date on which the Right Certificate
evidencing such Rights was duly surrendered and payment of any Purchase Price
(and any applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date on which the Common Shares 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 Common Shares transfer books of the Company
are open.
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SECTION 11. CERTAIN ADJUSTMENTS IN RIGHTS; EXCHANGE OF RIGHTS
FOR SHARES; BUSINESS COMBINATIONS
(a) Upon a Person becoming an Acquiring Person unless the event causing
such Person to become an Acquiring Person is a Permitted Offer, or an event
described in Section 11(c), then proper provision shall be made so that each
holder of a Right (except as provided in Section 7(a)), shall thereafter have a
right to receive, upon exercise thereof for the Purchase Price in accordance
with the terms of this Rights Agreement, such number of Common Shares as shall
equal the result obtained by multiplying the Purchase Price by a fraction, the
numerator of which is the number of Common Shares for which a Right is then
exercisable and the denominator of which is 50% of the Market Value of the
Common Shares on a date on which a Person becomes an Acquiring Person. As soon
as practicable after a Person becomes an Acquiring Person (provided the Company
shall not have elected to make the exchange permitted by Section 11(b)(i) for
all outstanding Rights), the Company covenants and agrees to use its best
efforts to:
(i) Prepare and file a registration statement under the
Securities Act, on an appropriate form, with respect to the Common Shares
purchasable upon exercise of the Rights;
(ii) Cause such registration statement to become effective as
soon as practicable after such filing;
(iii) Cause such registration statement to remain effective
(with a prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date; and
(iv) Qualify or register the Common Shares purchasable upon
exercise of the Rights under the blue sky or securities laws of such
jurisdictions as may be necessary or appropriate.
(b) (i) The Company's Board of Directors may, at its option, at
any time after a Person becomes an Acquiring Person, mandatorily exchange all or
part of the then-outstanding and exercisable Rights (which shall not include
Rights that shall have become null and void and nontransferable pursuant to the
provisions of Section 7(e)) for consideration per Right consisting of one-half
of the securities that would be issuable at such time upon the exercise of one
Right in accordance with Section 11(a) (the consideration issuable per Right
pursuant to this Section 11(b)(i) being the "Exchange Consideration"). If the
Company's Board of Directors elects to exchange all the rights for the Exchange
Consideration pursuant to this Section 11(b)(i) prior to the physical
distribution of the Right Certificates, the Company may distribute the Exchange
Consideration in lieu of distributing Right Certificates, in which case for
purposes of this Rights Agreement holders of Rights shall be deemed to have
simultaneously received and surrendered for exchange Right Certificates on the
date of such distribution.
(ii) Any action of the Company's Board of Directors ordering
the exchange of any Rights pursuant to Section 11(b)(i) shall be irrevocable
and, immediately upon the taking of such action and without any further action
and without any notice, the right to exercise any such Right pursuant to Section
11(a) shall terminate and the only right thereafter of a holder of
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<PAGE> 18
such Right shall be to receive the Exchange Consideration in exchange for each
such Right held by such holder or, if the Exchange Consideration shall not have
been paid, to exercise any such Right pursuant to Section 11(c)(i). 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 holders of such Rights at their last addresses as they appear on the
registry books of the Rights Agent. Any notice that is mailed in the manner
provided in this Rights Agreement shall be deemed given, whether or not the
holder receives the notice. Each such notice of exchange will state the method
by which the exchange of the Rights for the Exchange Consideration will be
effected and, in the event of any partial exchange, the number of Rights that
will be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights that shall have become null and void and
nontransferable pursuant to the provisions of Section 7(e)) held by each holder
of Rights.
(c) (i) In the event that, following a Distribution Date,
directly or indirectly, any transactions specified in the following clause (A),
(B) or (C) of this Section 11(c)(i) (each such transaction being a "Business
Combination") shall be consummated:
(A) the Company shall consolidate with, or merge
with and into, any other Person),
(B) any Person shall merge with and into the
Company and, in connection with such merger, all or part of the Common Shares
shall be changed into or exchanged for capital stock or other securities of the
Company or of any other Person or cash or any other property, or
(C) the Company shall sell, lease, exchange or
otherwise transfer or dispose of (or one or more of its Subsidiaries shall sell,
lease, exchange or otherwise transfer or dispose of), in one or more
transactions, the Major Part of the assets of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons,
then, in each such case, proper provision shall be made so that each holder of a
Right, except as provided in Section 7(e), shall thereafter have the right to
receive, upon the exercise thereof for the Purchase Price in accordance with the
terms of this Rights Agreement, the securities specified below (or, at such
holder's option, if any Business Combination is consummated at any time after a
Person becomes an Acquiring Person, the securities specified in Section 11(a)):
(1) If the Principal Party in such
Business Combination has Registered Common Shares outstanding, each Right shall
thereafter represent the right to receive, upon the exercise thereof for the
Purchase Price in accordance with the terms of this Rights Agreement, such
number of Registered Common Shares or such Principal Party, free and clear of
all liens, encumbrances or other adverse claims, as shall have an aggregate
Market Value equal to the result obtained by multiplying the Purchase Price by
two, or
(2) If the Principal Party in such
Business Combination does not have Registered Common Shares outstanding, each
Right shall thereafter represent the right to
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<PAGE> 19
receive, upon the exercise thereof for the Purchase Price in accordance with the
terms of this Rights Agreement, at the election of the holder of such Right at
the time of the exercise thereof, any of:
(x) such number of Common
Shares of the Surviving Person in such Business Combination as shall have an
aggregate Book Value immediately after giving effect to such Business
Combination equal to the result obtained by multiplying the Purchase Price by
two;
(y) such number of Common
Shares of the Principal Party in such Business Combination (if the Principal
Party is not also the Surviving Person in such Business Combination) as shall
have an aggregate Book Value immediately after giving effect to such Business
Combination equal to the result obtained by multiplying the Purchase Price by
two; or
(z) if the Principal Party in
such Business Combination is an Affiliate of one or more Persons which has
Registered Common Shares outstanding, such number of Registered Common Shares of
whichever of such Affiliates of the Principal Party has Registered Common Shares
with the greatest aggregate Market Value on the date of consummation of such
Business Combination as shall have an aggregate Market Value on the date of such
Business Combination equal to the result obtained by multiplying the Purchase
Price by two.
