UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2002,
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
(For the transition period from to ).
Beacon Power Corporation
(Exact name of registrant as specified in its charter)
Delaware
04-3372365
(State or other jurisdiction
of (I.R.S. Employer
incorporation or organization)
Identification No.)
234 Ballardvale Street
Wilmington, Massachusetts 01887-1032
(Address of principal executive offices) (Zip code)
(978) 694-9121 Phone
(978) 694-9127 Fax
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
The number of shares of the Registrant's common stock, par value $.01 per share,
outstanding as of November 11, 2002 was 42,812,897.
<page>
BEACON POWER CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Table of Contents
Page
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at September 30, 2002
and December 31, 2001. 2
Consolidated Statements of Operations for the three and
nine months ended September 30, 2002 and 2001 and for the
Period May 8, 1997 (date of inception) to September 30, 2002. 3
Consolidated Statements of Cash Flows for nine months ended
September 30, 2002 and 2001 and for the Period May 8, 1997
(date of inception) to September 30, 2002. 4
Notes to Consolidated Financial Statements. 6-8
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations. 9-18
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
Item 4. Controls and Procedures 19
PART II. Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults on Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits, Financial Statements Schedules and
Reports on Form 8-K 20
Signatures 21
Certifications 22-23
<page>
BEACON POWER CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
<table>
<s> <c> <c>
(Unaudited)
September 30, December 31,
2002 2001
---------------------- ---------------------
Assets
Current assets:
Cash and cash equivalents $ 21,760,816 $ 34,601,585
Prepaid expenses and other current assets 328,715 1,131,065
Assets held for sale 53,715 -
---------------------- ---------------------
Total current assets 22,143,246 35,732,650
Property and equipment, net (Note 3) 736,812 6,188,507
Other assets 251,384 209,796
---------------------- ---------------------
Total assets $ 23,131,442 $ 42,130,953
====================== =====================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 214,490 $ 911,465
Accrued compensation and benefits 177,443 721,130
Due to related party - 35,532
Other accrued expenses 451,613 941,100
Restructuring reserve 1,835,625 -
Current portion of capital lease obligations 263,425 335,145
---------------------- ---------------------
Total current liabilities 2,942,596 2,944,372
Capital lease obligations, net of current portion 13,307 205,352
Commitments (Note 4)
Stockholders' equity:
Preferred Stock, $.01 par value; 10,000,000 shares authorized
no shares issued or outstanding - -
Common stock, $.01 par value; 110,000,000 shares authorized;
42,809,361 and 42,770,856 shares issued and outstanding at
September 30, 2002 and December 31, 2001, respectively 428,094 427,709
Deferred stock compensation (15,430) (211,564)
Additional paid-in-capital 132,746,944 132,911,256
Deficit accumulated during the development stage (112,884,409) (94,146,172)
Less: treasury stock, at cost (99,660) -
---------------------- ---------------------
Total stockholders' equity 20,175,539 38,981,229
Total liabilities and stockholders' equity $ 23,131,442 $ 42,130,953
====================== =====================
See notes to consolidated financial statements
</table>
<page>
BEACON POWER CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations (Unaudited)
<table>
<s> <c> <c> <c> <c> <c>
Cumulative from
May 8, 1997
(date of inception)
Three months ended September 30, Nine months ended September 30, through September
2002 2001 2002 2001 30, 2002
------------------ ------------------ ----------------- ----------------- --------------------
Revenue $ - $ - $ - $ - $ 551,184
Operating expenses:
Selling, general and administrative 1,054,819 2,336,726 4,560,568 6,188,323 22,046,691
Research and development 1,284,746 5,380,092 6,194,870 14,136,688 45,858,884
Loss on sales commitments - - - - 375,974
Depreciation and amortization 462,849 346,583 1,475,084 903,778 3,496,857
Restructuring charges 2,159,280 - 2,159,280 - 2,159,280
Loss on impairment of assets 4,297,128 - 4,297,128 - 4,297,128
------------------ ------------------ ----------------- ----------------- --------------------
Total operating expenses 9,258,822 8,063,401 18,686,930 21,228,789 78,234,814
------------------ ------------------ ----------------- ----------------- --------------------
Loss from operations (9,258,822) (8,063,401) (18,686,930) (21,228,789) (77,683,630)
Interest income 115,514 462,187 418,252 1,917,074 3,476,221
Interest expense (8,770) (3,154) (36,958) (18,080) (1,082,017)
Other income (expense) 1,920 15,958 (432,602) (360,134) (588,789)
------------------ ------------------ ----------------- ----------------- --------------------
Total other income (expense), net 108,664 474,991 (51,308) 1,538,860 1,805,415
------------------ ------------------ ----------------- ----------------- --------------------
Net loss (9,150,158) (7,588,410) (18,738,238) (19,689,929) (75,878,215)
Preferred stock dividends - - - - (36,825,680)
Accretion of redeemable convertible
preferred stock - - - - (113,014)
------------------ ------------------ ----------------- ----------------- --------------------
Loss to common shareholders $ (9,150,158) $ (7,588,410) $(18,738,238) $(19,689,929) $ (112,816,909)
================== ================== ================= ================= ====================
Loss per share, basic and diluted $ (0.21) $ (0.18) $ (0.44) $ (0.46)
================== ================== ================= =================
Weighted-average common shares
outstanding 42,809,361 42,739,635 42,792,154 42,479,667
================== ================== ================= =================
See notes to consolidated financial statements.
</table>
<page>
BEACON POWER CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<table>
<s> <c> <c> <c>
Cumulative from
May 8, 1997
(date of inception)
Nine months ended September 30, through September
2002 2001 30, 2002
--------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (18,738,238) $ (19,689,929) $ (75,878,216)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,475,084 903,778 3,496,857
Loss on sale of fixed assets 7,342 86,523 163,729
Impairment of assets 4,297,128 - 4,297,128
Restructuring charge net of severance paid 1,835,625 - 1,835,625
Reserve for officers note 425,130 - 425,130
Interest expense relating to issuance of warrants - - 371,000
Non-cash charge for change in option terms - - 346,591
Non-cash charge for settlement of lawsuit - 303,160 303,160
Amortization of deferred consulting expense, net - - 1,160,784
Amortization of deferred stock compensation 19,442 334,342 1,290,161
Warrants issued for consulting services - - 1,569,366
Accrued loss on sales commitments - - 375,974
Services and interest expense paid in preferred stock - - 11,485
Changes in operating assets and liabilities:
Inventory - 82,180 -
Prepaid expenses and other current assets 277,560 (957,449) (853,505)
Accounts payable (696,975) (408,407) 214,490
Accrued compensation and benefits (543,687) 945,641 177,443
Accrued interest - - 275,560
Due to related party (35,532) 188,626 -
Accrued loss on sales commitments - - (375,974)
Other accrued expenses and current liabilities (489,486) 66,280 460,284
--------------------------------------------------------------
Net cash used in operating activities (12,166,607) (18,145,255) (60,332,928)
Cash flows from investing activities:
(Increase)/decrease in other assets - 607,014 (175,218)
Purchases of property and equipment (423,162) (4,086,360) (8,370,796)
--------------------------------------------------------------
Net cash used in investing activities (423,162) (3,479,346) (8,546,014)
Cash flows from financing activities:
Initial public stock offering, net of expenses - - 49,341,537
Payment of dividends - (1,159,373) (1,159,373)
Shares issued under employee stock purchase plan 12,765 - 122,709
Exercise of employee stock options - 803,505 1,175,670
Issuance of preferred stock - - 32,868,028
Repayment of subscription receivable - - 5,000,000
Proceeds from capital leases - 495,851 495,851
Repayment of capital leases (263,765) (113,462) (754,664)
Proceeds from notes payable issued to investors - - 3,550,000
--------------------------------------------------------------
Net cash provided (used) by financing activities (251,000) 26,521 90,639,758
Increase (decrease) in cash and cash equivalents (12,840,769) (21,598,080) 21,760,816
Cash and cash equivalents, beginning of period 34,601,585 62,497,102 -
--------------------------------------------------------------
Cash and cash equivalents, end of period $ 21,760,816 $ 40,899,022 $ 21,760,816
==============================================================
See notes to consolidated financial statements.
</table>
<page>
BEACON POWER CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Operations
Nature of Business. Beacon Power Corporation is a development stage company that
was incorporated on May 8, 1997. Beacon Power Corporation and its subsidiary
("Beacon" or "the Company") designs, develops, configures, and offers for sale
power systems that provide highly reliable, high-quality, uninterruptible
electric power, employing both proprietary and third party solutions. It is best
known for its environmentally friendly, flywheel-based products (employing a
flywheel made from proprietary composite materials), which can store and deliver
energy in a variety of configurations. Such products have longer life, reduced
maintenance, quicker recharging, remote monitoring and other advantages over
competing solutions. Because the Company has not yet generated a significant
amount of revenue from its principal operations, it continues to be accounted
for as a development stage company under Statement of Financial Accounting
Standards No. 7. The Company has a single operating segment, manufacturing
alternative power sources. The Company has no segmented structure dictated by
product lines, geography or customer type.
Operations. The Company has experienced net losses since its inception and, as
of September 30, 2002, had an accumulated deficit of approximately $112.9
million. The Company is facing the challenge of ongoing development, as well as
refinement and marketing of its commercial products. Meeting these challenges is
expected to require significant outlays of capital. The Company expects to have
sufficient cash on hand to fund its reduced operations for approximately 24
months.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared
using accounting principles generally accepted in the United States of America
for interim financial information and with Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring accruals considered
necessary for a fair presentation, have been included in the accompanying
unaudited financial statements. Operating results for the three months and nine
months ended September 30, 2002 are not necessarily indicative of the results
that may be expected for the full year ending December 31, 2002. Certain
information and footnote disclosure normally included in consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements presented herein be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K, for the year ended December 31, 2001.
Restructuring and asset impairment charges. The company's initial products were
focused on the telecom industry. As a result of the overall economic downturn
and in particular the significant decline in capital and maintenance spending in
telecom as well as the low price of lead-acid batteries, the Company has not
been successful in selling products into this market. Therefore, in July 2002,
in an effort to reduce its monthly cash-spending rate, the Company implemented a
number of cost-cutting measures to ensure the availability of resources
necessary to pursue its business strategy for a reasonable period but at a
significantly lower cash burn rate, and thus on a less ambitious timetable. As a
result, a substantial portion of our long-term assets have been idled, including
machinery and equipment, tooling, office furniture and fixtures, and equipment
and leasehold improvements. We have evaluated all of our property and equipment
as required by Statement of Financial Accounting Standards No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets". We have taken a non-cash
accounting charge of $6.5 million of which $4.3 million represents impaired
capital equipment and leasehold improvements, $.3 million relates to severance
costs and $1.9 million relates to a reserve against future lease payments and
related facility costs. The assets held for sale have been grouped together and
classified as "Assets held for sale" in the current assets section of the
balance sheet. Assets held for sale have been written down to their fair value
based on quotes from vendors and other market factors. The reserve against
future lease payments is classified as "Restructuring reserve" in the current
liabilities section of the balance sheet.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which supercedes SFAS No. 121. SFAS No. 144
further refines the requirements of SFAS No. 121 that companies (1) recognize an
impairment loss only if the carrying amount of a long-lived asset is not
recoverable based on its undiscounted future cash flows and (2) measure an
impairment loss as the difference between the carrying amount and fair value of
the asset. In addition, SFAS No. 144 provides guidance on accounting and
disclosure issues surrounding long-lived assets to be disposed of by sale. We
adopted SFAS No. 144 effective 1/1/2002, and applied its principles as described
above in "Restructuring and asset impairment charges".
For a complete description of the Company's accounting policies, see Note 2 to
Consolidated Financial Statements in the Company's 2001 Annual Report on Form
10-K.
Reclassifications. Certain amounts in prior year financial statements have been
reclassified to conform to their 2002 presentation.
Note 3. Property and Equipment
A substantial portion of our long-term assets have been idled, including
machinery and equipment, tooling, office furniture and fixtures and equipment
and leasehold improvements. We have evaluated all of our property and equipment
to determine its future use. As a result of this effort, and as required by
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" we have taken a non-cash impairment
charge of approximately $6.5 million of which $4.3 million represents impaired
capital equipment. The assets held for sale have been grouped together and
classified as "Assets held for sale" in the current assets section of the
balance sheet. Assets held for sale have been written down to their estimated
realizable values based on quotes from vendors and other market factors.
Property and equipment consist of the following:
<table>
<s> <c> <c> <c>
Estimated
Useful September 30, December 31,
Lives 2002 2001
-------------------------------------------------
Machinery and equipment 5 years $2,316,196 $1,996,711
Service vehicles 5 years 63,792 63,792
Furniture and fixtures 7 years 733,018 733,018
Office equipment 3 years 2,075,530 2,030,653
Leasehold improvements Lease term 2,072,577 2,072,577
Equipment under capital lease obligations Lease term 1,081,726 1,081,726
-------------------------------------
Total $8,342,839 $7,978,477
Less accumulated depreciation and amortization (3,255,184) (1,789,970)
-------------------------------------
Property and equipment, before impairment $5,087,655 $6,188,507
-------------------------------------
Less impairment reserve (4,297,128) -
Less assets available for sale (53,715) -
-------------------------------------
Property and equipment, net $736,812 $6,188,507
=====================================
</table>
Note 4. Commitments
The Company leases office and light manufacturing space under an operating lease
through September 30, 2007 and has various operating leases for certain office
and manufacturing equipment expiring through December 2003. Under the terms of
the facility lease, the Company provided the lessor with an irrevocable letter
of credit. At September 30, 2002 the balance of the letter of credit totaled
$400,454. A cash deposit with the Company's commercial bank secures this letter
of credit.
