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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
DIGITAL RECORDERS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NORTH CAROLINA 56-1362926
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
4018 PATRIOT DRIVE, SUITE 100
DURHAM, NORTH CAROLINA 27703
(Address of principal executive offices) (Zip code)
If this form relates to the registration If this form relates to the registration
of a class of securities pursuant to of a class of securities pursuant to
Section 12(b) of the Exchange Act and is Section 12(g) of the Exchange Act and is
effective pursuant to General Instruction effective pursuant to General Instruction
A.(c), please check the following box. [ ] A.(d), please check the following box. [x]
Securities Act registration statement file number to which this form relates: (if applicable)
-------------------
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so registered Each Class is to be Registered
------------------- ------------------------------
NONE NOT APPLICABLE
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
PREFERRED STOCK PURCHASE RIGHTS
(Title of Each Class)
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ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
On December 13, 1999, the Board of Directors of Digital Recorders, Inc.
(the "Company") approved a Rights Agreement (the "Rights Agreement") between the
Company and Continental Stock Transfer & Trust Company, as Rights Agents (the
"Rights Agent"), effective December 14, 1999, and declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share of common
stock, par value $.10 per share (the "Common Shares") outstanding on December
27, 1999 (the "Record Date") to the stockholders of record on that date. Each
Right entitles the registered holder, under certain circumstances and upon the
occurrence of certain events, to purchase from the Company one one-thousandth of
a share of Series D Junior Participating Preferred Stock, par value $.10 per
share, of the Company (the "Preferred Shares"), at an exercise price of $20.00
per one one-thousandth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in the Rights
Agreement.
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired beneficial ownership of 15% or more of the
outstanding Common Shares or (ii) 10 business days (or such later date as maybe
determined by action of the Board of Directors prior to such time as any person
becomes an Acquiring Person) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 15% or more of
such outstanding Common Shares (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Shares outstanding as of the Record Date that are represented by
certificates, by such Common Share certificate with a copy attached thereto, of
the Summary of Rights (the "Summary of Rights") attached as Exhibit C to the
Rights Agreement and incorporated herein by reference. The Rights will be
evidenced, with respect to Common Shares outstanding as of the Record Date that
are uncertificated, by the registration by the Company or its agent of the
attachment of the Summary of Rights of the holders of such shares as the
registered owner of such Rights and shares together with a copy of the Summary
of Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date or upon transfer or new
issuance of Common Shares will contain a legend incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the Company will send, with respect to Common Shares
that are uncertificated and issued after the Record Date or upon transfer or new
issuance of Common Shares, notice incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Shares or
the transfer of any uncertificated Common Shares outstanding as of the Record
Date, even without such notation or a copy of the Summary of Rights being
attached thereto, will also constitute the transfer of the Rights associated
with the Common Shares represented by such certificate or so transferred. As
soon as practicable following the distribution Date, if any, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the Close of Business on the
Distribution Date and thereafter such separate Right Certificates alone will
evidence the Rights.
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The Rights are not exercisable until the Distribution Date. The Rights
will expire on December 13, 2009 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed by the
Company, in each case, as described below.
Both the Purchase Price payable and the number of Preferred Shares or
other securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then current market price of the Preferred Shares, or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-thousandths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Although the Rights are redeemable as discussed below, Preferred Shares
purchasable upon exercise of the Rights will not be redeemable. Each Preferred
Share will be entitled to a quarterly dividend payment of 1000 times the
dividend declared per Common Share. In the event of liquidation, the holders of
the Preferred Shares will be entitled to an aggregate payment of 1000 times the
aggregate payment made per Common Share. Each Preferred Share will have 1000
votes, voting together with the Common Shares. In the event of any merger,
consolidation or other transaction in which Common Shares are exchanged, each
Preferred Share will be entitled to receive 1000 times the amount received per
Common Share. These rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation
and voting rights, the value of the one one-thousandth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one Common Share.
From and after the occurrence of an event described in Section
11(a)(ii) of the Rights Agreement, if the Rights evidenced by the Right
certificate are or were at any time on or after the earlier of (x) the date of
such event and (y) the Distribution Date (as such term is defined in the Rights
Agreement) acquired or beneficially owned by an Acquiring Person or an Associate
or Affiliate of an Acquiring Person (as such terms are defined in the Rights
Agreement), such Rights shall become void, and any holder of such Rights shall
thereafter have no right to exercise such Rights.
In the event that, at any time after a Person becomes an Acquiring
Person, the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold,
proper provision will be made so that each holder of a Right will thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have a market value
of two times the exercise price of the Right. Unless the Board acts otherwise,
in
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the event that any person becomes an Acquiring Person, proper provision shall be
made so that each holder of a Right, other than Rights beneficially owned by the
Acquiring Person and its Affiliates and Associates (which will thereafter be
void), will thereafter have the right to receive upon exercise that number of
Common Shares having a market value of two times the exercise price of the
Right. If the Company does not have sufficient Common Shares to satisfy such
obligation to issue Common Shares, or if the Board of Directors so elects, the
Company shall deliver upon payment of the exercise price of a Right an amount of
cash or securities equivalent in value to the Common Shares issuable upon
exercise of a Right; provided that, if the Company fails to meet such obligation
within 30 days following the later of (x) the first occurrence of an event
triggering the right to purchase Common Shares and (y) the date on which the
Company's right to redeem the Rights expires, the Company must deliver, upon
exercise of a Right but without requiring payment of the exercise price then in
effect, Common Shares (to the extent available) and cash equal in value to the
difference between the value of the Common Shares otherwise issuable upon the
exercise of a Right and the exercise price then in effect. The Board of
Directors may extend the 30-day period described above for up to an additional
60 days to permit the taking of action that may be necessary to authorize
sufficient additional Common Shares to permit the issuance of Common Shares upon
the exercise in full of the Rights.
At any time after any Person becomes an Acquiring Person and prior to
the acquisition by any person or group of a majority of the outstanding Common
Shares, the Board of Directors of the Company may exchange the Rights (other
than Rights owned by such person or group which have become void), in whole or
in part, at an exchange ratio of one Common Share per Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-thousandth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to the time any Person becomes an Acquiring Person,
the Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $0.001 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, except that from and
after such time as any person becomes an Acquiring Person no such amendment may
adversely affect the interests of the holders of the Rights (other than the
Acquiring Person and its Affiliates and Associates).
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
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The Rights Agreement is attached hereto as an exhibit and is
incorporated herein by reference. The foregoing description of the Rights does
not purport to be complete and is qualified in its entirety by reference to such
exhibit.
ITEM 2. EXHIBITS.
The following is a complete list of Exhibits filed as part of the
Registration Statement and incorporated herein by reference:
<TABLE>
<CAPTION>
Reg. S-B
Exhibit No. Description Item No.
- ----------- ----------- --------
<S> <C> <C>
3.1.12 Amendment to Articles of Incorporation together with Exhibit A - Certificate of 3
Designation of Series D Junior Participating Preferred Stock.
4.5 Rights Agreement, dated as of December 14, 1999, between Digital Recorders, 4
Inc. and Continental Stock Transfer & Trust Company, as Rights Agent, together
with the following exhibits thereto: Exhibit A - Form of Certificate of Designation
of Series D Junior Participating Preferred Stock of Digital Recorders, Inc.; Form
B - Form of Right Certificate; and Exhibit C - Summary of Rights to Purchase
Shares.
</TABLE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized.
DIGITAL RECORDERS, INC.
Date: December 15, 1999 By: /s/ Lawrence Taylor
---------------------------------
Lawrence Taylor, Chief Financial
Officer and Vice President
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1.12 Amendment to Articles of Incorporation together with Exhibit A -
Certificate of Designation of Series D Junior Participating
Preferred Stock.
4.5 Rights Agreement, dated as of December 14, 1999, between Digital
Recorders, Inc. and Continental Stock Transfer & Trust Company,
as Rights Agent, together with the following exhibits thereto:
Exhibit A - Form of Certificate of Designation of Series D Junior
Participating Preferred Stock of Digital Recorders, Inc.; Form B
- Form of Right Certificate; and Exhibit C - Summary of Rights to
Purchase Shares.
</TABLE>
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EXHIBIT 3.1.12
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
DIGITAL RECORDERS, INC.
The undersigned Corporation hereby executes these Articles of Amendment
for the purpose of amending its Articles of Incorporation.
The name of the Corporation is Digital Recorders, Inc.
The Certificate of Designation attached as Exhibit A was adopted by the
Board of Directors in the manner prescribed by law and is an amendment to the
Articles of Incorporation of the Corporation.
The date of the adoption of these Articles of Amendment by the Board of
Directors was December 13, 1999.
These Articles of Amendment do not effect an exchange, reclassification
or cancellation of issued shares of the Corporation.
Dated this 13th day of December, 1999.
DIGITAL RECORDERS, INC.
/s/ David Turney
----------------------------------
David Turney, President
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EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATION
of
SERIES D JUNIOR PARTICIPATING PREFERRED STOCK
of
DIGITAL RECORDERS, INC.