(ii) The Company shall not consummate any Business Combination
unless each issuer of Common Shares for which Rights may be exercised, as set
forth in this Section 11(c), shall have sufficient authorized and unissued
Common Shares that have not been reserved for issuance (and that shall, when
issued upon exercise thereof in accordance with this Rights Agreement, be
validly issued, fully paid and nonassessable and free of preemptive rights,
rights of first refusal or any other restrictions or limitations on the transfer
or ownership thereof) to permit the exercise in full of the Rights in accordance
with this Section 11(c) and unless prior thereto:
(A) a registration statement under the Securities
Act, on an appropriate form, with respect to the Rights and the Common Shares of
such issuer purchasable upon exercise of the Rights shall be effective under the
Securities Act; and
(B) the Company and each such issuer shall have:
(1) executed and delivered to the Rights
Agent a supplemental agreement providing for the assumption by such issuer of
the obligations set forth in this Section 11(c) (including the obligation of
such issuer to issue Common Shares upon the exercise of Rights in accordance
with the terms set forth in Sections 11(c)(i) and 11(C)(iii)) and further
providing that such issuer, at its own expense, will use its best efforts to:
(x) cause a registration
statement under the Securities Act, on an appropriate form, with respect to the
Rights and Common Shares of such issuer
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<PAGE> 20
purchasable upon exercise of the Rights to remain effective (with a prospectus
at all times meeting the requirements of the Securities Act) until the
Expiration Date;
(y) qualify or register the
Rights and the Common Shares of such issuer purchasable upon exercise of the
Rights under the blue sky or securities laws of such jurisdictions as may be
necessary or appropriate; and
(z) list the Rights and Common
Shares of such issuer purchasable upon exercise of the Rights on each national
securities exchange on which the Common Shares were listed prior to the
consummation of the Business Combination or, if the Common Shares were not
listed on a national securities exchange prior to the consummation of the
Business Combination, on a national securities exchange or on Nasdaq;
(2) furnished to the Rights Agent a
written opinion of independent counsel stating that such supplemental agreement
is a valid, binding and enforceable agreement of such issuer, and
(3) filed with the Rights Agent a
certificate of a nationally recognized firm of independent accountants setting
forth the number of Common Shares of such issuer that may be purchased upon the
exercise of each Right after the consummation of such Business Combination.
(iii) After consummation of any Business Combination and
subject to the provisions of Sections 11(c)(ii), (A) each issuer of Common
Shares for which Rights may be exercised as set forth in this Section 11(c)
shall be liable for, and shall assume, by virtue of such Business Combination,
all the obligations and duties of the Company pursuant to this Rights Agreement,
(b) the term "Company" shall thereafter be deemed to refer to such issuer, (C)
each such issuer shall take such steps in connection with such consummation as
may be necessary to ensure that the provisions of this Rights Agreement
(including the provisions of Sections 11(a) and 11(b)) shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights, and (D) the number of
Common Shares of each such issuer thereafter receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions of Sections 11(a) and
12(a), and the provisions of Sections 7, 9 and 10 with respect to the Common
Shares shall apply, as nearly as reasonably may be, on like terms to any such
Common Shares.