Note 5. Common Stock
Treasury Stock. As a part of the repayment of a loan from the Company, an
officer surrendered 132,000 shares of Beacon Power Corporation common stock, in
the first quarter of this year, that were held as collateral against that loan.
These shares were acquired at the then market price of $0.755 per share. The
Company is holding these 132,000 shares in treasury at their cost of $99,660.
The remainder of that loan was repaid in cash.
Reserved Shares. At September 30, 2002 and December 31, 2001, 14,603,445 and
13,839,129 shares of common stock were reserved for issuance under the Company's
stock option plan and outstanding warrants, respectively.
Stock Warrants. Deferred compensation relating to stock warrants at September
30, 2002 and December 31, 2001 is approximately $15,000 and $212,000,
respectively. The warrants were issued to an investor under an agreement that an
affiliate of that investor will provide the Company with technical expertise.
One half of the warrants vested immediately upon their issuance with the
remaining warrants to vest ratably as the services are provided. No services
have been provided through September 30, 2002. The agreement terminates and any
unvested warrants are forfeited on November 1, 2003.
Note 6. Related Party Transactions
Advance to Officers - During 2001, the Company advanced approximately $785,000
to three officers of the Company. These advances are interest bearing and
secured by the officers' holdings of Beacon Power Corporation common stock and
were provided to the officers to allow them to exercise stock options and in one
case, to pay the related taxes. Through September 30, 2002, the Company has
collected approximately $293,000 in payments on these advances. In June 2002,
due to the current market value of the pledged securities and the uncertainty of
collection of the advance, the Company took a charge in the amount of $426,148
to reserve the remaining balance of the advance to Mr. William Stanton, its
former CEO and president. This loan, however, has not been cancelled, and is
partially secured by 308,318 shares of the Company's stock. Mr. Stanton
continues to be a director of the Company. This charge is included in other
expenses in the accompanying consolidated statement of operations. The remaining
advance balance of approximately $70,000 at September 30, 2002 is included in
prepaid and other assets in the accompanying consolidated balance sheet.
Note 7. Summary of Non-cash Investing and Financing Activities:
During the nine months ended September 30, 2002 and 2001, cash paid for interest
was approximately $43,000 and $20,000, respectively.
During the nine months ended September 30, 2002 and 2001, cash paid for taxes
was approximately $17,000 and $1,500, respectively.
During March 2002, as a part of the repayment of a loan from the Company, an
officer surrendered 132,000 shares of common stock of the Company that were held
as collateral against that loan. These shares were surrendered at the then
market price of $0.755. The Company is holding these 132,000 shares in treasury
at their cost of $99,660. The remainder of the loan was paid in cash.
During the nine months ended September 30, 2002 and 2001, the Company recorded
decreases in deferred compensation from the issuance of non-qualified stock
options to third parties of $196,130 and $1,530,697, respectively. These were
offset by charges to additional paid in capital.
<page>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Note Regarding Forward Looking Statements:
This Quarterly Report on Form 10-Q contains forward-looking statements
concerning, among other things, the Company's expected future revenues,
operations and expenditures and estimates of the potential markets for the
Company's services. Such statements made by the Company fall within the meaning
of the Private Securities Litigation Reform act of 1995, as amended. All such
forward-looking statements are necessarily only estimates of future results and
the actual results achieved by the Company may differ materially from these
projections due to a number of factors as discussed in the section entitled
"Certain Factors Affecting Future Operating Results" of this Form 10-Q.
Overview
Beacon Power Corporation is a development-stage company which designs, develops,
configures, and offers for sale power systems that provide highly reliable,
high-quality, uninterruptible electric power for use as a stand alone back-up
power solution in telecom applications and as a transition unit to generators in
high power applications. It is known for its environmentally friendly,
flywheel-based products (employing a flywheel made from proprietary composite
materials) that can store and deliver energy in a variety of configurations.
Such products have longer life, reduced maintenance, quicker recharging, remote
monitoring and other advantages over competing solutions.
Our initial products were 2kWh and 6kWh long-duration back up power units
focused on the telecom industry. As a result of the overall economic downturn
and in particular the significant decline in capital and maintenance spending in
telecom as well as the low price of lead-acid batteries, the Company has not
been successful in selling products into this market. The Company continues to
offer these products but may not be able to attract customer orders in
sufficient volumes or prices to develop an economically viable business. The
Company has expanded its marketing activities to include UPS applications and
stored energy for utilities. The utility application would be for an array of
high-energy composite flywheels that can be connected together to provide high
power (megawatt-level) energy storage for minutes or longer in applications
requiring rapid, deep discharge, and/or frequent cycling. Examples of
applications are transition to turbine or natural gas engine start (requiring
minutes, not seconds), reducing generator starting frequency and backup time for
wind and other renewable power, stiffening of substation and micro-grid power,
and load following high power fuel cells and generators. Lead acid batteries are
usually not effective in these applications because rapid, frequent or deep
discharging of a battery substantially reduces life and increases maintenance
requirements. There are no other practical alternatives in use today, and low
power flywheels like those used to start a diesel generator in 12 seconds do not
have sufficient energy to be practical elements of a flywheel array.
The company has evaluated all of its property and equipment as required by
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" as a result of its inability to
generate demand for its products. This evaluation has resulted in a non-cash
charge of $6.5 million.
From our inception through September 30, 2002 we have incurred losses of
approximately $112.8 million. We expect to continue to incur losses as a result
of the difficulty we face in marketing our existing and emerging products and
potential costs for product development and commercialization programs. These
losses could fluctuate significantly from quarter to quarter. Fluctuations may
be substantial as a result of, among other factors, the amount of development
materials purchased, nonrecurring engineering expenses and subcontract work
related to product testing and ramp-up costs related to manufacturing
capacities.
Results of operations:
Comparison of three and nine months ended September 30, 2002 and 2001
Revenues. We did not record any revenue for the three or nine months ended
September 30, 2002 and 2001. We have placed several development prototypes with
potential customers and shipped pre-production units. These products were
provided to potential customers to demonstrate the application of our
technologies.
Selling, General and Administrative Expenses. Our sales and marketing expenses
consist primarily of compensation and benefits for our sales and marketing
personnel and related business development expenses. Our general and
administrative expenses consist primarily of compensation and benefits related
to our corporate staff, professional fees, and related travel. Selling, general
and administrative expenses totaled approximately $1,055,000 and $2,337,000 for
the three months ended September 30, 2002 and 2001, respectively. The decrease
of approximately $1,282,000 is primarily the result of decreased compensation
and benefit costs due to staffing reductions, reduced professional fees and
travel partially offset by higher costs for directors and officers insurance.
Selling, general and administrative expenses totaled approximately $4,561,000
and $6,188,000 for the nine months ended September 30, 2002 and 2001,
respectively. The decrease of approximately $1,627,000 is primarily the result
of decreased compensation and benefit costs due to staffing reductions partially
offset by higher costs for directors and officers insurance and sales and
marketing efforts.
Research and Development. Our cost of research and development consists
primarily of the cost of compensation and benefits for research and development,
manufacturing and support staff, as well as materials and supplies used in the
engineering design process. Our cost of research and development has been
reduced sharply while we focus on defining market opportunities for our
capabilities. In the event that markets are defined that require product
development we may have significant increases for additional product designs,
refining existing products or expand our analytic capabilities. Research and
development expenses totaled approximately $1,285,000 and $5,380,000 for the
three months ended September 30, 2002 and 2001, respectively. The decrease of
$4,095,000 is primarily the result of decreased compensation and benefit costs
related to staffing reductions in engineering and manufacturing and decreases in
the amount of materials used for product development. Research and development
expenses totaled approximately $6,195,000 and $14,137,000 for the nine months
ended September 30, 2002 and 2001, respectively. The decrease of approximately
$7,942,000 is primarily the result of decreased compensation and benefit costs
related to staff reductions and decreased spending on materials related to
product development.
Depreciation and Amortization. Our depreciation and amortization is primarily
related to depreciation on capital expenditures and the amortization of lease
and leasehold costs related to our facilities. Depreciation and amortization
totaled approximately $463,000 and $347,000 for the three months ended September
30, 2002 and 2001, respectively. The increase of $116,000 is attributable to
increases in leasehold improvements and capital equipment expenditures.
Depreciation and amortization totaled approximately $1,475,000 and $904,000 for
the nine months ended September 30, 2002 and 2001, respectively. The increase of
$571,000 is attributable to increases in leasehold improvements, capital
equipment expenditures and reductions in the useful life of computer equipment.
Restructuring and Asset Impairment Charges. During the third quarter of 2002, in
an effort to reduce its monthly cash-spending rate, the Company implemented a
number of cost-cutting measures to ensure the availability of resources
necessary to pursue its business strategy for a reasonable period but at a
significantly lower cash burn rate, and thus on a less ambitious timetable. As a
result, a substantial portion of our long-term assets have been idled, including
machinery and equipment, tooling, office furniture and fixtures, and equipment
and leasehold improvements. We have evaluated all of our property and equipment
to determine its future use and as required by Statement of Financial Accounting
Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets" we have taken a non-cash impairment charge of $6,456,000 of which
$4,297,000 represents impaired capital equipment and leasehold improvements,
$323,000 relates to severance costs and $1,836,000 relates to a reserve against
future lease payments and related facility costs. The assets held for sale have
been grouped together and classified as "Assets held for sale" in the current
assets section of the balance sheet. Assets held for sale have been written down
to their fair value based on quotes from vendors and other market factors. The
reserve against future lease payments for idled facilities is classified as
"Restructuring reserve" in the current liabilities section of the balance sheet.
Interest and OtherIncome/Expense, net. Our non-operating income and expenses are
primarily attributable to interest income resulting from cash on hand partially
offset by interest expense associated with our capital leases. Our interest
income for the three months ended September 30, 2002 was approximately $116,000,
compared to $462,000 for the same period in 2001. The decrease in 2002 is the
result of higher cash balances in 2001 from our initial public offering in the
fourth quarter of 2000. Our interest income for the nine months ended September
30, 2002 was approximately $418,000, compared to $1,917,000 for the same period
in 2001. The decrease in 2002 is the result of higher cash balances in 2001 from
our initial public offering in the fourth quarter of 2000.
Interest expense increased to approximately $9,000 for the three months ended
September 30, 2002 from approximately $3,000 for the same period in 2001.
Interest expense increased to approximately $37,000 for the nine months ended
September 30, 2002 from approximately $18,000 for the same period in 2001.
Interest expense relates to assets leased under capital leases.
Other expense was approximately $2,000 and $16,000 for the three months ended
September 30, 2002 and 2001, respectively. Other expense for the nine months
ending September 30, 2002 and 2001, respectively was approximately $433,000 and
$360,000. The 2002 balance represents a reserve of $426,000, a non-cash expense,
for an advance to an officer. During 2001, the Company advanced approximately
$785,000 to three officers of the Company, including an advance of $ 564,822 to
Mr. William Stanton, former CEO and president. These advances are interest
bearing and secured by the officers' holdings of Beacon Power Corporation common
stock and were provided for the exercise of employee stock options and in the
case of Mr. Stanton income taxes related to the exercise of those options. The
officers repaid approximately $152,000 of these advances during 2001 and an
additional $150,000 through September 30, 2002. In June 2002, the Company took a
reserve in the amount of $426,148 for the full remaining amount of the advances
(including interest thereon) to Mr. Stanton. The Company has fully reserved this
balance due to the current market valuation of the pledged securities and
uncertainty that the obligation will be collected from Mr. Stanton. This loan,
however, has not been cancelled, and is partially secured by 308,318 shares of
the Company's stock. Mr. Stanton continues to be a director of the Company. The
Company expects the remaining advance to be repaid in full by the officer to
whom it was made and who is still employed by the Company. The balance of
$70,093 and $634,110 at September 30, 2002 and December 31, 2001, respectively
are included in prepaid and other assets in the accompanying consolidated
balance sheet. The 2001 balance relates primarily to a write-off of $52,000 for
certain tooling costs associated with an earlier version of our product and a
non-cash charge related to the settlement of a lawsuit brought by a former
employee of approximately $303,000. Under the terms of the settlement, we
permitted the former employee to exercise options to purchase 53,000 shares of
our common stock at a price of $1.78 when the current market price was $7.50. We
incurred a charge of $5.72, the difference between the market price and the
exercise price, for each share exercised.
Liquidity and Capital Resources
Net cash used in operating activities was approximately ($12,167,000) and
($18,145,000) for the nine months ended September 30, 2002 and 2001,
respectively. The primary component to the negative cash flow from operations is
from the net losses. For the first nine months of 2002, we had a net loss of
approximately ($18,738,000). This included non-cash charges of approximately
$8,060,000 including a loss on impairment of assets and restructuring of
$6,133,000; a reserve taken against a note receivable from a former officer of
$426,000; a loss on sale of fixed assets of approximately $7,000; approximately
$19,000 related to stock options issued for consulting services and depreciation
and amortization of approximately $1,475,000. Changes in operating assets and
liabilities used approximately ($1,488,000) of cash during the first nine months
of 2002. The primary components were a decrease in accounts payable of
approximately ($697,000), a decrease in accrued compensation and benefits of
approximately ($544,000), a decrease in amounts due to a related party of
approximately ($36,000) and a decrease in other accruals and current liabilities
of ($489,000), these were offset by a decrease in prepaid expense and other
current assets of approximately $278,000. For the first nine months of 2001, we
had a net loss of approximately ($19,690,000). This included non-cash charges of
approximately $1,628,000 including a charge related to the settlement of a
lawsuit of approximately $303,000; approximately $334,000 related to stock
options issued for consulting services; $87,000 for the write-off of tooling
related to older versions of our flywheel; and depreciation and amortization of
approximately $904,000. Changes in operating assets and liabilities used
approximately ($83,000) of cash during the first nine months of 2001. The
primary components were a decrease in accounts payable of approximately
($408,000) offset by an increase in accrued compensation and benefits of
approximately $946,000 and an increase in prepaid expense and other current
assets of approximately ($957,000). Changes in other working capital accounts
used cash of approximately $336,000.