Digital Recorders, Inc., a corporation organized and existing under the
Business Corporation Act of the State of North Carolina (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 55-6-02 of the
Business Corporation Act at a meeting duly called and held on December 13, 1999:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Articles of
Incorporation of the Corporation (the "Articles of Incorporation"), the Board of
Directors hereby creates a series of Preferred Stock, par value $.10 per share
(the "Preferred Stock"), of the Corporation and hereby states the designation
and number of shares, and fixes the relative rights, preferences, and
limitations thereof as follows:
Section 1. Designation and Amount. The shares of this series shall be
designated as "Series D Junior Participating Preferred Stock" (the "Series D
Preferred Stock") and the number of shares constituting the Series D Preferred
Stock shall be 10,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series D Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series D Preferred Stock.
Section 2. Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any other stock) ranking prior and superior to the Series D
Preferred Stock with respect to dividends, the holders of shares of Series D
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series D Preferred
Stock, in an amount (if any) per share (rounded to the nearest cent), subject to
the provision for adjustment hereinafter set forth, equal to 1000 times the
aggregate per share amount of all cash dividends, and 1000 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock, par
value $.10 per share (the "Common Stock"), of the Corporation or a subdivision
of the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly Dividend
Payment Date or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of Series D
Preferred Stock. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or
<PAGE> 3
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount to which holders of shares of Series D Preferred Stock were entitled
immediately prior to such event under the preceding sentence shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Series D Preferred Stock as provided in paragraph (a) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(c) Dividends due pursuant to paragraph (A) of this Section shall begin
to accrue and be cumulative on outstanding shares of Series D Preferred Stock
from the Quarterly Dividend Payment Date next preceding the date of issue of
such shares, unless the date of issue of such shares is prior to the record date
for the first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series D Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of Series
D Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series D Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series D Preferred
Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth, each
share of Series D Preferred Stock shall entitle the holder thereof to 1000 votes
on all matters submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series D
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided the Articles of Incorporation, including
any other Certificate of Designations creating a series of Preferred Stock or
any similar stock, or by law, the holders of shares of Series D Preferred Stock
and the holders of shares of Common Stock and any other capital stock of
A-2
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the Corporation having general voting rights shall vote together as one class on
all matters submitted to a vote of stockholders of the Corporation.
(c) Except as set forth herein, or as otherwise required by law, holders
of Series D Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series D Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series D Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series D Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series D Preferred Stock,
except dividends paid ratably on the Series D Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled; or
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series D Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (as to dividends and upon dissolution, liquidation or winding up) to the
Series D Preferred Stock.
(b) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (a) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series D Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein or in
the Articles of Incorporation, including any Certificate of Designations
creating a series of Preferred Stock or any similar stock, or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation the holders of shares of Series D
Preferred Stock shall be entitled to receive an
A-3
<PAGE> 5
aggregate amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 1000 times the aggregate amount to be distributed per share
to holders of shares of Common Stock plus an amount equal to any accrued and
unpaid dividends. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series D
Preferred Stock were entitled immediately prior to such event under the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series D Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series D Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. Amendment. The Articles of Incorporation shall not be amended
in any manner, including in a merger or consolidation, which would alter,
change, or repeal the powers, preferences or special rights of the Series D
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Series D
Preferred Stock, voting together as a single class.
Section 9. Rank. The Series D Preferred Stock shall rank, with respect to
the payment of dividends and upon liquidation, dissolution and winding up,
junior to all series of Preferred Stock.
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the
Corporation by its President this 13th day of December, 1999.
DIGITAL RECORDERS, INC.
By:
--------------------------------------
Title: David Turney, President
-----------------------------------
A-4
<PAGE> 1
EXHIBIT 4.5
DIGITAL RECORDERS, INC.
AND
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
RIGHTS AGREEMENT
DATED AS OF DECEMBER 14, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Certain Definitions..................................................................... 1
Section 2. Appointment of Rights Agent ............................................................ 4
Section 3. Issue of Right Certificates............................................................. 4
Section 4. Form of Right Certificates.............................................................. 7
Section 5. Countersignature and Registration....................................................... 7
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates................................. 7
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights........................... 8
Section 8. Cancellation and Destruction of Right Certificates...................................... 9
Section 9. Availability of Preferred Shares........................................................ 9
Section 10. Preferred Shares Record Date............................................................ 10
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights...................... 11
Section 12. Certificate of Adjustment............................................................... 17
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.................... 17
Section 14. Fractional Rights and Fractional Shares................................................. 18
Section 15. Rights of Action........................................................................ 19
Section 16. Agreement of Right Holders.............................................................. 19
Section 17. Right Certificate Holder Not Deemed a Stockholder....................................... 20
Section 18. Concerning the Rights Agent............................................................. 20
Section 19. Merger or Consolidation or Change of Name of Rights Agent............................... 20
Section 20. Duties of Rights Agent.................................................................. 21
</TABLE>
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<TABLE>
<S> <C> <C>
Section 21. Change of Rights Agent.................................................................. 23
Section 22. Issuance of New Right Certificates...................................................... 23
Section 23. Redemption.............................................................................. 24
Section 24. Exchange................................................................................ 24
Section 25. Notice of Certain Events................................................................ 25
Section 26. Notices................................................................................. 26
Section 27. Supplements and Amendments.............................................................. 27
Section 28. Successors.............................................................................. 27
Section 29. Benefits of this Agreement.............................................................. 27
Section 30. Severability............................................................................ 27
Section 31. Governing Law........................................................................... 28
Section 32. Counterparts............................................................................ 28
Section 33. Descriptive Headings.................................................................... 28
Section 34. Administration.......................................................................... 28
Exhibit A Form of Certificate of Designation of Series D Junior Participating
Preferred Stock......................................................................... A-1
Exhibit B Form of Right Certificate............................................................... B-1
Exhibit C Summary of Rights to Purchase........................................................... C-1
</TABLE>
<PAGE> 4
RIGHTS AGREEMENT
Agreement, dated as of December 14, 1999, between Digital Recorders,
Inc., a North Carolina corporation (the "Company"), and Continental Stock
Transfer & Trust Company, a New York corporation, as Rights Agent (the "Rights
Agent").
The Board of Directors of the Company has authorized and declared a
dividend distribution of one preferred share purchase right (a "Right") for each
share of Common Stock, par value $.10 per share, of the Company (a "Common
Share") outstanding on the Close of Business on December 27, 1999 (the "Record
Date") and has authorized the issuance of one Right (as such number may
hereinafter be adjusted pursuant to the provisions hereof) with respect to each
additional Common Share that shall become outstanding between the Record Date
and the earliest of Close of Business on the Distribution Date, the Redemption
Date and the Final Expiration Date (as such terms are hereinafter defined), each
Right representing the right to purchase one one-thousandth of a share of Series
D Junior Participating Preferred Stock of the Company (a "Preferred Share")
having the rights, restrictions, voting powers, limitations as to distributions,
qualifications and terms and conditions of redemption set forth in Exhibit A
hereto, or such different amount and/or kind of securities as shall be
hereinafter provided, upon the terms and subject to the conditions hereinafter
set forth.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
15% or more of the Common Shares of the Company then outstanding but shall not
include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee
benefit plan of the Company or any Subsidiary of the Company, or (iv) any Person
or entity holding Common Shares for or pursuant to the terms of any such
employee benefit plan. Notwithstanding the foregoing, (1) no Person shall become
an "Acquiring Person" as the result of an acquisition of Common Shares by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 15% (or such
other percentage as would otherwise result in such person becoming an Acquiring
Person) or more of the Common Shares of the Company then outstanding; provided,
however, that if a Person shall so become the Beneficial Owner of 15% (or such
other percentage) or more of the Common Shares of the Company then outstanding
by reason of an acquisition of Common Shares by the Company and shall, after
such share purchases by the Company, become the Beneficial Owner of an
additional 1% of the outstanding Common Shares of the Company (other than
pursuant to a dividend or distribution paid or made by the Company on the
outstanding Common Stock or pursuant to a share split or subdivision of the
outstanding Common Stock), then such Person shall be deemed to be an "Acquiring
Person"; and (2) if the Board of Directors of the Company determines in good
faith that a Person who would otherwise be an "Acquiring Person," as defined
pursuant to the foregoing provisions of this paragraph, has become such
inadvertently, and such Person divests as promptly as practicable a sufficient
number of Common
<PAGE> 5
Shares so that such Person would no longer be an "Acquiring Person," as defined
pursuant to the foregoing provisions of this paragraph, then such Person shall
not be deemed to have become an "Acquiring Person" for any purposes of this
Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act, as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, within the meaning
of Rule 13d-3 of the General Rules and Regulations under the Exchange Act
as in effect on the date hereof;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), written or
otherwise, or upon the exercise of conversion rights, exchange rights,
rights (other than the Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed to be the Beneficial
Owner of, or to beneficially own, securities tendered pursuant to a
tender or exchange offer made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act by or
on behalf of such Person or any of such Person's Affiliates or Associates
until such tendered securities are accepted for purchase or exchange; or
(B) the right to vote pursuant to any agreement, arrangement or
understanding, whether or not in writing; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security if the agreement, arrangement or understanding to vote
such security (1) arises solely from a revocable proxy or consent given
to such Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and regulations
promulgated under the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities),
written or otherwise, for the purpose of acquiring, holding, voting
(except to the extent contemplated by the proviso to section (B) of the
immediately preceding paragraph (ii)) or disposing of any securities of
the Company.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder. Furthermore, for all purposes of
this Agreement, any calculation of the
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<PAGE> 6
number of shares of Common Stock outstanding at any particular time, including
for purposes of determining the particular percentage of such outstanding shares
of Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act, as in effect on the date hereof.