(d) In the event that the number of Common Shares that are authorized
by the Company's Articles of Incorporation but not outstanding or reserved for
issuance for purposes other than upon exercise of the Rights is not sufficient
to permit the exercise in full of the Rights in accordance with Section 11, the
Company shall, to the extent permitted by applicable law and regulation, (a)
determine the excess of (1) the value of the Common Shares issuable upon the
exercise of a Right (computed using the Current Market Price used to determine
the number of Common Shares) (the "Current Value") over (2) the Purchase Price
(such excess is herein referred to as the "Spread"), and (B) with respect to
each Right, make adequate provision to substitute for the Common Shares, upon
the exercise of the Rights and payment of the applicable
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<PAGE> 21
Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) or other
equity securities of the Company (including, without limitation, shares, or
units of shares, of preferred stock that the Board of Directors of the Company
has deemed to have the same value as shares of Common Stock (such shares of
preferred stock are herein referred to as "Common Share Equivalents")), (4) debt
securities of the Company, (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 30 days following the later of (x) the first occurrence
of the event significant to the rights specifically 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 "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, Common Shares (to the extent
available) and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread. If the Board of Directors of the Company
shall determine in good faith that it is likely that sufficient additional
Common Shares could be authorized for issuance upon exercise in full of the
Rights, the 30-day period set forth above may be extended to the extent
necessary, but not more than 90 days after the Trigger Date, in order that the
Company may seek Shareholder approval for the authorization of such additional
shares (such period, as it may be extended, the "Substitution Period"). To the
extent that the Company determines that some action need be taken pursuant to
the first and/or second sentences of this Section 11(d), the Company (x) shall
provide, subject to Section 7(e) hereof, that such action shall apply uniformly
to all outstanding Rights, and (y) may suspend the exercisability of the Rights
until the expiration of the Substitution Period in order to seek any
authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such first sentence and to determine the
value thereof. In the event of any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section 11(d), the value
of the Common Shares shall be the Current Market Price per share of the Common
Shares on the Trigger Date and the value of any Common Share Equivalent shall be
deemed to have the same value as the Common Shares on such date.
SECTION 12. CERTAIN ADJUSTMENTS
(a) To preserve the actual or potential economic value of the Rights,
if at any time after the date of this Rights Agreement there shall be any change
in the Common Shares whether by reason of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations or exchanges of
securities, split-ups, split-offs, spin-offs, liquidations, other similar
changes in capitalization, any distribution or issuance of cash, assets,
evidences of indebtedness or subscription rights, options or warrants to holders
of Common Shares (other than the Rights or regular quarterly cash dividends), or
otherwise, then, in each such event the Company's Board of Directors shall make
such appropriate adjustments in the number of Common Shares (or the number and
kind of other securities) issuable upon exercise of each Right, the Purchase
Price and Redemption Price in effect at such time and the number of Rights
outstanding at such
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<PAGE> 22
time (including the number of Rights or fractional Rights associated with each
Common Share) such that following such adjustment such event shall not have had
the effect of reducing or limiting the benefits the holders of the Rights would
have had absent such event.
(b) If, as a result of an adjustment made pursuant to Section 12(a),
the holder of any Right thereafter exercised shall become entitled to receive
any securities other than Common Shares, then the number of such securities so
receivable upon exercise of any Right thereafter shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions of Sections 11(a) and 12(a), and the provisions of Sections 7,
9 and 10 with respect to the Common Shares shall apply, as nearly as reasonably
may be, on like terms to any such other securities.
(c) All Rights originally issued by the Company subsequent to any
adjustment made to the amount of Common Shares or other securities relating to a
Right shall evidence the right to purchase, for the Purchase Price, the adjusted
number and kind of securities purchasable from time to time under this Rights
Agreement upon exercise of the Rights, all subject to further adjustment as
provided in this Rights Agreement.
(d) Irrespective of any adjustment or change in the Purchase Price or
the number of Common Shares or number or kind of other securities issuable upon
the exercise of the Rights, the Right Certificates theretofore and thereafter
issued may continue to express the terms that were expressed in the initial
Right Certificates issued under this Rights Agreement.
(e) In any case in which action taken pursuant to Section 12(a)
requires that an adjustment be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
the Common Shares and/or other securities, if any, issuable upon such exercise
over and above the Common Shares and/or other securities, if any, issuable
before giving effect 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 securities upon the
occurrence of the event requiring such adjustment.
SECTION 13. CERTIFICATE OF ADJUSTMENT
Whenever an adjustment is made as provided in Section 11 or 12, the
Company shall (a) promptly prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustments, (b) promptly
file with the Rights Agent and with each transfer agent for the Common Shares a
copy of such certificate, and (c) mail a brief summary thereof to each holder of
a Right Certificate (or, prior to the Distribution Date, of the Common Shares)
in accordance with Section 25. The Rights Agent shall be fully protected is
relying on any such certificate and on any adjustment therein contained.
SECTION 14. ADDITIONAL COVENANTS
(a) Notwithstanding any other provision of this Rights Agreement,
no adjustment to the number of Common Shares (or fractions of a share) or other
securities for which a Right is
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<PAGE> 23
exercisable or the number of Rights outstanding or associated with each Common
Share or any similar or other adjustment shall be made or be effective if such
adjustment would have the effect of reducing or limiting the benefits the
holders of the Rights would have had absent such adjustment, including, without
limitation, the benefits under Sections 11 and 12, unless the terms of this
Rights Agreement are amended so as to preserve such benefits.