Net cash used in investing activities was approximately ($423,000) and
($3,479,000) for the nine months ended September 30, 2002 and 2001,
respectively. The principal uses of cash during the first nine months of 2002
were related to purchases of machinery and equipment totaling approximately
($423,000). The principal uses of cash during the first nine months of 2001 were
related to purchases totaling approximately ($4,086,000) for machinery and
equipment, furniture and fixtures and leasehold improvements to the new
operating facility. Other assets decreased by approximately $607,000 as deposits
made in prior quarters relating to long-term assets were reclassified to
property and equipment.
Net cash used in financing and investing activities during the nine months ended
September 30, 2002 was approximately ($251,000). The cash used for financing
activities related to repayment of capital leases of approximately ($264,000)
offset by cash proceeds from the employee stock purchase plan of approximately
$13,000. Net cash used by financing activities during the nine months ended
September 30, 2001 was approximately $27,000. The primary use of cash was for
the payment of dividends on our various classes of preferred stock of
approximately ($1,159,000,) which were accrued during 2000, prior to the
Company's initial public offering of its common stock. In addition, we made
principal payments against our capital leases of approximately ($113,000). These
uses were offset by proceeds from stock options exercised of approximately
$803,000 and proceeds from sale-leaseback transactions of $496,000.
During 2001, the Company advanced approximately $785,000 to three officers of
the Company, including an advance of $564,822 to Mr. William Stanton, former CEO
and president. These advances are interest bearing and secured by the officers'
holdings of Beacon Power Corporation common stock and were provided for the
exercise of employee stock options and in the case of Mr. Stanton income taxes
related to the exercise of those options. In aggregate, the officers repaid
approximately $152,000 of these advances during 2001 and an additional $150,000
through September 30, 2002. One of the officers has repaid her advance in full.
In June 2002, we took a reserve in the amount of $426,148 against the full
remaining amount of the advances (including interest thereon) to Mr. Stanton.
The Company has fully reserved this balance due to the current market valuation
of the pledged securities and uncertainty that the obligation will be collected
from Mr. Stanton. This loan, however, has not been cancelled, and is partially
secured by 308,318 shares of the Company's stock. Mr. Stanton continues to be a
director of the Company. We expect the remaining advance to be repaid in full by
the officer to whom it was made and who is still employed by the Company. The
balance of $70,093 and $634,110 at September 30, 2002 and December 31, 2001,
respectively are included in prepaid and other assets in the accompanying
consolidated balance sheet.
A substantial portion of our long-term assets have been idled, including
machinery and equipment, tooling, office furniture and fixtures and equipment
and leasehold improvements. We have evaluated all of our property and equipment
to determine its future use. As a result of this effort, and as required by
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" we have taken a non-cash impairment
charge of approximately $6,500,000 of which $4.3 million represents impaired
capital equipment and leasehold improvements, $.3 million related to our
headcount reduction in July, 2002 and $1.9 million relates primarily to a
reserve against future lease payments and facility costs. The assets held for
sale have been grouped together and classified as "Assets held for sale" in the
current assets section of the balance sheet. Assets held for sale have been
written down to their estimated realizable values based on quotes from vendors
and other market factors. The reserve against future lease payments is
classified as "Restructuring reserve" in the current liabilities section of the
balance sheet.
Based upon our operating plan, and cash on hand, we believe that our cash and
cash equivalents and future cash flow from operations will satisfy the Company's
working capital needs for the foreseeable future.
Impact of Recently Issued Accounting Standards Not Yet Implemented
In June 2002, the FASB issued SFAS No. 146, "Accounting for Cost Associated with
Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. The provisions of SFAS No. 146 are
effective for exit or disposal activities that are initiated after December 31,
2002. We believe that the adoption of SFAS No. 146 will not have a material
impact on our financial statements.
Certain Factors Affecting Future Operating Results
The following factors, as well as others mentioned in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001 (filed March 31, 2002),
could cause actual results to differ materially from those indicated by
forward-looking statements made in this Quarterly Report on Form 10-Q:
The Value Proposition of our High-Energy Products May Not Be Recognized.
There can be no assurance that we will be able to compete successfully against
batteries. To compete successfully we must establish the value proposition of
our products based upon their dependability, environmental benefits, and long
maintenance-free life, or we must develop other strategic alternatives.
We May Not Be Able to Reduce Our Product Cost Enough to Make Our Prices
Competitive.
There can be no assurance that we will be successful in lowering our production
costs through lower cost designs or volume discounts, which may prevent market
acceptance of our products.
We Have Very Limited Experience Manufacturing Flywheel Energy Storage Systems on
a Commercial Basis. In the Event of Significant Sales We Will Need to Develop or
Obtain Manufacturing Capacity for Our Products. There Can be No Assurance That
We Will be Able to Accomplish These Tasks, and if We do not We Will Not Become
Profitable.
Should we experience customer demand for our products, we will need to develop
or obtain manufacturing capacity to meet quality, profitability and delivery
schedules. We may need to establish manufacturing facilities, expand our current
facilities or expand third-party manufacturing. We have no experience in the
volume manufacture of flywheel systems and there can be no assurance that we
will be able to accomplish these tasks, if necessary, on a timely basis to meet
customer demand or at all. In fact, we have idled our manufacturing capabilities
in order to conserve cash, which will make manufacturing capability even more
difficult to achieve should we need to do so. We may not achieve profitability
if we cannot develop or obtain efficient, low-cost manufacturing capability,
processes and suppliers that will enable us to meet the quality, price,
engineering, design and production standards or production volumes required to
meet our product commercialization schedule, if any, or to satisfy the
requirements of our customers or the market generally.
We Will Need Additional Financing, Which May not Be Available to Us on
Acceptable Terms or At All.
We will need to secure additional financing in the future to carry out our
business plan. We believe our cash balances will fund our operations for the
foreseeable future. We may also need additional financing for a variety of
reasons including:
o expanding research and development;
o achieving manufacturing capability;
o funding additional working capital; or
o acquiring complementary products, businesses or technologies.
We cannot be certain that we will be able to raise additional funds on terms
acceptable to us or at all. If future financing is not available or is not
available on acceptable terms, our business, results of operations and financial
condition would be materially adversely affected.
We May Need to Issue A Substantial Number of Shares to Obtain Financing.
If we raise additional funds by issuing additional equity securities and our
stock continues to trade at low values it will result in our issuing a
substantial number of shares. Furthermore, the newly issued securities could
have rights superior to the rights of the common stock outstanding.
Our Stock May be Disqualified from Nasdaq.
Because of its low price, our stock has been removed from the Nasdaq National
Market System and placed on the Nasdaq SmallCap Market. If we do not meet the
requirements for continued listing on that market or the criteria for such
listing is not modified or extended, our stock will be removed from it and will
then be quoted on the OTCBB.
We Face Intensified Competition from Batteries Due to Their Declining Prices and
Improved Life. As a Consequence Our Customers are Less Likely to Accept the
Value Proposition of Our Products.
The performance of batteries has improved while battery prices have declined due
to lower volume demand from the communications markets and others and increased
competition resulting from an increase in the number of battery manufacturers.
Also a number of Asian and low cost battery manufacturers have entered the
market, which is intensifying competition. These changes in battery pricing and
performance make it more difficult for the market to accept the value
proposition of our high-energy products.
Our Initial Target Market, the Communications Industry, Has Experienced a Sharp
Decline, Which Has Adversely Affected Our Financial Performance and Stock Price.
We initially targeted the communications markets for the sale of our high-energy
products. However, this industry, which had previously sustained high rates of
infrastructure build-out, has experienced a sharp decline in build-out as well
as maintenance spending. Significant reductions in both maintenance budgets and
capital build-out budgets at telecommunications companies made these potential
customers more conservative with their spending and expenditure analysis. They
have become less willing to consider life-cycle costs in their purchasing
decisions or try new more expensive solutions that offer environmental or
technical performance advantages, such as our products.
It Is Difficult to Evaluate Us and to Predict Our Future Performance, Because We
Have a Short Operating History and Are a Development Stage Company. Therefore,
Our Future Financial Performance May Disappoint Investors and Result in a
Decline in Our Stock Price.
We have a limited operating history. We were formed in May 1997 to commercialize
electrical power systems based on flywheel energy storage. We are a development
stage company making the transition to the manufacturing of new products in a
new and developing sector. Unless we can achieve significant market acceptance
of our current or future products at volumes and with margins that allow us to
cover our costs of operations, we may never advance beyond our start-up phase.
In light of the foregoing, it is difficult or impossible for us to predict when
and if the Company will have future revenue growth.
We Have Incurred Losses Since Our Inception and Anticipate Continued Losses
Through at Least 2003.
We have incurred net losses to common shareholders and negative cash flows since
our inception in May 1997. We had net losses to common shareholders of
approximately ($26,146,000) in 2001, ($53,279,000) in 2000 and ($6,630,000) in
1999. Since our inception in May 1997, we have had net losses to common
shareholders totaling ($112,817,000). We expect to continue to incur net losses
through at least 2003. Although we are looking for ways to economize and reduce
costs, our efforts may prove even more expensive than we anticipate. Our revenue
must grow substantially if we are to offset these higher expenses and become
profitable. Even if we do achieve profitability, we may be unable to sustain or
increase our profitability in the future.
We Might Fail to Develop a Successful High-Power UPS Product.
The successful development of our high-power UPS products will involve
significant technological and cost challenges and will require additional
financing to complete. Major risks include:
o maintaining the development schedule may not be possible and such
development could take substantially longer than anticipated;
o the cost of developing key components of our systems that have
significant technical risk may not be economically feasible for
a competitive product in the high-power market;
o reducing manufacturing costs for the flywheel's shaft, hub and rim,
bearings and related electronics to increase our chances of achieving
profitability;
o ensuring minimal warranty expenses through design and quality control;
o ensuring quality and cost control from our suppliers;
o raising the necessary financing to provide sufficient funding for
completion of development;
o extending the product to new applications.
Because We Depend on Third-Party Suppliers for the Development and Supply of Key
Components for Our Products, and Because We Do Not Have Contracts with These
Suppliers, We Could Experience Disruptions in Supply that Could Delay or
Decrease Our Revenues.
Our business, prospects, results of operations, or financial condition could be
harmed if we are unable to maintain satisfactory relationships with suppliers.
To accelerate development time and reduce capital investment, we rely on
third-party suppliers for several key components of our systems. We do not have
any contracts with these suppliers. If these suppliers should fail to timely
deliver components that meet our quality, quantity, or cost standards, then we
could experience production delays or cost increases and our financial
performance could be adversely affected. Because the components with limited
sources are key components that are complex, difficult to manufacture and
require long lead times, we may have difficulty finding alternative suppliers on
a timely or cost effective basis. As a result, we could experience shortages in
supply or be unable to be cost competitive in the markets we are pursuing.
We Face Intense Competition and We May Be Unable to Compete Successfully.
The markets for highly reliable, uninterruptible electric power are intensely
competitive. There are a number of companies located in the United States,
Canada, and abroad that are offering flywheel energy storage technology. We also
compete with companies that are developing applications using other types of
alternative energy storage. In addition, if large, established companies decide
to focus on the development of flywheel energy storage systems or other
alternative energy products for sale to our potential customers they may have
the manufacturing, marketing, and sales capabilities to complete research,
development and commercialization of commercially viable alternative energy
storage systems that could be more competitive than our systems and could be
brought to market more quickly than ours. To the extent they already have name
recognition, their products may enjoy greater initial market acceptance among
our potential customers. These competitors may also be better able than we are
to adapt quickly to customers' changing demands and to changes in technology.
Technological advances in alternative energy products or other alternative
energy technologies may render our systems obsolete. We do not have any products
or technologies other than flywheel systems under development. Our system is,
however, only one of a number of alternative energy products being developed by
potential competitors that have potential commercial applications, including
super capacitors, fuel cells, advanced batteries, and other alternative energy
technologies.
Government Regulation May Impair Our Ability to Market Our Product.
Government regulation of our product, whether at the federal, state or local
level, including any regulations relating to installation and servicing of our
products, may increase our costs and the price of our systems, and may have a
negative impact on our revenue and profitability. We cannot provide assurance
that our products will not be subject to existing or future federal and state
regulations governing traditional electric utilities and other regulated
entities. We expect that our products and their installation will be subject to
oversight and regulation at the local level in accordance with state and local
ordinances relating to building codes, safety, pipeline connections and related
matters. We do not know the extent to which any existing or new regulations may
impact our ability to distribute, install and service our products. Once our
products reach the commercialization stage and we begin distributing our systems
to our early target markets, federal, state or local government entities or
competitors may seek to impose regulations.
Product Liability Claims Against Us Could Result in Substantial Expenses and
Negative Publicity Which Could Impair Successful Marketing of Our Products.
Our business exposes us to potential product liability claims that are inherent
in the manufacturing, marketing and sale of electro-mechanical products, and as
such, we may face substantial liability for damages resulting from the faulty
design or manufacture of products or improper use of products by end users. We
cannot provide assurance that our product liability insurance will provide
sufficient coverage in the event of a claim. Also, we cannot predict whether we
will be able to maintain such coverage on acceptable terms, if at all, or that a
product liability claim would not materially adversely affect our business,
financial condition or the price of our common stock. In addition, negative
publicity in connection with the faulty design or manufacture of our products
would adversely affect our ability to market and sell our products.
Safety Failures by Our Products or Those of Our Competitors Could Reduce Market
Demand or Acceptance for Flywheels in General.