(d) "Business Day" shall mean any day other than a Saturday, Sunday, or a
day on which banking institutions in the State of New York, or the city in which
the principal office of the Rights Agent is located are authorized or obligated
by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M., New York
City, New York time on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York City, New York time, on the next
succeeding Business Day.
(f) "Common Shares" when used with reference to the Company shall mean
the shares of common stock, par value $.10 per share, of the Company. "Common
Shares" when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(g) "Common Stock Equivalents" shall have the meaning set forth in
Section 11(a)(iii)(B)(3) hereof.
(h) "Current Value" shall have the meaning set forth in Section
11(a)(iii)(A)(1) hereof.
(i) "Distribution Date" shall have the meaning set forth in Section 3(a)
hereof.
(j) "Equivalent Preferred Shares" shall have the meaning set forth in
Section 11(b) hereof.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "Exchange Ratio" shall have the meaning set forth in Section 24(a)
hereof.
(m) "Final Expiration Date" shall mean October 7, 2009.
(n) "Person" shall mean any individual, firm, corporation, partnership,
limited partnership, limited liability partnership, business trust, limited
liability company, unincorporated association or other entity, and shall include
any successor (by merger or otherwise) of such entity.
(o) "Preferred Shares" shall mean shares of Series D Junior Participating
Preferred Stock, par value $.10 per share, of the Company having such rights and
preferences upon adoption as are set forth in the form of Certificate of
Designation set forth as Exhibit A hereto.
(p) "Purchase Price" shall have the meaning set forth in Section 7(b)
hereof.
(q) "Redemption Date" shall have the meaning set forth in Section 23(b)
hereof.
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<PAGE> 7
(r) "Redemption Price" shall have the meaning set forth in Section 23(a)
hereof.
(s) "Right Certificate" shall mean a certificate evidencing a Right in
substantially the form of Exhibit B hereto.
(t) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(u) "Securities Act" shall mean the Securities Act of 1933, as amended.
(v) "Security" shall have the meaning set forth in Section 11(d) hereof.
(w) "Shares Acquisition Date" shall mean the earlier of the date of (i)
the public announcement by the Company or an Acquiring Person that an Acquiring
Person has become such or (ii) the public disclosure of facts by the Company or
an Acquiring Person indicating that an Acquiring Person has become such.
(x) "Spread" shall have the meaning set forth in Section 11(a)(iii)(A)
hereof.
(y) "Subsidiary" of any Person shall mean any corporation of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person.
(z) "Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.
(aa) "Summary of Rights" shall mean the Summary of Rights to Purchase
Preferred Shares in substantially the form of Exhibit C hereto.
(bb) "Trading Day" shall have the meaning set forth in Section 11(d)
hereof.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable. The Rights Agent shall have no duty to supervise, and in
no event shall be liable for, the acts or omissions of any such co-Rights Agent.
Section 3. Issue of Right Certificates.
(a) Until the Close of Business on the earlier of (i) the tenth day after
the Shares Acquisition Date or (ii) the tenth Business Day (or such later date
as may be determined by action of the Board of Directors prior to such time as
any Person becomes an Acquiring Person) after the date of the commencement by
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan) of, or of
the first public announcement of the intention of any Person (other than any of
the Persons referred to in the preceding parenthetical) to commence, a tender or
exchange offer, the consummation of which would result in any Person becoming
the Beneficial Owner of Common Shares aggregating 15% or more of the then
outstanding Common Stock
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<PAGE> 8
(the earlier of such date being herein referred to as the "Distribution Date"),
(x) the Rights will be evidenced (subject to the provisions of Section 3(b)
hereof) by the certificates for Common Shares registered in the names of the
holders thereof (which certificates shall also be deemed to be Right
Certificates) and not by separate Right Certificates, and (y) the right to
receive Right Certificates will be transferable only in connection with the
transfer of Common Shares. As soon as practicable after the Distribution Date,
the Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send) by first-class, insured, postage-prepaid mail, to each record holder of
Common Shares as of the Close of Business on the Distribution Date, at the
address of such holder shown on the records of the Company, a Right Certificate
evidencing one Right for each Common Share so held. As of the Distribution Date,
the Rights will be evidenced solely by such Right Certificates.
(b) (i) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of the Summary of Rights by first-class,
postage-prepaid mail, to each record holder of Common Shares as of
the Close of Business on the Record Date, at the address of such
holder shown on the records of the Company.
(ii) With respect to Common Shares outstanding as of the Record
Date that are represented by certificates, until the Close of
Business on the Distribution Date, the Rights will be evidenced by
such certificates registered in the names of the holders thereof
together with a copy of the Summary of Rights attached thereto.
Until the Close of Business on the Distribution Date (or the
earlier of the Redemption Date or the Close of Business on the
Final Expiration Date), the surrender for transfer of any
certificate for Common Shares outstanding on the Record Date, with
or without a copy of the Summary of Rights attached thereto, shall
also constitute the transfer of the Rights associated with the
Common Shares evidenced thereby.
(iii) With respect to Common Shares outstanding as of the Record
Date that are uncertificated, until the Close of Business on the
Distribution Date, the Rights will be evidenced by the
registration by the Corporation or its agent of the holders of
such shares as the registered owner together with a copy of the
Summary of Rights. Until the Close of Business on the Distribution
Date (or the earlier of the Redemption Date or the Close of
Business on the Final Expiration Date), the transfer of any Common
Shares outstanding on the Record Date that are uncertificated,
with or without a copy of the Summary of Rights, shall also
constitute the transfer of the Rights associated with the Common
Shares so transferred.
(c) (i) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred
to in clause (iii) of this paragraph (c)) after the Record Date
but prior to the earliest of the Close of Business on the
Distribution Date, the Redemption Date or the Close of Business on
the Final Expiration Date shall have impressed on, printed on,
written on or otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between Digital
Recorders, Inc. and Continental Stock Transfer & Trust
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<PAGE> 9
Company, as Rights Agent, dated as of December 14 , 1999 (the
"Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the
principal executive offices of Digital Recorders, Inc. Under
certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. Digital Recorders, Inc.
will mail to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request
therefor. Under certain circumstances, as set forth in the Rights
Agreement, Rights owned or transferred to any Person who is or
becomes an Acquiring Person (as defined in the Rights Agreement)
and certain transferees thereof will become null and void and will
no longer be transferable.
With respect to such certificates containing the foregoing legend,
until the Close of Business on the Distribution Date, the Rights
associated with the Common Shares represented by certificates
shall be evidenced by such certificates alone, and the surrender
for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares
represented thereby. Notwithstanding this paragraph, the omission
of a legend shall not affect the enforceability of any part of
this Agreement or of the rights of any holder of the Rights.
(ii) The Corporation shall send to the owner of Common Shares that
are uncertificated which become outstanding (including, without
limitation, reacquired Common Shares referred to in clause (iii)
of this paragraph (c)) after the Record Date but prior to the
earliest of the Close of Business on the Distribution Date, the
Redemption Date or the Close of Business on the Final Expiration
Date the following notice:
Ownership of these shares entitles the holder hereof to certain
Rights as set forth in a Rights Agreement between Digital
Recorders, Inc. and Continental Stock Transfer & Trust Company, as
Rights Agent, dated as of December 14, 1999 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal
executive offices of Digital Recorders, Inc. Under certain
circumstances, as set forth in the Rights Agreement, such Rights
will be evidenced by certificates. Digital Recorders, Inc. will
mail to the owner of these shares a copy of the Rights Agreement
without charge after receipt of a written request therefor. Under
certain circumstances, as set forth in the Rights Agreement,
Rights owned or transferred to any Person who is or becomes an
Acquiring Person (as defined in the Rights Agreement) and certain
transferees thereof will become null and void and will no longer
be transferable.
Until the Close of Business on the Distribution Date, the Rights
associated with the Common Shares that are uncertificated shall be
evidenced solely by the registration of the owner of such shares
as the registered owner, and the transfer of any such shares shall
also constitute the transfer of the Rights associated with the
Common Shares.