(b) The Company covenants and agrees that, after the Distribution Date,
except as permitted by Section 26, it will not take (or permit any Subsidiary of
the Company to take) any action if at the time such action is taken it is
reasonably foreseeable that such action will reduce or otherwise limit the
benefits the holders of the Rights would have had absent such action, including,
without limitation, the benefits under Sections 11 and 12. Any action taken by
the Company during any period after any Person becomes an Acquiring Person but
prior to the Distribution Date shall be null and void unless such action could
be taken under this Section 14(b) from and after the Distribution Date.
SECTION 15. FRACTIONAL RIGHTS AND FRACTIONAL SHARES
(a) The Company may, but shall not be required to, issue fractions of
Rights or distribute Right Certificates that evidence fractional Rights. In lieu
of such fractional Rights, the Company may pay to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable an amount in cash equal to the same fraction of the current market
value of a whole Right. For purposes of this Section 15(a), the current market
value of a whole Right shall be the closing price of the Rights (as determined
pursuant to the second and third sentences of the definition of Market Value
contained in Section 1) for the Trading Day immediately prior to the date on
which such fractional Rights would have been otherwise issuable.
(b) The Company may, but shall not be required to, issue fractions of
Common Shares upon exercise of the Rights or distribute certificates that
evidence fractional Common Shares. In lieu of fractional Common Shares, the
Company may elect to (i) utilize a depository arrangement as provided by the
terms of the Common Shares or (ii) in the case of a fraction of a Common Share,
pay to the registered holders of Right Certificates at the time such Rights are
exercised as provided in this Rights Agreement an amount in cash equal to the
same fraction of the current market value of one Common Share. For purposes of
this Section 15(b), the current Market Value of a Common Share shall be the
closing price of a Common Share (as determined pursuant to the second and third
sentences of the definition of Market Value contained in Section 1) for the
Trading Day immediately prior to the date of such exercise. If, as a result of
an adjustment made pursuant to Section 12(a), the holder of any Right thereafter
exercised shall become entitled to receive any securities other than Common
Shares, the provisions of this Section 15(b) shall apply, as nearly as
reasonably may be, on like terms to such other securities.
(c) The holder of Rights by the acceptance of the Rights expressly
waives his or her right to receive any fractional Rights or any fractional
shares upon exercise of a Right, except as provided in this Section 15.
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SECTION 16. RIGHTS OF ACTION
(a) All rights of action in respect of this Rights Agreement are vested
in the respective registered holders of the Right Certificates (and, prior to
the Distribution Date, the registered holders of the Common Shares), and any
registered holder of any Right Certificate (or, prior to the Distribution Date,
of the Common Shares), without the consent of the Rights Agent or of the holder
of any other Right Certificate (or, prior to the Distribution Date, of the
Common Shares) may, in his or her own behalf and for his or her own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company to enforce, or otherwise act in respect of, his or her right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in the Rights 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 in this Rights Agreement and shall be entitled to specific
performance of the obligations of any Person under, and injunctive relief
against actual or threatened violations of the obligations of any Person subject
to, this Rights Agreement.
(b) Any holder of Rights who prevails in an action to enforce the
provisions of this Rights Agreement shall be entitled to recover the reasonable
costs and expenses, including attorneys' fees, incurred in such action.
SECTION 17. TRANSFER AND OWNERSHIP OF RIGHTS AND RIGHT CERTIFICATES
(a) Prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares.
(b) After the Distribution Date, the Right Certificates will be
transferable, subject to Section 7(a), only on the registry books of the Rights
Agent if surrendered at the principal office of the Rights Agent, duly endorsed
or accompanied by a proper instrument of transfer.
(c) The Company and the Rights Agent may deem and treat the Person in
whose name a Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificate or the associated certificate for
Common Shares made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
SECTION 18. RIGHT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER
No holder, as such, of any Right Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Common
Shares or of any other securities of the Company that may at any time be
issuable on the exercise of the Rights represented thereby.
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SECTION 19. CONCERNING THE RIGHTS AGENT
(a) The Company agrees to pay to the Rights Agent reasonable and
customary compensation for all services rendered by it under this Rights
Agreement and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in administering and
executing this Rights Agreement and exercising and performing its duties under
this Rights Agreement.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Rights Agreement in reliance on any Right
Certificate or certificate for the Common Shares or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
SECTION 20. MERGER OR CONSOLIDATION OR CHANGE 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 Rights
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties to this Rights Agreement, provided, however, that
such corporation would be ineligible for appointment as a successor Rights Agent
under the provisions of Section 22. In case, at the time such successor Rights
Agent shall succeed to the agency created by this Rights Agreement, any of the
Right Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of the predecessor Rights
Agent and deliver such Rights Certificate so countersigned; 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 Rights 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 Rights
Agreement.