A serious accident involving either our flywheels or our competitors' flywheels
could be a significant deterrent to customer acceptance and adversely affect our
financial performance. With any form of energy storage, including machinery,
chemicals, fuel or other means of energy storage, there is the possibility of
accident. If a metal flywheel fails and the energy stored is released, the
flywheel could break apart and the pieces could be ejected at a high rate of
speed. However, our flywheels are based on a composite we have designed so that
in the event of a failure, our flywheel would shut down rather than
disintegrate. To date, our testing validates this design conclusion. Also, we
believe that one of the advantages of composite flywheels over metal flywheels
is that in the event of a flywheel failure, the flywheel tends to delaminate
rather than (as in the case of metal) to break into a small number of large
fragments that have a greater possibility of bursting a containment vessel and
causing injury. A consortium of government, academic, and industry
representatives has been formed to address containment flywheel safety in the
event of this kind of flywheel failure. At this early stage of
commercialization, there are differing approaches to containment safety with
disagreement in the community on the most effective means.
Our Financial Performance Could Be Adversely Affected by Our Need to Hire and
Retain Key Executive Officers and Skilled Technical Personnel.
Because our future success depends to a large degree on the success of our
technology, our competitiveness will depend significantly on whether we can
attract and retain skilled technical personnel, especially engineers, and can
retain members of our executive team. We have employment agreements that include
non-compete clauses with Messrs. Capp, CEO and President; Spiezio, CFO and
Treasurer; Driscoll, Vice President of Engineering; and Lazarewicz, Chief
Technical Officer.
In the fourth quarter of 2001, the first quarter of 2002 and in July 2002, we
substantially reduced our workforce. Competition for skilled personnel is
intense, and as we seek to determine the right size for our workforce, we may
not be successful in attracting and retaining the personnel or executive talent
necessary to develop our products and operate profitably.
There May Be Only a Modest Number of Potential Customers for Our High-Power UPS
Products. To the Extent We Obtain Customers, We May Have To Rely On A Limited
Number Of Such Customers, And Our Business May Be Adversely Affected By The Loss
Of, Or Reduced Purchases By, Any One Of Those Customers.
There may only be a limited number of potential customers for our high-power UPS
product, in which case we will be subject to the risk that the loss of or
reduced purchases by any single customer could adversely affect our business.
If We Are Unable to Successfully Market, Distribute and Service Our Products
Internationally We May Experience a Shortfall in Expected Revenues and
Profitability Which Could Lead to a Reduction in Our Stock Price.
In addition to the risks we face when operating within the U.S., additional
risks are present if we operate internationally. A part of our business strategy
may be to expand our customer base by marketing, distributing and servicing our
products internationally through distributors. We have limited experience
developing and manufacturing our products to comply with the commercial and
legal requirements of international markets. Our ability to properly service our
products internationally will depend on third-party distributors to install and
provide service. There is no assurance that we will be able to locate service
providers in every region or that these providers will effectively service our
products. Also, our success in those markets will depend, in part, on our
ability to secure foreign customers and our ability to manufacture products that
meet foreign regulatory and commercial requirements. In addition, our planned
international operations are subject to other inherent risks, including
potential difficulties in establishing satisfactory distributorship
relationships and enforcing contractual obligations and intellectual property
rights in foreign countries, fluctuations in currency exchange rates. If we are
unable to successfully market, distribute or service our products
internationally, we may never experience profitability and our stock price may
decline.
Any Failure to Protect Our Intellectual Property Could Seriously Impair Our
Competitive Position.
We cannot provide assurance that we have or will be able to maintain a
significant proprietary position on the basic technologies used in our flywheel
systems. Our ability to compete effectively against alternative technologies
will be affected by our ability to protect our proprietary technology, systems
designs and manufacturing processes. We do not know whether any of our pending
or future patent applications under which we have rights will issue or, in the
case of patents issued or to be issued, that the claims allowed are or will be
sufficiently broad to protect our technology or processes, or will protect us
from competitors. Even if all our patent applications are issued and are
sufficiently broad, they may be challenged or invalidated. We could incur
substantial costs in prosecuting or defending patent infringement suits, and
such suits would divert funds and resources that could be used in our business.
We do not know whether we have been or will be completely successful in
safeguarding and maintaining our proprietary rights.
Further, our competitors or others may independently develop or patent
technologies or processes that are substantially equivalent or superior to ours.
If we are found to be infringing on third-party patents, we do not know whether
we will be able to obtain licenses to use such patents on acceptable terms, if
at all. Failure to obtain needed licenses could delay or prevent the
development, manufacture or sale of our systems.
We rely, in part, on contractual provisions to protect our trade secrets and
proprietary knowledge. These agreements may be breached, and we may not have
adequate remedies for any breach. Our trade secrets may also be known without
breach of such agreements or may be independently developed by competitors or
others. Our inability to maintain the proprietary nature of our technology and
processes could allow our competitors or others to limit or eliminate any
competitive advantages we may have, thereby harming our business prospects.
Our Majority Stockholders Will Control All Matters Requiring a Stockholder Vote,
Which will Limit Other Investors' Ability to Influence the Outcome of Matters
Requiring Stockholder Approval.
Stockholders who owned our company prior to our initial public offering own
approximately 64% of our outstanding stock as of December 31, 2001. If a
sufficient number of these stockholders were to vote together as a group, they
would have the ability to control our board of directors and its policies. For
instance, these stockholders would be able to control the outcome of all
stockholder votes, including votes concerning director elections, charter and
by-law amendments and possible mergers, corporate control contests and other
significant corporate transactions. These stockholders may use their influence
to approve actions that are adverse to the interest of other investors, which
could depress our stock price.
The Share Prices of Companies in Our Sector have been Highly Volatile and Our
Share Price Could Be Subject to Extreme Price Fluctuations.
The markets for equity securities of high technology companies, including
companies in the power reliability and power quality markets, have been highly
volatile recently and the market price of our common stock has been and may
continue to be subject to significant fluctuations. This could be in response to
operating results, announcements of technological innovations or new products by
us, or our competitors, patent or proprietary rights developments and market
conditions for high technology stocks in general. In addition, stock markets in
recent years have experienced extreme price and volume fluctuations that often
have been unrelated or disproportionate to the operating performance of
individual companies. These market fluctuations, as well as general economic
conditions, may adversely affect the market price of our common stock, which
could affect our ability to attract additional capital to fund our operations.
Provisions of Delaware Law and of Our Charter and By-laws May Inhibit a Takeover
that Stockholders Consider Favorable.
Provisions in our certificate of incorporation and by-laws and in the Delaware
corporate law, and the shareholder rights plan we adopted in September 2002, may
make it difficult and expensive for a third party to pursue a tender offer,
change in control or takeover attempt that is opposed by our management and
board of directors. Public stockholders who might desire to participate in such
a transaction may not have an opportunity to do so. Beginning with our annual
stockholder meeting in 2001, we implemented a staggered board of directors that
will make it difficult for stockholders to change the composition of the board
of directors in any one-year. Pursuant to a shareholder rights plan adopted in
September 2002, we issued rights as a dividend on our common stock on October 7,
2002 each of which entitles the holder to purchase 1/100th of a share of our
newly issued preferred stock for $22.50 in the event that any person not
approved by the board of directors acquires more than 15% (30% in the case of
one large shareholder that already owned more than 15%) of our outstanding
common stock, or in the event that we are acquired by another company, $22.50
worth of the common stock of the other company at half its market value (in each
case the rights held by the acquiring person are not exercisable and become
void). Additionally, our board of directors may authorize issuances of "blank
check" preferred stock that could be used to increase the number of outstanding
shares and discourage a takeover attempt. These anti-takeover provisions could
substantially impede the ability of public stockholders to benefit from a change
in control or change our management and board of directors.
<page>
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Our cash equivalents and investments, all of which have maturities of less than
one year, may expose us to interest rate risk. At September 30, 2002, we had
approximately $60,000 of cash equivalents that were held in a non-interest
bearing checking account. Also at September 30, 2002, we had approximately
$1,183,000 of cash equivalents that were held in interest bearing checking
accounts, $2,121,000 invested in interest-bearing money market accounts and
approximately $18,397,000 in high-grade corporate bonds. The fair value of these
investments approximates their cost. A 10% change in interest rates would change
the investment income realized on an annual basis by approximately $35,000,
which we do not believe is material.
Item 4. Controls and Procedures
Mr. F. William Capp, the Company's Chief Executive Officer, and Mr. James M.
Spiezio, the Company's Chief Financial Officer, have evaluated the effectiveness
of the Company's disclosure controls and procedures as of a date within 90 days
before the filing date of this quarterly report. Based upon that evaluation,
they have concluded that the Company has in place controls and other procedures
that are designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms. Since the date of the
evaluation, there have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls.
<page>
PART II
Item 1. Legal Proceedings
We are not involved in any legal proceedings. However, we may from time to time
be involved in legal proceedings in the ordinary course of our business.
Item 2. Changes in Securities
On November 16, 2000, the Securities and Exchange Commission declared our
Registration Statement on Form S-1 (File No. 333-43386) effective. In our
initial public offering during the fourth quarter of 2000, we sold 9,200,000
shares of our common stock, inclusive of the underwriters' over allotment, at an
initial public offering price of $6.00 per share. We received net proceeds from
our initial public offering of approximately $49.3 million, reflecting gross
proceeds of $55.2 million net of underwriter commissions of approximately $3.9
million and other offering costs payable to persons, other than directors or
officers, of approximately $2.0 million.
From November 16, 2000 to September 30, 2002, we spent approximately $9.8
million for inventory and materials used in research and development and $7.4
million for property and equipment, including the build-out of our facility at
234 Ballardvale Street in Wilmington, MA. In addition, we spent approximately
$1.2 million to pay dividends on our preferred stock that accrued through the
date of our initial public offering. We have spent approximately $20.8 million
for other working capital needs. In addition to the above, we advanced funds
totaling approximately $785,000 to three officers of the Company and the current
outstanding balance on these loans is $496,000. The remainder of the net
offering proceeds has been invested in short-term, income producing bank
deposits pending their use for the purchase of property and equipment and
working capital needs. Other than as disclosed above, none of these amounts were
direct or indirect payments to directors or officers of the issuer or their
associates or to persons owning 10% or more of our common stock or to any of our
affiliates.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Reports on Form 8-K
99.1 Form 8-K filed on October 4, 2002 with respect to a Shareholder
Rights Plan.
<page>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BEACON POWER CORPORATION
Date: November 13, 2002 By: /s/ F. William Capp
F. William Capp
President and Chief Executive Officer
November 13, 2002 /s/ James M. Spiezio
James M. Spiezio
Vice President of Finance and Chief
Financial Officer (Principal Financial
Officer and Chief Accounting Officer)
<page>
CERTIFICATION
I, F. William Capp, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Beacon Power
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 by: /s/ F. William Capp
-------------------------
F. William Capp
Chief Executive Officer
<page>
CERTIFICATION
I, James M. Spiezio, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Beacon Power
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 by: /s/ James M. Spiezio
James M. Spiezio
Chief Financial Officer
<page>
Exhibit 99.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 25, 2002
Beacon Power Corporation
[Exact name of registrant as specified in charter]
Delaware 001-16171 43-372365
(State of incorporation (Commission File Number) (IRS Employer
or organization) Identification No.)
234 Ballardvale St., Wilmington MA 01887-1032
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (978) 695-9121
None
(Former name or former address, if changed since last report)
Item 5. Other Events.
On September 25, 2002, the Board of Directors of Beacon Power Corporation
(the "Company") declared a dividend payable on October 7, 2002 (the "Record
Date") of one preferred share purchase right (a "Right") for each outstanding
share of common stock, par value $0.01 per share, of the Company (the "Common
Shares"). The dividend is payable to the stockholders of record on the Record
Date. Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $1.00 per share, of the Company (the "Preferred Shares") at a price of
$22.50 per one one-hundredth of a Preferred Share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement") between the Company and Equiserve
Trust Company N.A., as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (with certain
exceptions, an "Acquiring Person") have acquired beneficial ownership of 15%
(or, in the case of the Perseus Capital, LLC and persons that own Common Shares
through it, 30%) or more of the outstanding Common Shares or (ii) such date, if
any, as may be designated by the Board of Directors of the Company following the
commencement of, or first public disclosure of an intention to commence, a
tender or exchange offer for outstanding Common Shares which could result in
such person or group becoming the beneficial owner of more than 15% of the
outstanding Common Shares (the earlier of such dates being the "Distribution
Date"), the Rights will not be represented by a separate certificate, and will
not be transferable apart from the Common Stock, but will instead be evidenced,
(i) with respect to any of the shares of Common Stock held in uncertificated
book-entry form (a "Book-Entry") outstanding as of the Record Date, by such
Book-Entry and (ii) with respect to the shares of Common Stock evidenced by
Common Stock certificates outstanding as of the Record Date, by such Common
Stock certificates, together with a copy of this Summary of Rights.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the Common Shares. Until the Distribution Date (or earlier redemption
or expiration of the Rights), new Common Share certificates issued after the
Record Date upon transfer or new issuance of Common Shares will contain a
notation incorporating the Rights Agreement by reference. Until the Distribution
Date (or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates for Common Shares 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. Until the Distribution
Date (or earlier redemption or expiration of the Rights), transfer on the
Company's stock ownership records of Common Stock represented by a Book-Entry or
a certificate outstanding as the Record Date, and, in each case, with or without
a copy of this Summary of Rights attached thereto, will also constitute the
transfer of the Rights associated with the Common Stock represented by such
Book-Entry or certificate. As soon as practicable following the Distribution
Date, separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the Common Shares as of the close of business on
the Distribution Date and such separate Right Certificates alone will evidence
the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on September 30, 2012 (the "Final Expiration Date"), unless the Final
Expiration Date is advanced or extended or unless the Rights are earlier
redeemed or exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of 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-hundredths 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 minimum preferential
quarterly dividend payment of $1.00 per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per Common Share.