(iii) In the event that the Company purchases or acquires any
Common Shares after the Record Date but prior to the Close of
Business on the Distribution Date, any Rights associated with such
Common Shares shall be deemed canceled and retired so that the
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<PAGE> 10
Company shall not be entitled to exercise any Rights associated
with the Common Shares which are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase Preferred Shares and of assignment to be printed
on the reverse thereof) shall be substantially in the form set forth in Exhibit
B hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate which do not affect the duties or responsibilities of the Rights
Agent and as are not inconsistent with the provisions of this Agreement, or as
may be required to comply with any applicable law or with any rule or regulation
made pursuant thereto or with any rule or regulation of any stock exchange on
which the Rights may from time to time be listed, or to conform to usage.
Subject to the other provisions of this Agreement, the Right Certificates shall
entitle the holders thereof to purchase such number of one one-thousandths of a
Preferred Share as shall be set forth therein at the Purchase Price, but the
number of one one-thousandths of a Preferred Share and the Purchase Price shall
be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
Chief Executive Officer, its President, any of its Vice Presidents, or its
Treasurer, either manually or by facsimile signature, shall have affixed thereto
the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or any Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be countersigned by the Rights
Agent and shall not be valid for any purpose unless so countersigned, either
manually or by facsimile. In case any officer of the Company who shall have
signed any of the Right Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by
the Company, such Right Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered by the Company with the same force and
effect as though the person who signed such Right Certificates had not ceased to
be such officer of the Company; and any Right Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Right Certificate, shall be a proper officer of the Company to sign such
Right Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
Following the Distribution Date and receipt by the Rights Agent of all
required information necessary for books of registration, the Rights Agent will
keep or cause to be kept, at its office designated for such purpose, books for
registration of the transfer of the Right Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of this Agreement, at any time after the Close of Business on
the Distribution Date, and prior to the earlier of the Redemption Date or the
Close of Business on the Final Expiration Date, any Right Certificate or Right
Certificates (other than Right Certificates representing Rights that have become
void pursuant to Section 11(a)(ii) hereof or that have been exchanged pursuant
to Section 24 hereof) may be transferred, split up, combined or
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<PAGE> 11
exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one one-thousandths of a
Preferred Share as the Right Certificate or Right Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the principal office of the Rights Agent. Neither the
Rights Agent nor the Company shall be obligated to take any action whatsoever
with respect to the transfer of any such surrendered Right Certificate until the
registered holder shall have completed and signed the certificate contained in
the form of assignment on the reverse side of such Right Certificate and shall
have provided such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall 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 for any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) The registered holder of any Right Certificate (other than a holder
whose Rights have become void pursuant to Section 11(a)(ii) hereof or have been
exchanged pursuant to Section 24 hereof) may exercise the Rights evidenced
thereby 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 and properly executed, to the Rights Agent at its
office designated for such purpose, together with payment of the Purchase Price
for each one one-thousandth of a Preferred Share as to which the Rights are
exercised, prior to the earliest of (i) the Close of Business on the Final
Expiration Date, (ii) the time at which the right to exercise the Rights
terminates pursuant to Section 23 hereof, or (iii) the time at which the right
to exercise the Rights terminates pursuant to Section 24 hereof.
(b) The purchase price for each one one-thousandth of a Preferred Share
to be purchased upon the exercise of a Right shall initially be Twenty Dollars
($20.00) (the "Purchase Price"). The Purchase Price and the number of one
one-thousandths of a Preferred Share or other securities or property to be
acquired upon exercise of a Right shall be subject to adjustment from time to
time as provided in Sections 11 and 13 hereof and shall be payable in lawful
money of the United States of America in accordance with paragraph (c) below.
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase and certificate duly and properly executed,
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<PAGE> 12
accompanied by payment of the Purchase Price for the number of one
one-thousandths of a Preferred Share to be purchased and an amount equal to any
applicable tax or charge required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by cash, certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Shares certificates for the number of one one-thousandths of a
Preferred Share to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, or (B) requisition from any
depositary agent for the Preferred Shares depositary receipts representing such
number of one one-thousandths of a Preferred Share as are to be purchased (in
which case certificates for the Preferred Shares represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Company hereby directs the depositary agent to comply with such request, (ii)
when appropriate, requisition from the Company the amount of cash to be paid in
lieu of issuance of fractional Preferred Shares in accordance with Section 14
hereof, (iii) after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered holder of such
Right Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise as
set forth in this Section 7 unless such registered holder shall have (i)
completed and signed the certificate following the form of election to purchase
set forth on the reverse side of the Right Certificate surrendered for such
exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company or the Rights Agent shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company, or shall, at the written request
of the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares.
(a) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all Preferred Shares delivered upon exercise of
Rights shall, at the time of delivery of the
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<PAGE> 13
certificates for such Preferred Shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
non-assessable shares.
(b) The Company further covenants and agrees that it will pay when due
and payable any and all taxes and charges which may be payable in respect of the
issuance or delivery of the Right Certificates or of any Preferred Shares upon
the exercise of Rights. The Company shall not, however, be required to pay any
tax or charge which may be payable in respect of any transfer or delivery of
Right Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the Preferred Shares in a name other
than that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or to deliver any certificates or
depositary receipts for Preferred Shares upon the exercise of any Rights until
any such tax or charge shall have been paid (any such tax or charge being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax or charge is due.
(c) The Company covenants and agrees that it will cause to be reserved
and kept available, out of its authorized and unissued Preferred Shares or any
Preferred Shares held in its treasury, the number of Preferred Shares that will
be sufficient to permit the exercise in full of all outstanding Rights in
accordance with Section 7 hereof.
(d) From and after such time as the Rights become exercisable, the
Company shall use its best efforts, if then necessary to permit the issuance of
Preferred Shares upon the exercise of Rights, to register and qualify such
Preferred Shares under the Securities Act and any applicable state securities or
"blue sky" laws (to the extent exemptions therefrom are not available), cause
such registration statement and qualifications to become effective (with a
prospectus at all times meeting the requirement of the Securities Act) as soon
as possible after such filing and keep such registration and qualifications
effective until the earlier of the date as of which the Rights are no longer
exercisable for such securities or the Expiration Date. The Company may
temporarily suspend, for a period of time not to exceed 120 days, the
exercisability of the Rights in order to prepare and file a registration
statement under the Securities Act and permit it to become effective. Upon 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.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained and until a registration statement
under the Securities Act shall have been declared effective, unless an exemption
therefrom is available.
(e) So long as the Preferred Shares issuable upon the exercise of Rights
may be listed or admitted to trading on any national securities exchange or
quoted on National Association of Securities Dealers, Inc. Automated Quotations
System ("NASDAQ"), the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all Preferred Shares reserved
for such issuance to be listed or admitted to trading on such exchange or quoted
on NASDAQ, upon official notice of issuance upon such exercise.
Section 10. Preferred Shares Record Date. Each Person in whose name any
certificate for Preferred Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become
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<PAGE> 14
the holder of record of the Preferred Shares represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of the Purchase Price (and any
applicable taxes or charges) was made. Prior to the exercise of the Rights
evidenced thereby, the holder of a Right Certificate shall not be entitled to
any rights of a holder of Preferred Shares for which the Rights shall be
exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company, except
as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of Preferred Shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares
payable in Preferred Shares, (B) subdivide the outstanding
Preferred Shares, (C) combine the outstanding Preferred Shares
into a smaller number of Preferred Shares or (D) issue any shares
of its capital stock in a reclassification of the Preferred Shares
(including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this
Section 11(a), the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such
subdivision, combination or reclassification, and the number and
kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised
after such time shall be entitled to receive the aggregate number
and kind of shares of capital stock which, if such Right had been
exercised immediately prior to such date, he would have owned upon
such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification; provided,
however, that in no event shall the consideration to be paid upon
the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise
of one Right.
(ii) Subject to the following paragraph of this subparagraph (ii)
and to Section 24 of this Agreement, in the event any Person shall
become an Acquiring Person, each holder of a Right shall
thereafter have a right to receive, upon exercise thereof at a
price equal to the then current Purchase Price multiplied by the
number of one one-thousandths of a Preferred Share for which a
Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of Preferred Shares, such number of Common
Shares of the Company as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the number of one
one-thousandths of a Preferred Share for which a Right is then
exercisable and dividing that product by (y) 50% of the then
current per share market price of the Company's Common Shares
(determined pursuant to Section 11(d) hereof) on the date such
Person became an Acquiring Person. In the event that any Person
shall become an Acquiring Person and the Rights shall then be
outstanding, the Company shall not take any action that would
eliminate or diminish the benefits intended to be afforded by the
Rights.