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SECTION 21. DUTIES OF RIGHTS AGENT
The Rights Agent undertakes the duties and obligations imposed by this
Rights Agreement upon the following terms and conditions, by all of which the
Company and the holders of Rights Certificates (or, prior to the Distribution
Date, of the Common Shares), by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken, suffered or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this Rights
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person) be
proved or established by the Company prior to taking, refraining from taking or
suffering any action under this Rights Agreement, such fact or matter (unless
other evidence in respect thereof be specifically prescribed in this Rights
Agreement) may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman and Chief Executive Officer, the
Chief Financial Officer, 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 or suffered in good
faith by it under the provisions of this Rights Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable under this Rights Agreement only
for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Rights Agreement or in the
Rights Certificates (except as to its countersignature thereof) or be required
to verify the same, but all such statements and recitals are and shall be deemed
to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Rights Agreement or the execution and delivery hereof
(except the due execution of this Rights Agreement by the Rights Agent) or in
respect of the validity or executions of any Rights Certificates (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Rights Agreement or in
any Rights Certificate; nor shall it be responsible for any adjustment required
under the provisions of Section 11 or 12 or responsible for the manner, method
or amount of any such adjustment or the ascertaining of the existence of facts
that would require any such adjustment (except with respect to the exercise of
Rights evidenced by Rights Certificates after actual notice of any such
adjustment); nor shall it by any act under this Rights Agreement be deemed to
make any representation or warranty as to the authorization or reservation of
any Common Shares or other such securities to be issued pursuant to this Rights
Agreement or any Rights Certificate or as to whether any Common Shares or other
securities will, when so issued, be validly authorized and issued, fully paid
and nonassessable.
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(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 performance by the Rights Agent of
the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties under this Rights
Agreement from any one of the Chairman and Chief Executive Officer, the Chief
Financial Officer, any Vice President, the Secretary or the Treasurer of the
Company in connection with its duties, and it shall not be liable for any action
taken or suffered to be taken by it in good faith in accordance with the
instructions of any such officer.
SECTION 22. CHANGE OF RIGHTS AGENT
The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Rights Agreement upon 30 days' notice in
writing mailed to the Company and to each transfer agent of the Common Shares by
registered or certified mail, and to the holders of the Rights Certificates (or,
prior to the Distribution Date, of the Common Shares) by first-class mail. The
Company may remove the Rights Agent or any successor Rights Agent upon 30 days'
notice in writing mailed to the Rights Agent or successor Rights Agent, as the
case may be, and to each transfer agent of the Common Shares by registered or
certified mail, and to the holders of the Rights Certificates (or, prior to the
Distribution Date, of the Common Shares) by first-class mail. If the Rights
Agent shall resign or be removed or shall otherwise become incapable of acting,
the Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of 30 days after giving notice of
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (or, prior to the Distribution Date, of the Common Shares)
(who shall, with such notice, submit his or her Rights Certificate or, prior to
the Distribution Date, the certificate representing his or her Distribution
Date, for inspection by the Company), then the registered holder of any Rights
Certificate (or, prior to the Distribution Date, of the Common Shares) 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 in good standing organized and doing business
under the laws of the United States, which is authorized under such laws to
exercise stock transfer or corporate trust powers and is subject to supervision
or examination by federal or state authority which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000. After appointment, the successor Rights Agent shall be vested with
the same powers, rights, duties and responsibilities as if it has been
originally named as Rights Agent without further act or deed; provided, however,
that the predecessor Rights Agent shall deliver and transfer to the successor
Rights Agent any property at the time held by it under this Rights Agreement,
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 of the Common Shares and mail a notice thereof in writing to
the registered holders of the Rights Certificates (or, prior to the Distribution
Date, of the Common Shares). Failure to give any notice provided for in this
Section 22, however, or any defect therein shall
24
<PAGE> 28
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 23. ISSUANCE OF ADDITIONAL RIGHTS AND RIGHT CERTIFICATES
Notwithstanding any of the provisions of this Rights Agreement or of
the Rights to the contrary, the Company may, at its option, issue new Rights
Certificates evidencing Rights in such form as may be approved by its Board of
Directors to reflect any adjustment or change made in accordance with the
provisions of this Rights Agreement. In addition, in connection with the
issuance or sale of Common Shares following the Distribution Date and prior to
the earlier of the Redemption Date and the Expiration Date, the Company (a)
shall issue, with respect to Common Shares so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, or upon the
exercise, conversions or exchange of securities, notes or debentures issued by
the Company, and (b) may issue, in any other case, if deemed necessary or
appropriate by the Company's Board of Directors, 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
if, and to the extent that, the Company shall be advised by counsel that such
issuance would create a significant risk of material adverse tax consequences to
the Company or the Person to whom such Rights Certificate would be issued, 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.
SECTION 24. REDEMPTION AND TERMINATION
(a) The Company's Board of Directors may, at its option, at any time
prior to the earlier of (i) the Distribution Date, and (ii) the Expiration Date,
order the redemption of all, but not fewer than all, the then-outstanding Rights
at the Redemption Price (the date of such redemption being the "Redemption
Date"), and the Company, at its option, may pay the Redemption Price either in
cash or Common Shares or other securities of the Company deemed by the Company's
Board of Directors, in the exercise of its sole discretion, to be at least
equivalent in value to the Redemption Price; provided, however, that in addition
to any other limitation contained in this Rights Agreement on the right to
redeem outstanding Rights (including the occurrence of any event or the
expiration of any period after which the Rights may no longer be redeemed), for
the 120-day period after any date of a change (resulting from a proxy, or
consent solicitation) in the Company's Board of Directors which results in
Continuing Directors ceasing to constitute a majority of the Board of Directors,
the Rights may only be redeemed if the Company's Board of Directors, with the
concurrence of a majority of the Continuing Directors then in office, determines
that such redemption is, in its judgment, in the best interests of the Company
and its shareholders provided that, for purposes of this Section 24, the Person
or Group of Persons conducting such proxy or consent solicitation, shall be
deemed an Acquiring Person.