In the event of liquidation, the holders of the Preferred Shares will be
entitled to a minimum preferential liquidation payment of $22.50 per share but
will be entitled to an aggregate payment of 100 times the payment made per
Common Share. Each Preferred Share will have 100 votes, voting together with the
Common Shares. Finally, in the event of any merger, consolidation or other
transaction in which Common Shares are exchanged, each Preferred Share will be
entitled to receive 100 times the amount received per Common Share. These rights
are protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a Preferred Share
purchasable upon exercise of each Right is intended to approximate the value of
one Common Share.
In the event that 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 after a person or group has become an Acquiring Person, 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 (or
its parent) which at the time of such transaction will have a market value of
two times the exercise price of the Right. In the event that any person or group
of affiliated or associated persons becomes an Acquiring Person, each holder of
a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereupon 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.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Shares, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, for shares of Common Shares at an exchange ratio of one
Common Share per Right.
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-hundredth 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 an Acquiring Person becomes such, the Board
of Directors of the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right (the "Redemption Price") payable, at the option of the
Company, in cash, Common Shares or such other form of consideration as the Board
of Directors of the Company shall determine. The redemption of the Rights may be
made effective at such time on such basis 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.
At any time prior to such time as there shall be an Acquiring Person, the
Company may, without the approval of any holder of the Rights, supplement or
amend any provision of the Rights Agreement (including the date on which the
Expiration Date or the Distribution Date shall occur, the amount of the Purchase
Price or the definition of "Acquiring Person"), except that no supplement or
amendment shall be made that reduces the Redemption Price of the Rights. From
and after such time as any person or group of affiliated or associated persons
becomes and Acquiring Person, and subject to applicable law, the Company may,
and the Rights Agent shall if the Company so directs, amend the Rights Agreement
without the approval of any holders of Rights (a) to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision of this Rights Agreement or (b) to
otherwise change or supplement any other provisions in this Agreement in any
matter which the Company may deem necessary or desirable and which in each such
case shall not (i) adversely affect the interests of the holders of Rights as
such (other than an Acquiring Person or an Affiliate or Associate of an
Acquiring Person) (ii) cause the Rights Agreement again to become otherwise
amendable or (iii) cause the Rights again to become redeemable.
Until a Right is exercised or exchanged, 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 Rights 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 Rights Agreement, as the
same may be amended form time to time, which is hereby incorporated herein by
reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits
99.1 Rights Agreement Between Beacon Power Corporation and Equiserve
Trust Company, N.A. dated as of September 25, 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BEACON POWER CORPORATION
Dated: September 26, 2002 By: /s/ James Spiezio
-------------------------
Chief Financial Officer
<page>
===============================================================================
Exhibit 99.1
RIGHTS AGREEMENT
Between
BEACON POWER CORPORATION
and
Equiserve Trust COMPANY, N.A.
Dated as of September 25, 2002
================================================================================
TABLE OF CONTENTS
SECTION 1 Certain Definitions...............................................1
SECTION 2 Appointment of Rights Agent.......................................5
SECTION 3 Issue of Right Certificates.......................................5
SECTION 4 Form of Right Certificates........................................7
SECTION 5 Countersignature and Registration.................................7
SECTION 6 Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates......................................................8
SECTION 7 Exercise of Rights; Purchase Price; Expiration Date of Rights.....8
SECTION 8 Cancellation and Destruction of Right Certificates................10
SECTION 9 Availability of Preferred Shares..................................10
SECTION 10 Preferred Shares Record Date......................................11
SECTION 11 Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights..................................................11
SECTION 12 Certificate of Adjusted Purchase Price or Number of Shares........19
SECTION 13 Consolidation, Merger or Sale or Transfer of Assets or Earning
Power.............................................................19
SECTION 14 Fractional Rights and Fractional Shares...........................22
SECTION 15 Rights of Action..................................................23
SECTION 16 Agreement of Right Holders........................................24
SECTION 17 Right Certificate Holder Not Deemed a Stockholder.................24
SECTION 18 Concerning the Rights Agent.......................................25
SECTION 19 Merger or Consolidation or Change of Name of Rights Agent.........25
SECTION 20 Duties of Rights Agent............................................26
SECTION 21 Change of Rights Agent............................................27
SECTION 22 Issuance of New Right Certificates................................28
SECTION 23 Redemption........................................................29
SECTION 24 Exchange..........................................................29
SECTION 25 Notice of Certain Events..........................................30
SECTION 26 Notices...........................................................31
SECTION 27 Supplements and Amendments........................................32
SECTION 28 Successors........................................................33
SECTION 29 Benefits of this Agreement........................................33
SECTION 30 Severability......................................................33
SECTION 31 Governing Law.....................................................33
SECTION 32 Counterparts......................................................33
SECTION 33 Descriptive Headings..............................................33
Exhibit A - Form of Certificate of Designations
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
RIGHTS AGREEMENT (the "Agreement"), dated as of September 25, 2002, between
Beacon Power Corporation, a Delaware corporation (the "Company"), and EquiServe
Trust Company, N.A., as Rights Agent (the "Rights Agent").
The board of directors of the Company (the "Board of Directors") has
authorized and declared a dividend of one preferred share purchase right (a
"Right") for each Common Share (as hereinafter defined) of the Company
outstanding on October 7, 2002 (the "Record Date"), each Right representing the
right to purchase one one-hundredth of a Preferred Share (as hereinafter
defined), upon the terms and subject to the conditions herein set forth, and has
further authorized and directed the issuance of one Right (subject to adjustment
as provided herein) with respect to each Common Share that shall become
outstanding between the Record Date and the earlier of the Distribution Date and
the Expiration Date (as such terms are hereinafter defined); provided, however,
that Rights may be issued with respect to Common Shares that shall become
outstanding after the Distribution Date and prior to the Expiration Date in
accordance with Section 22.
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% (except that such percentage shall be 30% for Perseus Capital, L.L.C. and
Persons who are Beneficial Owners through it (Perseus together with such
Persons, the "Perseus Owners")) or more of the Common Shares of the Company, but
shall not include (i) the Company, any Subsidiary of the Company, any employee
benefit or compensation plan of the Company or of any Subsidiary of the Company,
or any Person holding Common Shares for or pursuant to the terms of any such
plan (each, an "Exempt Person"), (ii) any such Person who has become and is the
Beneficial Owner of 15% (or, in the case of the Perseus Owners, 30%) or more of
the Common Shares of the Company solely as a result of (A) the acquisition by
such Person or one or more of its Affiliates or Associates of Beneficial
Ownership of additional Common Shares if such acquisition was made in the good
faith belief that such acquisition would not (x) cause the Beneficial Ownership
by such Person, together with its Affiliates and Associates, to be 15% (or, in
the case of the Perseus Owners, 30%) or more of the Common Shares of the Company
outstanding at the time of such acquisition and such good faith belief was based
on the good faith reliance on information contained in publicly filed reports or
documents of the Company that are inaccurate or out-of-date or (y) otherwise
cause a Distribution Date or the adjustment provided for in Section 11(a) to
occur or (B) the acquisition by such Person or one or more of its Affiliates or
Associates of Beneficial Ownership of additional Common Shares of the Company if
the Board of Directors determines that such acquisition was made in good faith
without the knowledge by such Person or Affiliates or Associates that such
Person would thereby become an Acquiring Person, which determination of the
Board of Directors shall be conclusive and binding on such Person, the Rights
Agent, the holders of the Rights and all other Persons or (iii) any such Person
who has become and is the Beneficial Owner of 15% (or, in the case of the
Perseus Owners, 30%) or more of the Common Shares of the Company solely as a
result of the operation of part (iii) of the definition of Beneficial Ownership
if, in the sole opinion of the Directors, the agreement, arrangement or
understanding that gives rise to the Beneficial Ownership was already extant on
the date hereof, provided that Beneficial Ownership of no more than 5% of the
Common Shares of the Company has been acquired by the parties to such agreement,
arrangement or understanding in the aggregate after the date hereof.
Notwithstanding the foregoing, if any Person that is not an Acquiring Person due
to (ii)(A) or (ii)(B) of the prior sentence does not reduce its percentage of
Beneficial Ownership of Common Shares of the Company to less than 15% (or, in
the case of the Perseus Owners, 30%) by the Close of Business on the tenth
calendar day after notice from the Company (the date of notice being the first
day) that such Person's Beneficial Ownership of Common Shares would make it an
Acquiring Person, such Person shall, at the end of such ten calendar day period,
become an Acquiring Person (and such clause (ii)(A) or (ii)(B) shall no longer
apply to such Person). For purposes of this definition, the determination
whether any Person acted in "good faith" shall be conclusively determined by the
Board of Directors. Notwithstanding anything in this definition of Acquiring
Person to the contrary, 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, in the case of the Perseus Owners,
30%) or more of the Common Shares of the Company; provided, however, that if a
Person shall become the Beneficial Owner of 15% (or, in the case of the Perseus
Owners, 30%) or more of the Common Shares of the Company by reason of share
acquisitions by the Company and shall, after such share acquisitions by the
Company, become the Beneficial owner of any additional Common Shares of the
Company (other than pursuant to a dividend or distribution paid or made by the
Company on the outstanding Common Shares or pursuant to a split or subdivision
of the outstanding Common Shares), then such Person shall be deemed to be an
"Acquiring Person" unless upon becoming the Beneficial Owner of such additional
Common Shares such Person does not beneficially own 15% (or, in the case of the
Perseus Owners, 30%) or more of the Common Shares.
(b) "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Exchange Act as in effect on the
date of this Agreement.
(c) "Associate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Exchange Act as in effect on the
date of this Agreement.
(d) A Person shall be deemed the "Beneficial Owner" of, a Person's
"Beneficial Ownership" shall include and a Person 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;
(ii) which such Person or any of such Person's Affiliates or Associates has
(1) 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), or upon the exercise of conversion rights, exchange rights, rights
(other than these Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to beneficially
own, securities tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any of such Person's Affiliates or Associates until
such tendered securities are accepted for purchase or exchange; or (2) the right
to vote, or the right to direct the vote, pursuant to any agreement, arrangement
or understanding; 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, or direct the vote of, such security (x)
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 (y) is not also then reportable on Schedule 13D under the Exchange Act (or
any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other
Person with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding (other than customary agreements
with and between underwriters and selling group members with respect to a bona
fide public offering of securities) for the purpose of acquiring, holding,
voting or disposing of such securities of the Company provided, however, that no
Person who is an officer, director or employee of an Exempt Person shall be
deemed, solely by reason of such Person's status or authority as such, to be the
"Beneficial Owner" of, to have "Beneficial Ownership" of or to "beneficially
own" any securities that are "beneficially owned" (as defined in this Section
1(d)), including, without limitation, in a fiduciary capacity, by an Exempt
Person or by any other such officer, director or employee of an Exempt Person.
In computing the percentage of Common Shares a Person is the Beneficial
Owner of for any purpose hereunder, such percentage shall be of the total Common
Shares then outstanding plus the Common Shares not then outstanding but deemed
to be Beneficially Owned by such Person (and only such Person).
(e) "Board of Directors" shall have the meaning set forth in the preamble
hereof.
(f) "Business Day" shall mean any day other than a Saturday, a Sunday, or a
day on which banking institutions in New York are authorized or obligated by law
or executive order to close.
(g) "Book-Entry" shall mean an uncertified book-entry for the Company's
Common Stock.
(h) "Close of Business" on any given date shall mean 5:00 P.M., 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 time, on the next succeeding Business Day.
(i) "Common Shares" when used with reference to the Company shall mean the
shares of common stock, par value $0.01 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.
(j) "Company" shall have the meaning set forth in the preamble hereof.
(k) "Current Per Share Market Price" shall have the meaning set forth in
Section 11(d)(i) hereof.
(l) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(m) "equivalent preferred shares" shall have the meaning set forth in
Section 11(b) hereof.
(n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(o) "Exchange Ratio" shall have the meaning set forth in Section 24(a)
hereof.
(p) "Exempt Person" shall have the meaning set forth in Section 1(a)
hereof.
(q) "Final Expiration Date" shall have the meaning set forth in Section
7(a) hereof.
(r) "Person" shall mean any individual, firm, corporation, partnership,
limited liability company, trust or other entity, and shall include any
successor (by merger or otherwise) of such entity.
(s) "Preferred Shares" shall mean shares of Series A Junior Participating
Preferred Stock, par value $1.00 per share, of the Company having the rights and
preferences set forth in the Form of Certificate of Designations attached to
this Agreement as Exhibit A.
(t) "Purchase Price" shall have the meaning set forth in Section 7(b)
hereof.
(u) "Record Date" shall have the meaning set forth in the preamble hereof.
(v) "Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.
(w) "Redemption Price" shall have the meaning set forth in Section 23(a)
hereof.
(x) "Right" shall have the meaning set forth in the preamble hereof.
(y) "Right Certificate" shall have the meaning set forth in Section 3(a)
hereof.
(z) "Rights Agent" shall have the meaning set forth in the preamble hereof.
(aa) "Security" shall have the meaning set forth in Section 11(d) hereof.
(bb) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Company or an Acquiring Person that an Acquiring Person has become such, or such
earlier date as a majority of the Board of Directors shall become aware of the
existence of an Acquiring Person.
(cc) "Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
(dd) "Summary of Rights" shall have the meaning set forth in Section 3(b)
hereof.