From and after the occurrence of such an event, any Rights
that are or were acquired or beneficially owned by such Acquiring
Person, (or any Associate or Affiliate of such
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<PAGE> 15
Acquiring Person) on or after the earlier of (x) the date of such
event and (y) the Distribution Date, shall be null and void and
any holder of such Rights shall thereafter have no right to
exercise such Rights under any provision of this Agreement. No
Right Certificate shall be issued pursuant to Section 3 that
represents Rights beneficially owned by an Acquiring Person whose
Rights would be null and void pursuant to the preceding sentence
or any Associate or Affiliate thereof; no Right Certificate shall
be issued at any time upon the transfer of any Rights to an
Acquiring Person whose Rights would be null and void pursuant to
the preceding sentence or any Associate or Affiliate thereof or to
any nominee of such Acquiring Person, Associate or Affiliate; and
any Right Certificate delivered to the Rights Agent for transfer
to an Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any Associate or Affiliate thereof shall be
canceled.
(iii) In the event that the number of Common Shares which are
authorized by the Company's Articles of Incorporation and not
outstanding or subscribed for, or reserved or otherwise committed
for issuance for purposes other than upon exercise of the Rights,
are not sufficient to permit the holder of each Right to purchase
the number of Common Shares to which he would be entitled upon the
exercise in full of the Rights in accordance with the foregoing
subparagraph (ii) of paragraph (a) of this Section 11, or should
the Board of Directors so elect, the Company shall: (A) determine
the excess of (1) the value of the Common Shares issuable upon the
exercise of a Right (calculated as provided in the last sentence
of this subparagraph (iii)) pursuant to Section 11(a)(ii) hereof
(the "Current Value") over (2) the Purchase Price (such excess,
the "Spread"), and (B) with respect to each Right, make adequate
provision to substitute for such Common Shares, upon payment of
the applicable Purchase Price, any one or more of the following
having an aggregate value determined by the Board of Directors to
be equal to the Current Value: (1) cash, (2) a reduction in the
Purchase Price, (3) Common Shares or other equity securities of
the Company (including, without limitation, shares, or units of
shares, of preferred stock which the Board of Directors of the
Company has determined to have the same value as shares of Common
Stock (such shares of preferred stock, "Common Stock
Equivalents"), (4) debt securities of the Company, or (5) other
assets; provided, however, if the Company shall not have made
adequate provision to deliver value pursuant to clause (B) above
within thirty (30) days following the first occurrence of an event
triggering the rights to purchase Common Shares described in
Section 11(a)(ii) (the "Section 11(a)(ii) 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, shares of Common Stock (to the extent available) and then,
if necessary, cash, which shares and 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 thirty (30) day period set
forth above may be extended to the extent necessary, but not more
than ninety (90) days after the Section 11(a)(ii) Trigger Date, in
order that the Company may seek stockholder 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(a)(iii), the
Company (x) shall provide, subject to Section 7(e) hereof and the
last paragraph of Section 11(a)(ii) hereof, that such action
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<PAGE> 16
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 make a public announcement, and shall deliver to
the Rights Agent a statement, stating that the exercisability of
the Rights has been temporarily suspended. At such time as the
suspension is no longer in effect, the Company shall make another
public announcement, and deliver to the Rights Agent a statement,
so stating. For purposes of this Section 11(a)(iii), the value of
the Common Shares shall be the current per share market price (as
determined pursuant to Section 11(d)(i) hereof) of the Common
Shares on the Section 11(a)(ii) Trigger Date and the value of any
common stock equivalent shall be deemed to have the same value as
the Common Shares on such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("Equivalent Preferred
Shares")) or securities convertible into Preferred Shares or Equivalent
Preferred Shares at a price per Preferred Share or equivalent preferred share
(or having a conversion price per share, if a security convertible into
Preferred Shares or Equivalent Preferred Shares) less than the then current per
share market price of the Preferred Shares (as defined in Section 11(d)) on such
record date, the Purchase Price to be in effect after such record date shall be
adjusted by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of Preferred
Shares which the aggregate offering price of the total number of Preferred
Shares and/or Equivalent Preferred Shares so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such current market price and the denominator of which shall be the
number of Preferred Shares outstanding on such record date plus the number of
additional Preferred Shares and/or Equivalent Preferred Shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect
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<PAGE> 17
after such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the then current per share market price of the Preferred Shares
on such record date, less the fair market value (as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent) of the portion of the assets or
evidences of indebtedness so to be distributed or of such subscription rights or
warrants applicable to one Preferred Share and the denominator of which shall be
such current per share market price of the Preferred Shares; provided, however,
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital stock of the
Company to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose
of this Section 11(d)(i)) on any date shall be deemed to be the
average of the daily closing prices per share of such Security for
the 30 consecutive Trading Days (as such term is hereinafter
defined) immediately prior to but not including such date;
provided, however, that in the event that the current per share
market price of the Security is determined during a period
following the announcement by the issuer of such Security of (A) a
dividend or distribution on such Security payable in shares of
such Security or securities convertible into such shares, or (B)
any subdivision, combination or reclassification of such Security
and prior to the expiration of 30 Trading Days after but not
including the ex-dividend date for such dividend or distribution,
or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the
current market price per share equivalent of such Security. The
closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average
of the closing bid and asked prices, regular way, in either case
as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on
the New York Stock Exchange or, if the Security is not listed or
admitted to trading on the New York Stock Exchange, as reported in
the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities
exchange on which the Security is listed or admitted to trading
or, if the Security is not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the NASDAQ or such other
system then in use, or, if on any such date the Security is not
quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker
making a market in the Security selected by the Board of Directors
of the Company. The term "Trading Day" shall mean a day on which
the principal national securities exchange on which the Security
is listed or admitted to trading is open for the transaction of
business or, if the Security is not listed or admitted to trading
on any national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "current
per share market price" of the Preferred Shares shall be
determined in accordance with the method set forth in
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<PAGE> 18
Section 11(d)(i). If the Preferred Shares are not publicly traded,
the "current per share market price" of the Preferred Shares shall
be conclusively deemed to be the current per share market price of
the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend
or similar transaction occurring after the date hereof),
multiplied by 1000. If neither the Common Shares nor the Preferred
Shares are publicly held or so listed or traded, "current per
share market price" shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with
the Rights Agent and shall be conclusive for all purposes, until
notified otherwise.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one ten-millionth of a
Preferred Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than three years from the
date of the transaction which requires such adjustment.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
the number of such other shares so receivable upon exercise of any Right shall
thereafter be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(a), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-thousandths of
a Preferred Share (calculated to the nearest one ten-millionth of a Preferred
Share) obtained by (i) multiplying (x) the number of one one-thousandths of a
share covered by a Right immediately prior to this adjustment by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights in substitution for any adjustment
in the number of one one-thousandths of a Preferred Share purchasable upon the
exercise of a Right. Each of the Rights outstanding after such
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<PAGE> 19
adjustment of the number of Rights shall be exercisable for the number of one
one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one hundred-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made with prompt notice
thereof to the Rights Agent. This record date may be the date on which the
Purchase Price is adjusted or any day thereafter, but, if the Right Certificates
have been distributed, shall be at least 10 days later than the date of the
public announcement. If Right Certificates have been distributed, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates to be so distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-thousandths of a Preferred Share issuable upon the exercise of
the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-thousandths of
a Preferred Share which were expressed in the initial Right Certificates issued
hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below one one-thousandth of the then par value of the Preferred
Shares issuable upon exercise of the Rights, the Company shall take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and non-assessable
Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer with notice thereof to the Rights Agent
until the occurrence of such event the issuing to the holder of any Right
exercised after such record date of the Preferred Shares and other capital stock
or securities of the Company, if any, issuable upon such exercise over and above
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise on the basis of the Purchase Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by
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<PAGE> 20
this Section 11, as and to the extent that it in its sole discretion shall
determine to be advisable in order that any (i) combination or subdivision of
the Preferred Shares, (ii) issuance wholly for cash of any Preferred Shares at
less than the current market price, (iii) issuance wholly for cash of Preferred
Shares or securities which by their terms are convertible into or exchangeable
for Preferred Shares, (iv) dividends on Preferred Shares payable in Preferred
Shares or (v) issuance of any rights, options or warrants referred to herein
above in Section 11(b), hereafter made by the Company to holders of its
Preferred Shares shall not be taxable to such stockholders.
(n) In the event that at any time after the date of this Agreement and
prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise other than by payment of dividends in Common
Shares) into a greater or lesser number of Common Shares, then in any such case
(i) the number of one one-thousandths of a Preferred Share purchasable after
such event upon proper exercise of each Right shall be determined by multiplying
the number of one one-thousandths of a Preferred Share so purchasable
immediately prior to such event by a fraction, the numerator of which is the
number of Common Shares outstanding immediately before such event and the
denominator of which is the number of Common Shares outstanding immediately
after such event, and (ii) each Common Share outstanding immediately after such
event shall have issued with respect to it that number of Rights which each
Common Share outstanding immediately prior to such event had issued with respect
to it. The adjustments provided for in this Section 11(n) shall be made
successively whenever such a dividend is declared or paid or such a subdivision,
combination or consolidation is effected.