(b) Immediately upon the action of the Company's Board of Directors
ordering the redemption of the Rights in accordance with Section 24(a), and
without any further action and without any notice, the right to exercise the
Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. Within 10 Business Days
25
<PAGE> 29
after the action of the Company's Board of Directors ordering the redemption of
the Rights, the Company shall give notice of such redemption to the holders of
the then-outstanding Rights by mailing such notice to all such holders at their
last addresses as they appear upon the registry books of the Rights Agent or,
prior to the Distribution Date, on the registry books of the transfer agent for
the Common Shares. Each such notice or redemption will state the method by which
payment of the Redemption Price will be made. The notice, if mailed in the
manner provided in this Rights Agreement, shall be conclusively presumed to have
been duly given, whether or not the holder of Rights receives such notice. In
any case, failure to give such notice by mail, or any defect in the notice, to
any particular holder of Rights shall not affect the sufficiency of the notice
to other holders of Rights.
SECTION 25. NOTICES
Notices or demands authorized by this Rights Agreement to be given or
made by the Rights Agent or by the holder of a Right Certificate (or, prior to
the Distribution Date, of the Common Shares) 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:
Edmark Corporation
6727 - 185th Avenue
Redmond, WA 98052
Attention: Sally G. Narodick
Subject to the provisions of Section 22, notices or demands authorized by this
Rights Agreement to be given or made by the Company or by the holder of a Right
Certificate (or, prior to the Distribution Date, of the Common Shares) to or on
the Rights Agent shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Company) as follows:
First Interstate Bank of Washington, N.A.
999 Third Avenue
Seattle, Washington 98111
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to any holder of a Right Certificate (or, prior
to the Distribution Date, of the Common Shares) shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed to such holder at
such holder's address as shown on the registry books of the Rights Agent or,
prior to the Distribution Date, on the registry books of the transfer agent for
the Common Shares.
SECTION 26. SUPPLEMENTS AND AMENDMENTS
At any time prior to the Distribution Date and subject to the last
sentence of this Section 26, the Company may, and the Rights Agent shall if the
Company so directs, supplement or amend any provision of this Rights Agreement
(including, without limitation, the date on which the Distribution Date shall
occur, the time during which the Rights may be redeemed pursuant to Section 24)
without the approval of any holder of the Rights. From and after the
Distribution Date and subject to applicable law, the Company may, and the Rights
Agent shall if the Company so directs, amend this Rights Agreement without the
approval of any holder of Right Certificates to (a) cure any ambiguity or
correct or supplement any provision contained in this Rights Agreement that may
be defective or inconsistent with any other provision of this Rights Agreement,
(b) shorten or lengthen any time period, or (c) make any other provisions in
regard to matters or questions arising under this Rights Agreement that the
Company may deem necessary or desirable and that shall not adversely affect the
interests of the holders of Right Certificates (other than an Acquiring Person
or an Affiliate or Associate of an Acquiring Person). Any supplement or
amendment adopted during any period after any Person has become
27
<PAGE> 30
<PAGE> 31
an Acquiring Person but prior to the Distribution Date shall be null and void
unless such supplement or amendment could have been adopted under the prior
sentence from and after the Distribution Date. Any supplement or amendment to
this Rights Agreement duly approved by the Company shall become effective
immediately upon execution of the Company, whether or not also executed by the
Rights Agent. Notwithstanding anything contained in this Rights Agreement to the
contrary (i) during the 120-day period after any date of a change (resulting
from a proxy or consent solicitation) in the Company's Board of Directors which
results in Continuing Directors constituting less than a majority of the Board
of Directors, this Rights Agreement may be supplemented or amended only if the
Company's Board of Directors, with the concurrence of a majority of the
Continuing Directors then in office, determines that such supplement or
amendment is, in its judgment, in the best interests of the Company and its
shareholders and, after the Distribution Date, the holders of the Rights,
provided that, for purposes of this Section 26, the Person or Persons conducting
such proxy or consent solicitation, shall be deemed an Acquiring Person, and
(ii) at any time after the time a Person becomes an Acquiring Person, (x) this
Agreement may be supplemented or amended only if the Board of Directors, with
the concurrence of a majority of the Continuing Directors then in office,
determines that such supplement or amendment is, in their judgment, in the best
interests of the Company and its shareholders, and (y) no supplement or
amendment shall be made that decreases the Redemption Price, shortens the
Expiration Date, increases the initial Purchase Price or decreases the number of
shares of Common Stock for which a Right is initially exercisable. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock. In addition,
notwithstanding anything to the contrary contained in this Rights Agreement, no
supplement or amendment to this Rights Agreement shall be made that (x) reduces
the Redemption Price (except as required by Section 12(a)), (y) provides for an
earlier Expiration Date, or (z) changes the last two sentences in the definition
of Acquiring Person contained in Section 1.