(ee) "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 and the holders of the Rights (who, in accordance with Section 3 hereof,
shall, prior to the Distribution Date also be the holders of the Common Shares)
in accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such
co-Rights Agents as it may deem necessary or desirable, upon ten (10) days'
prior written notice to the Rights Agent. The Rights Agent shall have no duty to
supervise, and in no event 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) such date, if any, as may be designated by
the Board of Directors following the commencement of, or first public disclosure
of an intent to commence, a tender or exchange offer by any Person (other than
the Company, any Subsidiary of the Company, any employee benefit or compensation
plan of the Company or of any Subsidiary of the Company or any Person holding
Common Shares for or pursuant to the terms of any such plan) for outstanding
Common Shares, if upon consummation of such tender or exchange offer such Person
would be the Beneficial Owner of 15% or more of the outstanding Common Shares
(the earlier of such dates being herein referred to as the "Distribution Date"),
(x) the Rights will be evidenced by the Book-Entries, or certificates for,
Common Stock registered in the name of the holders of Common Stock (together
with, in the case of Book-Entries representing, or the certificates for, Common
Stock outstanding as of the Record Date, the Summary of Rights) and not by
separate Book-Entries or Rights Certificates and the record holders of the
Common Stock represented by such Book-Entries or certificates shall be the
record holders of the Rights represented thereby, and (y) the Rights will be
transferable only in connection with the transfer of Common Shares. Until the
Distribution Date (or, if earlier, the Expiration Date), transfer on the
Company's stock ownership records of any Common Stock represented by a
Book-Entry or the surrender for transfer of any certificate for Common Stock
shall constitute the surrender for transfer of the Right or Rights associated
with the Company Stock evidenced thereby, whether or not accompanied by a copy
of the Summary of Rights.
(b) On the Record Date, or as soon as practicable thereafter, the Company
will send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the Close of Business on the Record Date, at the address of such holder shown on
the records of the Company.
(c) Rights shall be issued in respect of all Common Shares issued or
disposed of (including, without limitation, upon disposition of Common Shares
out of treasury stock or issuance or reissuance of Common Shares out of
authorized but unissued shares) after the Record Date but prior to the earlier
of the Distribution Date and the Expiration Date, or in certain circumstances
provided in Section 22 hereof, after the Distribution Date. Certificates for
Common Shares and confirmations evidencing Book-Entries which become outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date,
shall have impressed on, printed on, written on or otherwise affixed to them the
following legend:
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between Beacon Power Corporation and
Equiserve Trust Company N.A., dated as of September 25, 2002, as amended from
time to time (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the principal
executive offices of Beacon Power Corporation. 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. Beacon Power
Corporation 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 by or
transferred to any Person who is or becomes an Acquiring Person (as defined in
the Rights Agreement) and certain transferees thereof will become null and void
and will no longer be transferable.
With respect to such certificates containing the foregoing legend, until
the Distribution Date, the Rights associated with the Common Shares represented
by such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate, except as otherwise provided
herein, shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby. In the event that the Company purchases or
otherwise acquires any Common Shares after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Shares shall be deemed
canceled and retired so that the Company shall not be entitled to exercise any
Rights associated with the Common Shares which are no longer outstanding.
Notwithstanding this paragraph (c), the omission of a legend shall not
affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights (other than any Acquiring Person or any Associate or
Affiliate of an Acquiring Person).
(d) 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, postage-prepaid mail, to each record holder of Common Shares as of
the Close of Business on the Distribution Date (other than any Acquiring Person
or any Associate or Affiliate of an Acquiring Person), at the address of such
holder shown on the records of the Company, a Right Certificate, in
substantially the form of Exhibit B hereto (a "Right Certificate"), evidencing
one Right (subject to adjustment as provided herein) for each Common Share so
held. From and after the Distribution Date, the Rights will be evidenced solely
by such Right Certificates.
SECTION 4. Form of Right Certificates.
The Right Certificates (and the forms of election to purchase shares and of
assignment to be printed on the reverse thereof) shall be substantially the same
as Exhibit B hereto and may have such marks of identification or designation and
such legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange or automated quotation system on which the Rights may from time to time
be listed, or to conform to usage. Subject to the provisions of this Agreement,
the Right Certificates shall entitle the holders thereof to purchase such number
of one one-hundredths of a Preferred Share as shall be set forth therein at the
Purchase Price, but the number of such one one-hundredths of a Preferred Share
and the Purchase Price shall be subject to adjustment as provided herein.
SECTION 5. Countersignature and Registration.
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 an Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the individual 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 individual who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate although at the date of the execution of this Agreement any such
individual was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its principal office, books for registration and transfer of the Right
Certificates issued hereunder. Such books shall show the names and addresses of
the respective holders of the Right Certificates, the number of Rights evidenced
on its face by each of the Right Certificates and the date of each of the Right
Certificates.
SECTION 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
Subject to the provisions of this Agreement, at any time after the
Distribution Date, and at or prior to the Close of Business on the 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
may be transferred, split up, combined, or exchanged for another Right
Certificate or other Right Certificates entitling the registered holder to
purchase a like number of one one-hundredths of a Preferred Share as the Right
Certificate or Right Certificates surrendered then entitled such holder to
purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Right Certificate or Right Certificates shall make such request in
writing delivered to the Rights Agent, and shall surrender the Right Certificate
or Right Certificates to be transferred, split up, combined or exchanged at the
principal office of the Rights Agent. 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 to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
Subject to the provisions of this Agreement, at any time after the
Distribution Date and prior to the Expiration Date, 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) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein), in whole or in part, at any time after the
Distribution Date, upon surrender of the Right Certificate, with the form of
election to purchase on the reverse side thereof duly executed, to the Rights
Agent at the principal office of the Rights Agent, together with payment of the
Purchase Price for each one one-hundredth of a Preferred Share (or other
securities, cash or other assets, as the case may be) as to which the Rights are
exercised, at any time which is both after the Distribution Date and prior to
the time (the "Expiration Date") that is the earliest of (i) the Close of
Business on September 30, 2012 (the "Final Expiration Date"), (ii) the time at
which the Rights are redeemed as provided in Section 23 hereof (the "Redemption
Date"), or (iii) the time at which such Rights are exchanged as provided in
Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a Preferred Share
purchasable pursuant to the exercise of a Right shall initially be $22.50, and
the Purchase Price and the number of one one-hundredth of a share of 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 Section 11 or 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 duly executed, accompanied by payment of the Purchase Price for the
shares to be purchased and an amount equal to any applicable transfer tax
required to be paid by the holder of such Right Certificate in accordance with
Section 9 hereof by certified check, cashier's check or money order payable to
the order of the Company, the Rights Agent shall thereupon promptly (i)(A)
requisition from any transfer agent of the Preferred Shares, or make available
if the Rights Agent is the transfer agent for the Preferred Shares, certificates
for the number of Preferred Shares to be purchased and the Company hereby
irrevocably authorizes any such transfer agent to comply with all such requests,
or (B) requisition from the depositary agent appointed by the Company depositary
receipts representing interests in such number of one one-hundredths of a
Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent of the Preferred Shares with such depositary agent) and the Company hereby
directs such depositary agent to comply with such request; (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof; (iii)
promptly after receipt of such certificates or depositary receipts, cause the
same to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder; and (iv) when appropriate, after receipt, promptly deliver such cash to
or upon the order of the registered holder of such Right Certificate.
(d) Except as otherwise provided herein, 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 exercisable 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 of Rights upon the occurrence of any purported
transfer or exercise of Rights pursuant to Section 6 hereof or this Section 7
unless such registered holder shall have (i) completed and signed the
certificate contained in the form of assignment or form of election to purchase
set forth on the reverse side of the Rights Certificate surrendered for such
transfer or exercise and (ii) provided such additional evidence of the identity
of the Beneficial Owner (or former Beneficial Owner) thereof as the Company
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 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 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.
(b) 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 NASDAQ, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for such
issuance to be listed or admitted to trading on such exchange, or quoted on
NASDAQ, upon official notice of issuance upon such exercise.
(c) 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 as soon as
possible after such filing and keep such registration and qualifications
effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the earlier of the date as of which the Rights are no
longer exercisable for such securities and 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.
(d) 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 certificates for such Preferred
Shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares 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 shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax is due.
SECTION 10. Preferred Shares Record Date.
Each Person in whose name any certificate for Preferred Shares is issued
upon the exercise of Rights shall for all purposes be deemed to have become 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 transfer taxes) was made; provided, however, that if the date of such
surrender and payment is a date upon which the Preferred Shares transfer books
of the Company are closed, such Person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Shares transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a holder of
Preferred Shares 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 and Kind of Shares or
Number of Rights.
The Purchase Price, the number of Preferred Shares or other securities or
property purchasable upon exercise of 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 and pay 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 number and kind of
shares of capital stock issuable upon exercise of a Right at the time of the
record date for such dividend or of the effective date of such subdivision,
combination or reclassification, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled to receive the
aggregate number and kind of shares of capital stock which, if such Right had
been exercised immediately prior to such date and at a time when the Preferred
Shares transfer books of the Company were open, he would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any Person
becomes an Acquiring Person, each holder of a Right, except as otherwise
provided in this Agreement, shall thereafter have a right to receive, upon
exercise thereof at a price equal to the then current Purchase Price multiplied
by the number of one one-hundredths of a Preferred Share for which a Right is
then exercisable, in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of Common Shares of the Company as shall equal the
result obtained by (A) multiplying the then current Purchase Price by the number
of one one-hundredths of a Preferred Share for which a Right is then exercisable
and dividing that product by (B) 50% of the then Current Per Share Market Price
of the Company's Common Shares (determined pursuant to Section 11(d)(i) hereof)
on the date of the occurrence of such event provided, however, that the Purchase
Price and the number of Common Shares so receivable upon exercise of a Right
shall, following the time a Person becomes an Acquiring Person, be subject to
further adjustment as appropriate in accordance with Section 11(f) hereof. The
Company agrees that, after the earlier of the Distribution Date or the Shares
Acquisition Date, it will not, except as permitted by Sections 23, 24 or 27
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or eliminate the benefits intended to be afforded by the Rights.
Notwithstanding anything in this Agreement to the contrary, from and after
the occurrence of such event, any Rights that are or were acquired or
beneficially owned by (x) any Acquiring Person (or any Associate or Affiliate of
such Acquiring Person), a transferee of any Acquiring Person (or any such
Affiliate or Associate) who becomes a transferee after a Person becomes an
Acquiring Person or (z) a transferee of any Acquiring Person (or any such
Affiliate or Associate) who became a transferee prior to or concurrently with a
Person becoming an Acquiring Person pursuant to either (I) a transfer from the
Acquiring Person to holders of its equity securities or to any Person with whom
it has any continuing agreement, arrangement or understanding regarding the
transferred Rights or (II) a transfer which the Board of Directors has
determined is part of a plan, arrangement or understanding which has the purpose
or effect of avoiding the provisions of this paragraph, and subsequent
transferees of such Persons, shall be void and any holder of such Rights shall
thereafter have no right to exercise such Rights under any provision of this
Agreement. The Company shall use all reasonable efforts to ensure that the
provisions of this Section 11(a)(ii) are complied with, but shall have no
liability to any holder of Right Certificates or other Person as a result of its
failure to make any determinations with respect to an Acquiring Person or its
Affiliates, Associates or transferees hereunder. From and after the time a
Person becomes an Acquiring Person, no Right Certificate shall be issued
pursuant to Section 3 or Section 6 hereof that represents Rights that are or
have become void pursuant to the provisions of this paragraph, and any Right
Certificate delivered to the Rights Agent that represents Rights that are or
have become void pursuant to the provisions of this paragraph shall be canceled.
From and after the occurrence of an event specified in Section 13(a) hereof, any
Rights that theretofore have not been exercised pursuant to this Section
11(a)(ii) shall thereafter be exercisable only in accordance with Section 13 and
not pursuant to this Section 11(a)(ii).
(iii) In the event that there shall not be sufficient Common Shares
authorized but unissued to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii), the Board of Directors shall,
with respect to such deficiency, to the extent permitted by applicable law and
any material agreements then in effect to which the Company is a party, (A)
determine the excess (such excess, the "Spread") of (1) the value of Common
Shares issuable upon the exercise of a Right in accordance with the foregoing
subparagraph (ii) (the "Current Value") over (2) the Purchase Price (as adjusted
in accordance with the foregoing subparagraph (ii)), and (B) with respect to
each Right (other than Rights which have become void pursuant to the foregoing
subparagraph (ii)), make adequate provision to substitute for the Common Shares
issuable in accordance with the foregoing subparagraph (ii) upon exercise of the
Right and payment of the Purchase Price (as adjusted in accordance therewith),
(1) cash, (2) a reduction in such Purchase Price, (3) Preferred Shares or other
equity securities of the Company (including, without limitation, shares or
fractions of shares of preferred stock which, by virtue of having dividend,
voting and liquidation rights substantially comparable to those of the Common
Shares, are deemed in good faith by the Board of Directors to have substantially
the same value as the Common Shares (such Preferred Shares and shares or
fractions of shares of preferred stock are hereinafter referred to as "Common
Stock Equivalents")), (4) debt securities of the Company, (5) other assets, or
(6) any combination of the foregoing, having a value which, when added to the
value of the Common Shares issued upon exercise of such Right, shall have an
aggregate value equal to the Current Value (less the amount of any reduction in
such Purchase Price), where such aggregate value has been determined by the
Board of Directors upon the advice of a nationally recognized investment banking
firm selected in good faith by the Board of Directors; provided, however, that
if the Company shall not make adequate provision to deliver value pursuant to
clause (B) above within thirty (30) days following the time a Person becomes an
Acquiring Person (the time a Person becomes an Acquiring Person being the
"Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to
deliver, to the extent permitted by applicable law and any material agreements
then in effect to which the Company is a party, upon the surrender for exercise
of a Right and without requiring payment of such Purchase Price of Common Shares
(to the extent available), and then, if necessary, such number or fractions of
Preferred Shares (to the extent available) and then, if necessary, cash, which
shares and/or cash have an aggregate value equal to the Spread. If, upon the
occurrence of a Person becoming an Acquiring Person, the Board of Directors
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, then, if the Board of Directors so elects, 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 thirty (30) day period, as it may be extended, is herein called the
"Substitution Period"). To the extent that the Company determines that some
action need be taken pursuant to the second and/or third sentence of this
Section 11(a)(iii), the Company (x) shall provide, subject to Section 11(a)(ii)
hereof and the last sentence of this Section 11(a)(iii) hereof, that such action
shall apply uniformly to all outstanding Rights and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution Period in
order to seek any authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such second sentence and
to determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. For purposes of this Section 11(a)(iii),
the value of Common Shares shall be the Current Per Share Market Price (as
determined pursuant to Section 11(d)(i)) on the Section 11(a)(ii) Trigger Date
and the per share or fractional value of any "Common Stock Equivalent" shall be
deemed to equal the current per share market price of the Common Shares. The
Board of Directors of the Company may, but shall not be required to, establish
procedures to allocate the right to receive Common Shares upon the exercise of
the Rights among holders of Rights pursuant to this Section 11(a)(iii).