Section 12. Certificate of Adjustment. Whenever an adjustment is made as
provided in Sections 11 and 13 hereof, the Company shall promptly (a) prepare a
certificate setting forth such adjustment and a brief statement of the facts
accounting for such adjustment and computations, (b) file with the Rights Agent
and with each transfer agent for the Common Shares or the Preferred Shares a
copy of such certificate and (c) mail a brief summary thereof to each holder of
a Right Certificate in accordance with Section 25 hereof. The Rights Agent shall
be fully protected in relying on any such certificate and on any adjustment
therein contained and shall have no duty with respect to and shall not be deemed
to have knowledge of any such adjustment unless and until it shall have received
such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power. In the event that, at any time after a Person becomes an
Acquiring Person, directly or indirectly, (i) the Company shall consolidate
with, or merge with and into, any other Person, (ii) any Person shall
consolidate with the Company, or merge with and into the Company and the Company
shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Shares shall be changed
into or exchanged for stock or other securities of any other Person (or the
Company) or cash or any other property, or (iii) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person other than the Company or one or more of
its wholly-owned Subsidiaries, then, and in each such case, proper provision
shall be made so that (A) each holder of a Right (except as otherwise provided
herein) shall thereafter have the right to receive, upon the exercise thereof at
a price equal to the then current Purchase Price multiplied by the number of one
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<PAGE> 21
one-thousandths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of such other Person (including the Company as
successor thereto or as the surviving corporation) as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the number of one
one-thousandths of a Preferred Share for which a Right is then exercisable and
dividing that product by (y) 50% of the then current per share market price of
the Common Shares of such other Person (determined pursuant to Section 11(d)
hereof) on the date of consummation of such consolidation, merger, sale or
transfer; (B) the issuer of such Common Shares shall thereafter be liable for,
and shall assume, by virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Company pursuant to this Agreement; (C) the
term "Company" shall thereafter be deemed to refer to such issuer; and (D) such
issuer shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise of
the Rights. The Company covenants and agrees that it shall not consummate any
such consolidation, merger, sale or transfer unless prior thereto the Company
and such issuer shall have executed and delivered to the Rights Agent a
supplemental agreement so providing. The Company shall not enter into any
transaction of the kind referred to in this Section 13 if at the time of such
transaction there are any rights, warrants, instruments or securities
outstanding or any agreements or arrangements which, as a result of the
consummation of such transaction, would eliminate or substantially diminish the
benefits intended to be afforded by the Rights. The provisions of this Section
13 shall similarly apply to successive mergers or consolidations or sales or
other transfers. For purposes hereof, the "earning power" of the Company and its
Subsidiaries shall be determined in good faith by the Company's Board of
Directors on the basis of the operating earnings of each business operated by
the Company and its Subsidiaries during the three fiscal years preceding the
date of such determination (or, in the case of any business not operated by the
Company or any Subsidiary during three full fiscal years preceding such date,
during the period such business was operated by the Company or any Subsidiary).
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as
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<PAGE> 22
reported by NASDAQ or such other system then in use or, if on any such date the
Rights are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights, the fair value of
the Rights on such date as determined in good faith by the Board of Directors of
the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-thousandth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-thousandth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-thousandth of a Preferred
Share may, at the election of the Company, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it; provided, that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the Preferred Shares
represented by such depositary receipts. In lieu of fractional Preferred Shares
that are not integral multiples of one one-thousandth of a Preferred Share, the
Company shall pay to each registered holder of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one Preferred Share as the fraction of
one Preferred Share that such holder would otherwise receive upon the exercise
of the aggregate number of rights exercised by such holder. For the purposes of
this Section 14(b), the current market value of a Preferred Share shall be the
closing price of a Preferred Share (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly waives
any right to receive fractional Rights or fractional shares upon exercise of a
Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under this
Agreement hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares) may, 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), on his own behalf and for his 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 right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
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<PAGE> 23
(a) prior to the Distribution Date, the Rights will be transferable only
in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books maintained by the Rights Agent if surrendered at the
principal office of the Rights Agent, duly endorsed or accompanied by a proper
instrument of transfer with a completed form of certification; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay to the
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent, its reasonable expenses
and counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without gross
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability arising therefrom, directly or
indirectly.
The Rights Agent shall be protected and shall incur no liability for or
in respect of any action taken, suffered or omitted by it in connection with its
administration of this Agreement in reliance upon any Right Certificate or
certificate for Preferred Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper person or persons or
otherwise upon the advice of counsel as set forth in Section 20.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
Any Person into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated,
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<PAGE> 24
or any Person resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any Person succeeding
to the stock transfer or corporate trust powers of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided that such Person would be eligible
for appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent only undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the President and the Secretary of the
Company and delivered to the Rights Agent; and such certificate shall be full
authorization and protection to the Rights Agent for any action taken or
suffered in good faith by it under the provisions of this Agreement in reliance
upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except 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.
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<PAGE> 25
(e) The Rights Agent shall not be under any liability or responsibility
in respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect of
the validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming voice pursuant to this Agreement) or any
adjustment in the terms of the Rights provided for in Sections 11 or 13 hereof
or the ascertaining of the existence of facts that would require any such change
or adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after receipt of a certificate furnished pursuant to Section 12,
describing such change or adjustment); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any shares of Preferred Shares or other securities to be issued
pursuant to this Agreement or any Right Certificate or as to whether any
Preferred Shares or other securities will, when so issued, be validly authorized
and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person reasonably believed by the Rights Agent to be one of the President or the
Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Agreement
and the date on and/or after which such action shall be taken or suffered or
such omission shall be effective. The rights Agent shall not be liable for any
action taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five Business Days after the date
any officer of the Company actually receives such application unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent
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<PAGE> 26
shall not be answerable or accountable for any act, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Company
resulting from any such act, default, neglect or misconduct, provided reasonable
care was exercised in the selection and continued employment thereof.
(j) If, with respect to any Right Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate contained in the form of
assignment or the form of election to purchase set forth on the reverse thereof,
as the case may be, has not been completed to certify the holder is not an
Acquiring Person (or an Affiliate or Associate thereof) or transferee thereof,
the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares and the Preferred Shares by registered or certified mail,
and, following the Distribution Date, to the holders of the Right Certificates
by first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Shares and the Preferred Shares by registered or certified mail, and,
following the Distribution Date, to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
Person organized and doing business under the laws of the United States or the
laws of any state of the United States or the District of Columbia, in good
standing, having an office in the State of North Carolina or New York, which is
authorized under such laws to exercise corporate trust or stock transfer powers
and is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares and the Preferred Shares, and, following the Distribution
Date, mail a notice thereof in writing to the registered holders of the Right
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates
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<PAGE> 27
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
Section 23. Redemption.
(a) The Board of Directors of the Company may, at its option, at any time
prior to such time as any Person becomes an Acquiring Person, redeem all but not
less than all the then outstanding Rights at a redemption price of $0.001 per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"). The redemption of the Rights
by the Board of Directors may be made effective at such time, on such basis and
subject to such conditions as the Board of Directors in its sole discretion may
establish. The Redemption Price shall be payable, at the option of the Company,
in cash, Common Shares, or such other form of consideration as the Board of
Directors shall determine.
(b) Immediately upon the time of the effectiveness of the redemption of
the Rights pursuant to paragraph (a) of this Section 23 or such earlier time as
may be determined by the Board of Directors of the Company in the action
ordering such redemption (although not earlier than the time of such action)
(such time the "Redemption Date"), and without any further action and without
any notice, the right to exercise the Rights shall terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption; provided,
however, that the failure to give, or any defect in, any such notice shall not
affect the validity of such redemption. Within 10 days after such action of the
Board of Directors ordering the redemption of the Rights pursuant to paragraph
(a), the Company shall mail a notice of redemption to all the holders of the
then outstanding Rights and the Rights Agent at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. If the payment of the Redemption
Price is not included with such notice, each such notice shall state the method
by which the payment of the Redemption Price will be made. Neither the Company
nor any of its Affiliates or Associates may redeem, acquire or purchase for
value any Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 24 hereof, other than in connection with
the purchase of Common Shares prior to the Distribution Date.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its option, at any time
after any Person becomes an Acquiring Person, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become null and void pursuant to the provisions of Section 11(a)(ii) hereof) for
Common Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, any employee
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<PAGE> 28
benefit plan of the Company or any such Subsidiary, or any entity holding Common
Shares for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of a
majority of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to subsection (a) of this Section
24 and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of the holder of such
Rights shall be to receive that number of Common Shares equal to the number of
such Rights held by such holder multiplied by the Exchange Ratio. The Company
shall promptly give public notice of any such exchange with prompt notice
thereof to the Rights Agent; provided, however, that the failure to give, or any
defect in, such notice shall not affect the validity of such exchange. The
Company promptly shall mail a notice of any such exchange to all of the holders
of such Rights at their last addresses as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the Common Shares for
Rights will be effected and, in the event of any partial exchange, the number of
Rights which will be exchanged. Any partial exchange shall be effected pro rata
based on the number of Rights (other than Rights which have become null and void
pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of
Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Shares or Common Stock Equivalents for Common
Shares exchangeable for Rights, at the initial rate of one one-thousandth of a
Preferred Share (or an appropriate number of Common Stock Equivalents) for each
Common Share, as appropriately adjusted to reflect adjustments in the voting
rights of the Preferred Shares pursuant to the terms thereof, so that the
fraction of a Preferred Share delivered in lieu of each Common Share shall have
the same voting rights as one Common Share.