SECTION 27. SUCCESSORS
All the covenants and provisions of this Rights Agreement by or for the
benefit of the Company or the Rights Agent shall bind and inure to the benefit
of their respective successors and assigns under this Rights Agreement.
SECTION 28. BENEFITS OF THIS RIGHTS AGREEMENT; DETERMINATIONS AND ACTIONS BY
THE COMPANY'S BOARD OF DIRECTORS
(a) Nothing in this Rights Agreement shall be construed to give to any
Person other than the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, of the Common
Shares) any legal or equitable right, remedy or claim under this Rights
Agreement; provided, however, that this Rights Agreement shall be for the sole
and exclusive benefit of the Company, the Rights Agent and the registered holder
of the Right Certificates (and, prior to the Distribution Date, of the Common
Shares).
(b) Except as explicitly otherwise provided in this Rights Agreement,
the Company's Board of Directors shall have the exclusive power and authority to
administer this Rights Agreement and to exercise all rights and powers
specifically granted to the Company's Board
28
<PAGE> 32
of Directors or to the Company, or as may be necessary or advisable in the
administration of this Rights Agreement, including, without limitation, the
right and power to (i) interpret the provisions of this Rights Agreement and
(ii) make all determinations deemed necessary or advisable for the
administration of this Rights Agreement (including, without limitation, a
determination to redeem or not redeem the Rights or to amend this Rights
Agreement and a determination of whether there is an Acquiring Person).
SECTION 29. SEVERABILITY; CONFLICT WITH OTHER AGREEMENTS
If any term, provision, covenant or restriction of this Rights
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Rights Agreement shall remain in full force
and effect and shall in no way be affected, impaired or invalidated.
SECTION 30. GOVERNING LAW
This Rights Agreement and each Right Certificate issued under this
Rights Agreement shall be deemed to be a contract made under the laws of the
state of Washington and for all purposes shall be governed by and construed in
accordance with the law of Washington applicable to contract to be made and
performed entirely within Washington.
SECTION 31. DESCRIPTIVE HEADINGS
Descriptive headings of the several sections of this Rights Agreement
are inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions of this Rights Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed as of the day and year first above written.
FIRST INTERSTATE BANK OF EDMARK CORPORATION
WASHINGTON, N.A.
By__________________________________ By__________________________________
Its_______________________________ Sally G. Narodick, Chairman
and Chief Executive Officer
29
<PAGE> 33
EXHIBIT A
TO RIGHTS
AGREEMENT
[Form of Right Certificate]
Certificate No. ___
__________ Rights
NOT EXERCISABLE AFTER NOVEMBER 29, 2005, OR EARLIER IF
REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION,
AT THE OPTION OF THE COMPANY, AT $.001 PER RIGHT, ON THE TERMS
SET FORTH IN THE RIGHTS AGREEMENT. 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 BY ANY SUBSEQUENT HOLDER OF SUCH RIGHTS ARE
NULL AND VOID AND NONTRANSFERABLE.
RIGHT CERTIFICATE
EDMARK CORPORATION
This certifies that _______________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of November 29 1995 (the "Rights Agreement"),
between Edmark Corporation, a Washington corporation (the "Company"), and First
Interstate Bank of Washington, N.A., as Rights Agent (the "Rights Agent"),
unless the Rights evidenced hereby shall have been previously redeemed by the
Company, to purchase from the Company at any time after the Distribution Date
(as defined in the Rights Agreement) and prior to 5 p.m., New York City time, on
November 29 2005 (the "Expiration Date"), at the principal office of the Rights
Agent, or its successors as Rights Agent (in Seattle, Washington), one fully
paid, nonassessable share of Common Stock, no par value, of the Company (the
"Common Shares"), at a purchase price share equal to $100 (the "Purchase Price")
payable in cash, upon presentation and surrender of this Right Certificate with
the Form of Election to Purchase duly executed.
1-A
<PAGE> 34
The Purchase Price and the number and kind of shares that may be
purchased upon exercise of each Right evidenced by this Right Certificate, as
set forth, are the Purchase Price and the number and kind of shares that may be
so purchased as of November 29 1995. As provided in the Rights Agreement, the
Purchase Price and the number and kind of shares that may be purchased upon the
exercise of each Right evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
If the Rights evidenced by this Right Certificate are at any time
beneficially owned by an Acquiring Person or an Affiliate or Associate of an
Acquiring Person (as such terms are defined in the Rights Agreement), such
Purchase Price and the number and kind of shares that may be purchased upon the
exercise of each Right evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
If the Rights evidenced by this Right Certificate are at any time
beneficially owned by an Acquiring Person or an Affiliate or Associate of an
Acquiring Person (as such terms are defined in the Rights Agreement), such
Rights shall be null and void and nontransferable and the holder of any such
Right (including any purported transferee or subsequent holder) shall not have
any right to exercise or transfer any such Right.