(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) on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares and equivalent preferred shares
outstanding on such record date plus the number of Preferred Shares and
equivalent 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 and equivalent 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, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent and holders of the Rights. Preferred Shares and equivalent
preferred shares owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and in the
event that such rights, options or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in effect
if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then Current Per Share Market Price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors, whose determination shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent and holders of
the Rights) 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
immediately prior to such date; provided, however, that in the event that the
Current Per Share Market Price of the Security is determined during a period
following the announcement by the issuer of such Security of (A) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares, or (B) any subdivision, combination or
reclassification of such Security and prior to the expiration of 30 Trading Days
after the ex-dividend date for such dividend or distribution, or the record date
for such subdivision, combination or reclassification, then, and in each such
case, the Current Per Share Market Price shall be appropriately adjusted to
reflect the current market price per share equivalent of such Security. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case, as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Security is
listed or admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the counter
market, as reported on the Nasdaq National Market 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. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is not
listed or admitted to trading on any national securities exchange, a Business
Day.
(ii) For the purpose of any computation hereunder, the "Current Per Share
Market Price" of the Preferred Shares shall be determined in accordance with the
method set forth in Section 11(d)(i). If the Preferred Shares are not publicly
traded, the "Current Per Share Market Price" of the Preferred Shares shall be
conclusively deemed to be the Current Per Share Market Price of the Common
Shares as determined pursuant to Section 11(d)(i) (appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof), multiplied by one thousand. 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, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the Expiration Date.
(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,
thereafter the Purchase Price and the number of such other shares so receivable
upon exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Shares contained in Section 11(a) through (c),
inclusive, 11(h), 11(i) and 11(m) and the provisions of Sections 7, 9, 10, 13
and 14 with respect to the Preferred Shares shall apply on like terms to any
such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share (calculated to the nearest one one-millionth of a Preferred
Share) obtained by (A) multiplying (x) the number of one one-hundredths 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 (B) 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 pursuant to Sections 11(b) or 11(c) hereof to adjust the number
of Rights in substitution for any adjustment in the number of one one-hundredths
of a Preferred Share purchasable upon the exercise of a Right. Each of the
Rights outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one one-hundredths of a Preferred Share for which
a Right was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that number
of Rights (calculated to the nearest one ten-thousandth) obtained by dividing
the Purchase Price in effect immediately prior to adjustment of the Purchase
Price by the Purchase Price in effect immediately after adjustment of the
Purchase Price. The Company shall make a public announcement of its election to
adjust the number of Rights, indicating the record date for the adjustment, and,
if known at the time, the amount of the adjustment to be made. This record date
may be the date on which the Purchase Price is adjusted or any day thereafter,
but, if the Right Certificates have been issued, shall be at least 10 days later
than the date of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Right Certificates on such record date Right Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be distributed
shall be issued, executed and countersigned in the manner provided for herein
and shall be registered in the names of the holders of record of Right
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-hundredths of a Preferred Share issuable upon the exercise of
the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-hundredths of a
Preferred Share which were expressed in the initial Right Certificates issued
hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then par value, if any, of the fractional Preferred
Share or other shares of capital stock issuable upon exercise of the Rights, the
Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Preferred Shares or such other shares at such
adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuing to the holder of any Right exercised after such record date of the
Preferred Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Shares and 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 adjustments in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it, in its sole discretion, shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, dividends on
Preferred Shares payable in Preferred Shares or issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such stockholders.
(n) Anything in this Agreement to the contrary notwithstanding, in the
event that at any time after the date of this Agreement and prior to the
Distribution Date, the Company shall (i) declare or pay any dividend on the
Common Shares payable in Common Shares, or (ii) effect a subdivision,
combination or consolidation of the Common Shares (by reclassification or
otherwise than by payment of dividends in Common Shares) into a greater or
lesser number of Common Shares, then in each such case (A) the number of one
one-hundredths of a Preferred Share purchasable after such event upon proper
exercise of each Right shall be determined by multiplying the number of one
one-hundredths of a Preferred Share so purchasable immediately prior to such
event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) 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 Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares or the
Preferred Shares a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Right Certificate in accordance with Section 25 hereof (if
so required under Section 25 hereof).
SECTION 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power.
(a) In the event, directly or indirectly, at any time after a Person has
become an Acquiring Person, (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 upon the first occurrence of such event, 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 one-hundredths of a Preferred Share for which a Right is then
exercisable, in accordance with the terms of this Agreement and in lieu of
Preferred Shares or Common Shares of the Company, 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 (1) multiplying the
then current Purchase Price by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable and dividing that product by (2) 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, provided, however, that the
Purchase Price (as theretofore adjusted) and the number of Common Shares of such
other Person so receivable upon exercise of a Right shall be subject to further
adjustment as appropriate in accordance with Section 11(f) hereof to reflect any
events occurring in respect of the Common Shares of such other Person after the
occurrence 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;
provided that, upon the subsequent occurrence of any consolidation, merger, sale
or transfer of assets or other extraordinary transaction in respect of such
other Person, each holder of a Right shall thereupon be entitled to receive,
upon exercise of a Right and payment of the Purchase Price as provided in this
Section 13(a), such cash, shares, rights, warrants and other property which such
holder would have been entitled to receive had such holder, at the time of such
transaction, owned the Common Shares of the other Person receivable upon the
exercise of a Right pursuant to this Section 13(a), and such other Person shall
take such steps (including, but not limited to, reservation of shares of stock)
as may be necessary to permit the subsequent exercise of the Rights in
accordance with the terms hereof for such cash, shares, rights, warrants and
other property.
(b) The other Person referred to in Section 13(a) (the "Principal Party")
shall mean:
(i) in the case of any transaction described in (i) or (ii) of the first
sentence of Section 13(a) hereof: (A) the Person that is the issuer of the
securities into which the Common Shares are converted in such merger or
consolidation, or, if there is more than one such issuer, the issuer the Common
Shares of which have the greatest aggregate market value of shares outstanding,
or (B) if no securities are so issued, (x) the Person that is the other party to
the merger, if such Person survives said merger, or, if there is more than one
such Person, the Person the Common Shares of which have the greatest aggregate
market value of shares outstanding or (y) if the Person that is the other party
to the merger does not survive the merger, the Person that does survive the
merger (including the Company if it survives) or (z) the Person resulting from
the consolidation; and
(ii) in the case of any transaction described in (iii) of the first
sentence of Section 13(a) hereof, the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if each Person that is a party to such
transaction or transactions receives the same portion of the assets or earning
power so transferred or if the Person receiving the greatest portion of the
assets or earning power cannot be determined, whichever of such Persons is the
issuer of Common Shares having the greatest aggregate market value of shares
outstanding; provided, however, that in any such case described in the foregoing
clause (b)(i) or (b)(ii), if the Common Shares of such Person are not at such
time or has not been continuously over the preceding 12-month period registered
under Section 12 of the Exchange Act, then (1) if such Person is a direct or
indirect Subsidiary of another Person the Common Shares of which are and have
been so registered, the term "Principal Party" shall refer to such other Person,
or (2) if such Person is a Subsidiary, directly or indirectly, of more than one
Person, the Common Shares of all of which are and have been so registered, the
term "Principal Party" shall refer to whichever of such Persons is the issuer of
Common Shares having the greatest aggregate market value of shares outstanding,
or (3) if such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or indirectly, by the
same Person, the rules set forth in clauses (1) and (2) above shall apply to
each of the owners having an interest in the venture as if the Person owned by
the joint venture was a Subsidiary of both or all of such joint venturers, and
the Principal Party in each such case shall bear the obligations set forth in
this Section 13 in the same ratio as its interest in such Person bears to the
total of such interests.
(c) The Company 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 an agreement confirming that the requirements
of Sections 13(a) and (b) hereof shall promptly be performed in accordance with
their terms and that such consolidation, merger, sale or transfer of assets
shall not result in a default by the Principal Party under this Agreement as the
same shall have been assumed by the Principal Party pursuant to Sections 13(a)
and (b) hereof and providing that, as soon as practicable after executing such
agreement pursuant to this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the Securities Act, if
necessary, with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, use its best efforts to cause
such registration statement to become effective as soon as practicable after
such filing and use its best efforts to cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the Expiration Date and similarly comply with applicable
state securities laws;
(ii) use its best efforts, if the Common Shares of the Principal Party
shall be listed or admitted to trading on the New York Stock Exchange or on
another national securities exchange, to list or admit to trading (or continue
the listing of) the Rights and the securities purchasable upon exercise of the
Rights on the New York Stock Exchange or such securities exchange, or, if the
Common Shares of the Principal Party shall not be listed or admitted to trading
on the New York Stock Exchange or a national securities exchange, to cause the
Rights and the securities receivable upon exercise of the Rights to be
authorized for quotation on NASDAQ or on such other system then in use;
(iii) deliver to holders of the Rights historical financial statements for
the Principal Party which comply in all respects with the requirements for
registration on Form 10 (or any successor form) under the Exchange Act; and
(iv) obtain waivers of any rights of first refusal or preemptive rights in
respect of the Common Shares of the Principal Party subject to purchase upon
exercise of outstanding Rights.
(d) In case the Principal Party has a provision in any of its authorized
securities or in its certificate of incorporation or by-laws or other instrument
governing its affairs, which provision would have the effect of (i) causing such
Principal Party to issue (other than to holders of Rights pursuant to this
Section 13), in connection with, or as a consequence of, the consummation of a
transaction referred to in this Section 13, Common Shares or Common Stock
Equivalents of such Principal Party at less than the then current market price
per share thereof (determined pursuant to Section 11(d) hereof) or securities
exercisable for, or convertible into, Common Shares or Common Stock Equivalents
of such Principal Party at less than such then current market price, or (ii)
providing for any special payment, tax or similar provision in connection with
the issuance of the Common Shares of such Principal Party pursuant to the
provisions of Section 13, then, in such event, the Company hereby agrees with
each holder of Rights that it shall not consummate any such transaction unless
prior thereto the Company and such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement providing that the
provision in question of such Principal Party shall have been canceled, waived
or amended, or that the authorized securities shall be redeemed, so that the
applicable provision will have no effect in connection with, or as a consequence
of, the consummation of the proposed transaction. The Company shall not enter
into any transaction of the kind referred to in this Section 13(i) if at the
time of or immediately after such transaction there are any rights, warrants,
instruments or other instruments or securities outstanding or any agreements or
arrangements which would eliminate or substantially diminish the benefits
intended to be afforded by the Rights, (ii) prior to, simultaneously with or
immediately after such consolidation, merger, sale, transfer or other
transaction, the stockholders of the Person who constitutes, or would
constitute, the Principal Party for purposes of Section 13(b) hereof shall have
received a distribution of Rights previously owned by such Person or any of its
Affiliates or Associates or (iii) the form or nature of organization of the
Principal Party would preclude or limit the exercisability of the Rights. The
provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers.
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 reported on the Nasdaq National Market
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. 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 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-hundredth
of a Preferred Share) upon exercise or exchange of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
which are integral multiples of one one-hundredth of a Preferred Share).
Interests on fractions of Preferred Shares in integral multiples of one
one-hundredth 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-hundredth
of a Preferred Share, the Company shall pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one Preferred
Share. 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 or exchange.
(c) The Company shall not be required to issue fractional Common Shares or
to distribute certificates which evidence fractional Common Shares upon the
exercise or exchange of Rights. In lieu of such fractional Common Shares, the
Company shall pay to the registered holders of the Right Certificates with
regard to which such fractional Common Shares would otherwise be issuable an
amount in cash equal to the same fraction of the current market value of a whole
Common Share (as determined in accordance with Section 14(a) hereof) for the
Trading Day immediately prior to the date of such exercise or exchange.
(d) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise or exchange of a Right (except as provided above).
SECTION 15. Rights of Action.
All rights of action in respect of this Agreement, excepting the rights of
action given to the Rights Agent under Section 18 hereof, are vested in the
respective registered holders of the Right Certificates (and, prior to the
Distribution Date, the registered holders of the Common Shares); and any
registered holder of any Right Certificate (or, prior to the Distribution Date,
of the Common Shares), without the consent of the Rights Agent or of the holder
of any other Right Certificate (or, prior to the Distribution Date, of the
Common Shares), may, in his 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 (or, prior to the Distribution Date, such
Common Shares) in the manner provided in therein and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of the obligations of any Person subject to, this
Agreement.
SECTION 16. Agreement of Right Holders.
Every holder of a Right, by accepting the same, consents and agrees with
the Company and the Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the principal
office of the Rights Agent, duly endorsed or accompanied by a proper instrument
of transfer; 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 Certificate 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, subject to Section
7(e) hereof, 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 or exchange 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 this Agreement), or
to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Right Certificate shall have been exercised or
exchanged 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 in
the premises.
The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
SECTION 19. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the stock
transfer or corporate trust 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 corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and, in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
SECTION 20. Duties of Rights Agent.