(d) In the event that there shall not be sufficient Common Shares,
Preferred Shares or Common Stock Equivalents authorized by the Company's
Articles of Incorporation and not outstanding or subscribed for, or reserved or
otherwise committed for issuance for purposes other than upon exercise of
Rights, to permit any exchange of Rights as contemplated in accordance with this
Section 24, the Company shall take all such action as may be necessary to
authorize additional Common Shares, Preferred Shares or Common Stock Equivalents
for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of Common Shares
or to distribute certificates which evidence fractional Common Shares. In lieu
of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current per share market value of a whole Common Share. For the purposes
of this paragraph (e), the current per share market value of a whole Common
Share shall be the closing price of a Common Share (as determined pursuant to
the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.
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<PAGE> 29
Section 25. Notice of Certain Events.
(a) In case the Company shall after the Distribution Date propose (i) to
pay any dividend payable in stock of any class to the holders of its Preferred
Shares or to make any other distribution to the holders of its Preferred Shares
(other than a regular quarterly cash dividend), (ii) to offer to the holders of
its Preferred Shares rights or warrants to subscribe for or to purchase any
additional Preferred Shares or shares of stock of any class or any other
securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate and the Rights Agent, in accordance with Section 26 hereof, a notice
of such proposed action, which shall specify the record date for the purposes of
such stock dividend, or distribution of rights or warrants, or the date on which
such reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action, and
in the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares and/or Preferred Shares, whichever shall be the
earlier.
(b) In case any event set forth in Section 11(a)(ii) hereof shall occur,
then the Company shall as soon as practicable thereafter give to each holder of
a Right Certificate and the Rights Agent, in accordance with Section 26 hereof,
a notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
<TABLE>
<S> <C>
Digital Recorders, Inc.
4018 Patriot Drive, Suite 100
Durham, North Carolina 27703
Attention: Dave Turney
Copy to:
Berliner Zisser Walter & Gallegos, P.C. and Gray, Layton, Kersh, Solomon, Sigmon,
1700 Lincoln, Suite 4700 Furr & Smith, P.A.
Denver, Colorado 80203 516 S. New Hope
Attention: Robert W. Walter, Esq. Gastonia, North Carolina 28054
Attn: David M. Furr, Esq.
</TABLE>
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<PAGE> 30
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Right Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
Attention: Compliance Department
Notices or demands authorized by this Agreement to be given or made by
the Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time to
time, and the Rights Agent shall, if the Company so directs, supplement or amend
this Agreement without the approval of any holders of Right Certificates in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
or to make any change to or delete any provision hereof or to adopt any other
provisions with respect to the Rights which the Company may deem necessary or
desirable; provided, however, that from and after such time as any Person
becomes an Acquiring Person, this Agreement shall not be amended or supplemented
in any manner which would adversely affect the interests of the holders of
Rights (other than an Acquiring Person and its Affiliates and Associates). Any
supplement or amendment authorized by this Section 27 will be evidenced by a
writing signed by the Company and the Rights Agent; provided that any such
supplement or amendment does not change or increase the Rights Agent duties,
liabilities or obligations, without the Rights Agent's prior written consent
and; provided further that the Rights Agent receives a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 27 hereof shall become
effective immediately upon execution by the Company and the Rights Agent.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or entity other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
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<PAGE> 31
Section 31. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of North Carolina and for all purposes shall be governed by and construed
in accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State; provided, however, that all provisions
regarding the rights, duties and obligations of the Rights Agent shall be
governed by and construed in accordance with the laws of the State of North
Carolina applicable to contracts made and to be performed entirely within such
State.
Section 32. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 34. Administration. The Board of Directors of the Company shall
have the exclusive power and authority to administer and interpret the
provisions of this Agreement and to exercise all rights and powers specifically
granted to the Board of Directors or the Company or as may be necessary or
advisable in the administration of this Agreement. All such actions,
calculations, determinations and interpretations which are done or made by the
Board of Directors in good faith shall be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Rights and all other parties and
shall not subject the Board of Directors to any liability to the holders of the
Rights.
IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement
to be duly executed and their respective corporate seals to be hereunder affixed
and attested, all as of the day and year first above written.
DIGITAL RECORDERS, INC.
/s/ David Turney
--------------------------------------
David Turney, President
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY, as Rights Agent
/s/ William F. Seegraber
--------------------------------------
William F. Seegraber, Vice President
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<PAGE> 32
EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATION
of
SERIES D JUNIOR PARTICIPATING PREFERRED STOCK
of
DIGITAL RECORDERS, INC.
Digital Recorders, Inc., a corporation organized and existing under the
Business Corporation Act of the State of North Carolina (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 55-6-02 of the
Business Corporation Act at a meeting duly called and held on December 13, 1999:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Articles of
Incorporation of the Corporation (the "Articles of Incorporation"), the Board of
Directors hereby creates a series of Preferred Stock, par value $.10 per share
(the "Preferred Stock"), of the Corporation and hereby states the designation
and number of shares, and fixes the relative rights, preferences, and
limitations thereof as follows:
Section 1. Designation and Amount. The shares of this series shall be
designated as "Series D Junior Participating Preferred Stock" (the "Series D
Preferred Stock") and the number of shares constituting the Series D Preferred
Stock shall be 10,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series D Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series D Preferred Stock.
Section 2. Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any other stock) ranking prior and superior to the Series D
Preferred Stock with respect to dividends, the holders of shares of Series D
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series D Preferred
Stock, in an amount (if any) per share (rounded to the nearest cent), subject to
the provision for adjustment hereinafter set forth, equal to 1000 times the
aggregate per share amount of all cash dividends, and 1000 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock, par
value $.10 per share (the "Common Stock"), of the Corporation or a subdivision
of the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly Dividend
Payment Date or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of Series D
Preferred Stock. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or
<PAGE> 33
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount to which holders of shares of Series D Preferred Stock were entitled
immediately prior to such event under the preceding sentence shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Series D Preferred Stock as provided in paragraph (a) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(c) Dividends due pursuant to paragraph (A) of this Section shall begin
to accrue and be cumulative on outstanding shares of Series D Preferred Stock
from the Quarterly Dividend Payment Date next preceding the date of issue of
such shares, unless the date of issue of such shares is prior to the record date
for the first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series D Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of Series
D Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series D Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series D Preferred
Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth, each
share of Series D Preferred Stock shall entitle the holder thereof to 1000 votes
on all matters submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series D
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided the Articles of Incorporation, including
any other Certificate of Designations creating a series of Preferred Stock or
any similar stock, or by law, the holders of shares of Series D Preferred Stock
and the holders of shares of Common Stock and any other capital stock of
A-2
<PAGE> 34
the Corporation having general voting rights shall vote together as one class on
all matters submitted to a vote of stockholders of the Corporation.
(c) Except as set forth herein, or as otherwise required by law, holders
of Series D Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series D Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series D Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series D Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series D Preferred Stock,
except dividends paid ratably on the Series D Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled; or
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series D Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (as to dividends and upon dissolution, liquidation or winding up) to the
Series D Preferred Stock.
(b) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (a) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series D Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein or in
the Articles of Incorporation, including any Certificate of Designations
creating a series of Preferred Stock or any similar stock, or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation the holders of shares of Series D
Preferred Stock shall be entitled to receive an
A-3
<PAGE> 35
aggregate amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 1000 times the aggregate amount to be distributed per share
to holders of shares of Common Stock plus an amount equal to any accrued and
unpaid dividends. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series D
Preferred Stock were entitled immediately prior to such event under the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series D Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series D Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. Amendment. The Articles of Incorporation shall not be amended
in any manner, including in a merger or consolidation, which would alter,
change, or repeal the powers, preferences or special rights of the Series D
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Series D
Preferred Stock, voting together as a single class.
Section 9. Rank. The Series D Preferred Stock shall rank, with respect to
the payment of dividends and upon liquidation, dissolution and winding up,
junior to all series of Preferred Stock.
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the
Corporation by its President this 13th day of December, 1999.
DIGITAL RECORDERS, INC.
By:
--------------------------------------
Title: David Turney, President
-----------------------------------
A-4
<PAGE> 36
EXHIBIT B
[Form of Right Certificate]
Certificate No. R- _______ Rights
NOT EXERCISABLE AFTER DECEMBER 14, 2009 OR EARLIER IF REDEMPTION OR EXCHANGE
OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $0.001 PER RIGHT AND TO EXCHANGE
ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES,
RIGHTS THAT ARE OR WERE ACQUIRED OR BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR
ANY ASSOCIATES OR AFFILIATES THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID.