This Right Certificate is subject to all the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated in this Right Certificate by reference and made a part
hereof and to which reference to the Rights Agreement is hereby made for a full
description of the rights, limitations of rights, obligations, duties and
immunities under this Right Certificate of the Rights Agent, the Company and the
holders of the Right Certificates. Copies of the Rights Agreement are on file at
the above-mentioned office of the Rights Agent and are also available from the
Company upon written request.
This Right Certificate, with or without other Right Certificates, upon
surrender at the 1principal stock transfer or corporate trust office of the
Rights Agent, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number and kind of shares as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Right Certificate may be redeemed by the Company at its option at a
redemption price (in cash or shares of Common Stock or other securities of the
Company deemed by the Company's Board of Directors to be at least equivalent in
value) of $.001 per Right (which amount shall be subject to adjustment as
provided in the Rights Agreement) at any time prior to the earlier of (i) such
time as a Person (as defined in the Rights Agreement) becomes an Acquiring
Person and (ii) the Expiration Date; provided, however, that for the 120-day
period after any date of change (resulting from a proxy or consent solicitation)
in a majority of the Company's Board of Directors in office at the commencement
of such solicitation, the Rights may only be redeemed if (A) there are directors
then in office who were in office at the commencement of such solicitation and
(B) the Company's Board of Directors, with the
2-A
<PAGE> 35
concurrence of a majority of such directors then in office, determines that such
redemption is, in its judgment, in the best interests of the Company and its
shareholders.
The Company may, but shall not be required to, issue fractions of
Common Shares or distribute certificates that evidence fractions of Common
Shares upon the exercise of any Right or Rights evidenced hereby. In lieu of
issuing fractional shares, the Company may elect to make a cash payment as
provided in the Rights Agreement for fractions of a share or to issue
certificates or utilize a depository arrangement as provided in the terms of the
Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Common Shares
or of any other securities of the Company that may at any time be issuable on
the exercise of the Right or Rights evidenced by this Right Certificate, nor
shall anything contained in the Rights Agreement or in this Right Certificate be
construed to confer upon the holder hereof, as such, may of the rights of a
shareholder of the Company, including, without limitation, any right to vote for
the give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting shareholder except as provided in the Rights
Agreement, or to receive dividends or other distributions or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in accordance with the
provisions of the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
3-A
<PAGE> 36
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of:________________________
EDMARK CORPORATION
By_______________________________
Its______________________________
Attest:
_________________________________
[NAME]
Countersigned:
FIRST INTERSTATE BANK OF
WASHINGTON, N.A., as Rights Agent
By_______________________________
Its______________________________
4-A
<PAGE> 37
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Right Certificate)
FOR VALUE RECEIVED, ___________________ hereby sells, assigns and
transfers unto _________________________ (please print name and address of
transferee) this Right Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
_____________________ Attorney, to transfer the within Right Certificate on the
books of the within-named Company, with full power of substitution.
Dated: _________________, 19__
________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended.
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement).
________________________
Signature
5-A
<PAGE> 38
Form of Reverse Side of Right Certificate, Cont.
FORM OF ELECTION TO PURCHASE
(To be executed by the registered holder if such
holder desires to exercise the Rights
represented by the Right Certificate)
To: EDMARK CORPORATION
The undersigned hereby irrevocably elects to exercise___________ Rights
represented by this Right Certificate to purchase the Common Shares issuable
upon the exercise of such Rights and requests that certificates for such Common
Shares be issued in the name of:
___________________
___________________
___________________
(Please print name and address and insert social security or
other identifying number)
If such number or Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
___________________
___________________
___________________
(Please print name and address and insert social security or
other identifying number)
Dated: _____________________, 19__
_____________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended.
6-A
<PAGE> 39
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement).
_____________________
Signature
NOTICE
The signatures in the Form Assignment or Form of Election to Purchase,
as the case may be, must conform to the name as written upon the face of this
Right Certificate in every particular, without alteration or enlargement or any
change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement) and such Assignment or Election to Purchase will not be honored.
7-A
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERIM
FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD ENDED DECEMBER 31,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE
QUARTER ENDED DECEMBER 31, 1995.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 29,870,114
<SECURITIES> 0
<RECEIVABLES> 11,604,387
<ALLOWANCES> 2,544,634
<INVENTORY> 2,000,529
<CURRENT-ASSETS> 42,400,669
<PP&E> 4,532,769
<DEPRECIATION> 1,863,944
<TOTAL-ASSETS> 45,069,494
<CURRENT-LIABILITIES> 5,551,371
<BONDS> 0
0
0
<COMMON> 36,144,043
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 39,518,123
<SALES> 12,706,247
<TOTAL-REVENUES> 12,706,247
<CGS> 3,067,304
<TOTAL-COSTS> 3,067,304
<OTHER-EXPENSES> 6,608,764
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,326,877
<INCOME-TAX> 919,487
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,407,390
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