Right Certificate
DIGITAL RECORDERS, INC.
This certifies that _______________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of December 14, 1999 (the "Rights Agreement"), between
Digital Recorders, Inc., a North Carolina corporation (the "Company"), and
Continental Stock Transfer & Trust Company (the "Rights Agent"), to purchase
from the Company at any time after the Distribution Date (as such term is
defined in the Rights Agreement) and prior to 5:00 P.M., New York, New York, on
December 13, 2009, at the office of the Rights Agent, or at the office of its
successor as Rights Agent, one one-thousandth of a fully paid non-assessable
share of Series D Junior Participating Preferred Stock, par value $.10 per share
(the "Preferred Shares"), of the Company, at a purchase price of $20.00 per one
one-thousandth of a Preferred Share (the "Purchase Price"), upon presentation
and surrender of this Right Certificate with the certification and the Form of
Election to Purchase duly executed. The number of Rights evidenced by this Right
Certificate (and the number of one one-thousandths of a Preferred Share which
may be purchased upon exercise hereof) set forth above, and the Purchase Price
set forth above, are the number and Purchase Price as of December 27, 1999,
based on the Preferred Shares as constituted at such date. As provided in the
Rights Agreement, the Purchase Price and the number of one one-thousandths of a
Preferred Share which may be purchased upon the exercise of the Rights evidenced
by this Right Certificate are subject to modification and adjustment upon the
happening of certain events.
From and after the occurrence of an event described in Section 11(a)(ii)
of the Rights Agreement, if the Rights evidenced by this Right Certificate are
or were at any time on or after the earlier of (x) the date of such event and
(y) the Distribution Date (as such term is defined in the Rights Agreement)
acquired or beneficially owned by an Acquiring Person or an Associate or
Affiliate of an Acquiring Person (as such terms are defined in the Rights
Agreement), such Rights shall become void, and any holder of such Rights shall
thereafter have no right to exercise such Rights.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the office of the Rights Agent.
<PAGE> 37
This Right Certificate, with or without other Right Certificates, upon
surrender at the office of the Rights Agent, may be exchanged for another Right
Certificate or Right Certificates of like tenor and date evidencing Rights
entitling the holder to purchase a like aggregate number of Preferred Shares as
the Rights evidenced by the Right Certificate or Right Certificates surrendered
shall have entitled such holder to purchase. If this Right Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Right Certificate or Right Certificates for the number of whole Rights
not exercised.
Subject to the provisions of the Rights Agreement, at the Company's
option, the Rights evidenced by this Certificate (i) may be redeemed by the
Company at a redemption price of $0.001 per Right or (ii) may be exchanged in
whole or in part for shares of the Company's Common Stock, par value $.10 per
share, or Preferred Shares.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-thousandth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in 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 Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and its
corporate seal.
Dated:
DIGITAL RECORDERS, INC.
By :
----------------------------------------
Countersigned:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By:
------------------------------
Authorized Officer
B-2
<PAGE> 38
[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: ,
------------- -- -----
--------------------------------------
Signature
Signature Guaranteed:
-----------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
--------------------------------------
Signature
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Right Certificate.)
To Digital Recorders, Inc.:
The undersigned hereby irrevocably elects to exercise ___________ Rights
represented by this Right Certificate to purchase the Preferred Shares issuable
upon the exercise of such Rights and requests that certificates for such
Preferred Shares be issued in the name of:
- --------------------------------------------------------------------------------
(Please print name and address and insert social security
or other identifying number)
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address and insert social security
or other identifying number)
Dated: ,
------------- -- -----
--------------------------------------
Signature
Signature Guaranteed:
-----------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
--------------------------------------
Signature
B-3
<PAGE> 39
[Form of Reverse Side of Right Certificate continued]
NOTICE
The signature(s) on the foregoing Assignment must correspond to the
name(s) as written upon the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever. The signature(s) 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).
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 defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.
B-4
<PAGE> 40
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES
On December 13, 1999, the Board of Directors of Digital Recorders, Inc.
(the "Company") declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of common stock, par value $.10 per share
(the "Common Shares") outstanding on December 27, 1999 (the "Record Date") to
the stockholders of record on that date. Each Right entitles the registered
holder to purchase from the Company one one-thousandth of a share of Series D
Junior Participating Preferred Stock, par value $.10 per share (the "Preferred
Shares"), of the Company, at a price of $20.00 per one one-thousandth of a
Preferred Share (the "Purchase Price"), subject to adjustment. The description
and terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement") between the Company and Continental Stock Transfer & Trust Company,
as Rights Agents (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 15% or more of the outstanding
Common Shares or (ii) 10 business days (or such later date as may be determined
by action of the Board of Directors prior to such time as any Person becomes an
Acquiring Person) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 15% or more of such
outstanding Common Shares (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Share certificates outstanding as of the Record Date, by such Common
Share certificate with a copy of this Summary of Rights attached thereto. The
Rights will be evidenced, with respect to Common Shares outstanding as of the
Record Date that are uncertificated by the registration by the Company or its
agent of the attachment of the Summary of Rights of the holders of such shares
as the registered owner of such Rights and shares together with a copy of this
Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date or upon transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the Company will send, with respect to Common Shares
that are uncertificated and issued after the Record Date or upon transfer or new
issuance of Common Shares, notice incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Shares or
the transfer of any uncertificated shares outstanding as of the Record Date,
even without such notation or a copy of this Summary of Rights being attached
thereto, will also constitute the transfer of the Rights associated with the
Common Shares represented by such certificate or so transferred. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Shares as of the Close of Business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on December 13, 2009 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed by the
Company, in each case, as described below.
C-1
<PAGE> 41
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-thousandths of
a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a quarterly dividend
payment of 1000 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to an
aggregate payment of 1000 times the aggregate payment made per Common Share.
Each Preferred Share will have 1000 votes, voting together with the Common
Shares. In the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preferred Share will be entitled to receive
1000 times the amount received per Common Share. These rights are protected by
customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-thousandth interest in a Preferred Share
purchasable upon exercise of each Right should approximate the value of one
Common Share.
From and after the occurrence of an event described in Section 11(a)(ii)
of the Rights Agreement, if the Rights evidenced by this Right Certificate are
or were at any time on or after the earlier of (x) the date of such event and
(y) the Distribution Date (as such term is defined in the Rights Agreement)
acquired or beneficially owned by an Acquiring Person or an Associate or
Affiliate of an Acquiring Person (as such terms are defined in the Rights
Agreement), such Rights shall become null and void, and any holder of such
Rights shall thereafter have no right to exercise such Rights.
In the event that, at any time after a Person becomes an Acquiring
Person, the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold,
proper provision will be made so that each holder of a Right will thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have a market value
of two times the exercise price of the Right. Unless the Board acts otherwise,
in the event that any person becomes an Acquiring Person, proper provision shall
be made so that each holder of a Right, other than Rights beneficially owned by
the Acquiring Person and its Affiliates and Associates (which will thereafter be
null and void), will thereafter have the right to receive upon exercise that
number of Common Shares having a market value of two times the exercise price of
the Right. If the Company does not have sufficient Common Shares to satisfy such
obligation to issue
C-2
<PAGE> 42
Common Shares, or if the Board of Directors so elects, the Company shall deliver
upon payment of the exercise price of a Right an amount of cash or securities
equivalent in value to the Common Shares issuable upon exercise of a Right;
provided that, if the Company fails to meet such obligation within 30 days
following the later of (x) the first occurrence of an event triggering the right
to purchase Common Shares and (y)the date on which the Company's right to redeem
the Rights expires, the Company must deliver, upon exercise of a Right but
without requiring payment of the exercise price then in effect, Common Shares
(to the extent available) and cash equal in value to the difference between the
value of the Common Shares otherwise issuable upon the exercise of a Right and
the exercise price then in effect. The Board of Directors may extend the 30-day
period described above for up to an additional 60 days to permit the taking of
action that may be necessary to authorize sufficient additional Common Shares to
permit the issuance of Common Shares upon the exercise in full of the Rights.
At any time after any Person becomes an Acquiring Person and prior to the
acquisition by any person or group of a majority of the outstanding Common
Shares, the Board of Directors of the Company may exchange the Rights (other
than Rights owned by such person or group which have become void), in whole or
in part, at an exchange ratio of one Common Share per Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-thousandth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to the time any Person becomes an Acquiring Person, the
Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $0.001 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, except that from and
after such time as any person becomes an Acquiring Person no such amendment may
adversely affect the interests of the holders of the Rights (other than the
Acquiring Person and its Affiliates and Associates).
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
A copy of the Agreement has been filed with the Securities and Exchange
Commission as an Exhibit to a Registration Statement on Form 8-A dated December
14, 1999. A copy of the Agreement is available free of charge from the Company.
This summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Agreement, which is hereby
incorporated herein by reference.
C-3