The Rights Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the Company
and the holders of Right Certificates, by their acceptance thereof, shall be
bound:
(a) The Rights Agent may consult with legal counsel (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 any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken 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 its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in
the terms of the Rights (including the manner, method or amount thereof)
provided for in Section 3, 11, 13, 23 or 24, or the ascertaining of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after actual
notice that such change or adjustment is required); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued pursuant to
this Agreement or any Right Certificate or as to whether any Preferred Shares
will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Secretary or the Treasurer of the Company, and to apply
to such officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) If, with respect to any Rights 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 a 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 or 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 or Preferred Shares by registered or
certified mail, and, following the Distribution Date, to the holders of the
Right Certificates by first-class mail. In the event the transfer agency
relationship in effect between the Company and the Rights Agent terminates, the
Rights Agent will be deemed to resign automatically on the effective date of
such termination; and any required notice will be sent by the Company. 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 corporation organized and doing
business under the laws of the United States or of the State of New York (or of
any other state of the United States so long as such corporation is authorized
to do business as a banking institution in the State of New York, in good
standing, having an office in the State of 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 or 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
evidencing Rights in such form as may be approved by the 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. In
addition, in connection with the issuance or sale of Common Shares following the
Distribution Date and prior to the Expiration Date, the Company may with respect
to Common Shares so issued or sold pursuant to (i) the exercise of stock
options, (ii) under any employee plan or arrangement, (iii) upon the exercise,
conversion or exchange of securities, notes or debentures issued by the Company,
or (iv) a contractual obligation of the Company, in each case existing prior to
the Distribution Date, issue Rights Certificates representing the appropriate
number of Rights in connection with such issuance or sale; provided, however,
that (i) no such Right Certificate shall be issued if, and to the extent that,
the Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the
Person to whom such Right Certificate would be issued, (ii) no such Right
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof and (iii) no such
Right Certificate shall be issued in respect of Rights that have become void
pursuant to the terms hereof.
SECTION 23. Redemption.
(a) The Board of Directors may, at its option, at any time prior to such
time as any Person becomes an Acquiring Person, redeem all but not less than all
the then outstanding Rights at a redemption price of $.01 per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring in respect of the Common Shares after the date hereof
(such redemption price being hereinafter referred to as 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. 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 action of the Board of Directors ordering the
redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at
such later time as the Board of Directors may establish for the effectiveness of
such redemption), and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption;
provided, however, that the failure to give, or any defect in, any such notice
shall not affect the validity of such redemption. Within 10 days after such
action of the Board of Directors ordering the redemption of the Rights (or at
such later time as the Board of Directors may establish for the effectiveness of
such redemption), the Company shall mail a notice of redemption to all the
holders of the then outstanding Rights at their last addresses as they appear
upon the registry books of the Rights Agent or, prior to the Distribution Date,
on the registry books of the transfer agent for the Common Shares. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of redemption will state
the method by which the payment of the Redemption Price will be made. Neither
the Company nor any of its Affiliates or Associates may redeem, acquire or
purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in Section 24 hereof, and other
than in connection with the acquisition of Common Shares prior to the
Distribution Date.
SECTION 24. Exchange.
(a) The Board of Directors may, at its option, at any time after any Person
becomes an Acquiring Person, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 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 in respect of
the Common Shares after the date hereof (such exchange ratio being hereinafter
referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board
of Directors shall not be empowered to effect such exchange at any time after
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the Common Shares. From and after the occurrence of an event
specified in Section 13(a) hereof, any Rights that theretofore have not been
exchanged pursuant to this Section 24(a) shall thereafter be exercisable only in
accordance with Section 13 and may not be exchanged pursuant to this Section
24(a). The exchange of the Rights by the Board of Directors may be made
effective at such time, on such basis and with such conditions as the Board of
Directors in its sole discretion may establish.
(b) Immediately upon the effectiveness of the action of the Board of
Directors ordering the exchange of any Rights pursuant to paragraph (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) The Company may at its option substitute and, in the event that there
shall not be sufficient Common Shares issued but not outstanding or authorized
but unissued to permit any exchange of Rights as contemplated in accordance with
this Section 24, the Company shall substitute to the extent of such
insufficiency, for each Common Share that would otherwise be issuable upon
exchange of a Right, a number of Preferred Shares or fraction thereof (or
equivalent preferred shares) such that the Current Per Share Market Price of one
Preferred Share (or equivalent preferred share) multiplied by such number or
fraction is equal to the Current Per Share Market Price of one Common Share as
of the date of issuance of such Preferred Shares (or equivalent preferred share)
or fraction thereof.
(d) The Company shall not be required to issue fractions of Common Shares
or to distribute certificates which evidence fractional Common Shares. In lieu
of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share. For the purposes of this
paragraph (d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
SECTION 25. Notice of Certain Events.
(a) In case the Company shall at any time after the earlier of the
Distribution Date or the Shares Acquisition 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, 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, subdivision 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; provided, that, prior to the
Distribution Date, any notice in regard to a declaration or payment of 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)
shall be adequately given if given within a reasonable time after the issuance
date for such stock dividend or effective date of such subdivision, combination
or consolidation.
(b) In case the event set forth in Section 11(a)(ii) or Section 13 hereof
shall occur, then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate (or if occurring prior to the Distribution
Date, the holders of the Common Shares), 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)
and Section 13 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:
Beacon Power Corporation
234 Ballardvale Street
Wilmington, MA 01887
Attention: President
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any 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:
EquiServe Trust Company, N.A.
150 Royall Street
Canton, Massachusetts 02021
Attention: Client Administration
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.
At any time prior to the time any person becomes an Acquiring Person, and
subject to the last sentence of this Section 27, the Company may, and the Rights
Agent shall if the Company so directs, supplement or amend any provision of this
Rights Agreement in any manner which the Company may deem necessary or desirable
(including the date on which the Expiration Date or the Distribution Date shall
occur, the amount of the Purchase Price, the definition of "Acquiring Person" or
the time during which the Rights may be redeemed pursuant to Section 23) without
the approval of any holder of Rights. From and after the time any Person becomes
an Acquiring Person, and subject to applicable law and the last sentence of this
Section 27, the Company may, and the Rights Agent shall if the Company so
directs, amend this Agreement without the approval of any holders of Rights (a)
to cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision of this Rights
Agreement or (b) to otherwise change or supplement any other provisions in this
Agreement in any matter which the Company may deem necessary or desirable and
which in each such case shall not (i) adversely affect the interests of the
holders of Rights as such (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person) (ii) cause this Agreement again to become
amendable other than in accordance with this sentence or (iii) cause the Rights
again to become redeemable. Any supplement or amendment to this Agreement duly
approved by the Company that does not amend Section 19, 20 or 21 in a manner
adverse to the Rights Agent shall become effective immediately upon execution by
the Company, whether or not also executed by the Rights Agent. Notwithstanding
anything to the contrary contained in this Rights Agreement, no supplement or
amendment to this Rights Agreement shall be made which reduces the Redemption
Price (except in the case of an event described in Section 11(a)(i)).
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 other
than the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares) any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares).
SECTION 30. Severability.
If any term, provision, covenant or restriction of this Agreement is held
by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
SECTION 31. Governing Law.
This Agreement and each Right Certificate issued hereunder shall be deemed
to be a contract made under the laws of the State of Delaware and for all
purposes shall be governed by and construed in accordance with the laws of such
State applicable to contracts to be made and performed entirely within such
State.
SECTION 32. Counterparts.
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
Beacon Power Corporation
by: /s/ James M. Spiezio
-----------------------
Chief Financial Officer
EQUISERVE TRUST COMPANY, N.A.
by: /s/ Margaret Prentice
-----------------------
Managing Director
EXHIBIT A
FORM
of
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
Beacon Power Corporation
(Pursuant to Section 141 of the
Delaware General Corporation Law)
----------------------------
Beacon Power Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 141 of the
General Corporation Law on September 25, 2002:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (hereinafter called the "Board of Directors" or
the "Board") in accordance with the provisions of the Restated Certificate of
Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $1.00 per share, of the Corporation (the "Preferred Stock") and
hereby states the designation and number of shares thereof and the voting and
other powers, preferences and relative, participating, optional or other rights
of the shares of such series and the qualifications, limitations and
restrictions thereof are as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 1,100,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided that no decrease shall reduce the
number of shares of Series A Preferred Stock to a number less than the number of
shares then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the conversion of
any outstanding securities issued by the Corporation convertible into Series A
Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Series
A Preferred Stock with respect to dividends, the holders of shares of Series A
Preferred Stock, in preference to the holders of Common Stock, par value $.01
per share (the "Common Stock"), of the Corporation, and of any other junior
stock, shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or
(b) subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at any time declare
and pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 100 votes
on all matters submitted to a vote of the 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 A
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law, holders of
Series A Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate action.
(D) If, at the time of any annual meeting of stockholders for the election
of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Preferred Stock are in
default, the number of directors constituting the Board of Directors of the
Corporation shall be increased by two. In addition to voting together with the
holders of Common Stock for the election of other directors of the Corporation,
the holders of record of the Series A Preferred Stock, voting separately as a
class to the exclusion of the holders of Common Stock, shall be entitled at said
meeting of stockholders (and at each subsequent annual meeting of stockholders),
unless all dividends in arrears on the Series A Preferred Stock have been paid
or declared and set apart for payment prior thereto, to vote for the election of
two directors of the Corporation, the holders of any Series A Preferred Stock
being entitled to cast a number of votes per share of Series A Preferred Stock
as is specified in paragraph (A) of this Section 3. Each such additional
director shall not be classified, but shall serve until the next annual meeting
of stockholders for the election of directors, or until his successor shall be
elected and shall qualify, or until his right to hold such office terminates
pursuant to the provisions of this Section 3(D). Until the default in payments
of all dividends which permitted the election of said directors shall cease to
exist, any director who shall have been so elected pursuant to the provisions of
this Section 3(D) may be removed at any time, without cause, only by the
affirmative vote of the holders of the shares of Series A Preferred Stock at the
time entitled to cast a majority of the votes entitled to be cast for the
election of any such director at a special meeting of such holders called for
that purpose, and any vacancy thereby created may be filled by the vote of such
holders. If and when such default shall cease to exist, the holders of the
Series A Preferred Stock shall be divested of the foregoing special voting
rights, subject to revesting in the event of each and every subsequent like
default in payments of dividends. Upon the termination of the foregoing special
voting rights, the terms of office of all persons who may have been elected
directors pursuant to said special voting rights shall forthwith terminate, and
the number of directors constituting the Board of Directors shall be reduced by
two. The voting rights granted by this Section 3(D) shall be in addition to any
other voting rights granted to the holders of the Series A Preferred Stock in
this Section 3.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except dividends
paid ratably on the Series A Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a parity with the
Series A Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under 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 A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired promptly after the acquisition thereof. All such shares shall
upon their retirement become authorized but unissued shares of Preferred Stock
and may be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the Restated
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $22.50 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. Neither
the merger or consolidation of the Corporation into or with another entity nor
the merger or consolidation of any other entity into or with the Corporation
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of this Section 6. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate amount to
which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under the proviso in clause (1) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
outstanding shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
Section 9. Ranking. The Series A Junior Participating Preferred Stock shall
rank junior to all other series of the Preferred Stock as to the payment of
dividends and as to the distribution of assets upon liquidation, dissolution or
winding up, unless the terms of any such series shall provide otherwise, and
shall rank senior to the Common Stock as to such matters. Section 10. Amendment.
At any time that any shares of Series A Preferred Stock are outstanding, the
Certificate of Incorporation of the Corporation shall not be amended in any
manner which would materially alter or change the powers, preferences or special
rights of the Series A 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 A Preferred Stock, voting separately as a single class.
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by its President and attested by its this 25th day of
September, 2002.
Attest: /s/ F. William Capp
---------------------
President
EXHIBIT B
Form of Right Certificate
Certificate No. R- Rights
NOT EXERCISABLE AFTER SEPTEMBER 30, 2012 OR EARLIER IF REDEMPTION
OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $0.01
PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS
AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR
BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT)
AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND
WILL NO LONGER BE TRANSFERABLE.
Right Certificate
Beacon Power Corporation
This certifies that ________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of September 25, 2002, as the same may be amended from time
to time (the "Rights Agreement"), between Beacon Power Corporation, a Delaware
corporation (the "Company"), and Equiserve Trust Company, N.A. (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 time, on September 30, 2012 at the principal office of the Rights Agent, or
at the office of its successor as Rights Agent, ____ one-hundredth[s] of a fully
paid non-assessable share of Series A Junior Participating Preferred Stock, par
value $1.00 per share, of the Company (the "Preferred Shares"), at a purchase
price of $_______ per one one-hundredth of a Preferred Share (the "Purchase
Price"), upon presentation and surrender of this Right Certificate with the Form
of Election to Purchase duly executed. The number of Rights evidenced by this
Right Certificate (and the number of one-hundredth's 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 _________, based on the
Preferred Shares as constituted at such date. As provided in the Rights
Agreement, the Purchase Price and the number of one one-hundredths of a
Preferred Share or other securities or property which may be purchased upon the
exercise of the Rights and the number of Rights evidenced by this Right
Certificate are subject to modification and adjustment upon the happening of
certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the offices of the Rights Agent. The Company will mail to the holder
of this Right Certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Right Certificate (i) may be redeemed by the Company at a redemption price
of $0.01 per Right or (ii) may be exchanged in whole or in part for shares of
the Company's Common Stock, par value $0.01 per share.
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-hundredth 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, as such, 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 or exchange 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 or exchanged 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 as of ______________.
Beacon Power Corporation
By: /s/ James M. Spiezio
-----------------------
Chief Financial Officer
Countersigned:
EquiServe Trust Company, N.A.
By: /s/ Margaret Prentice
------------------------
Managing Director
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:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States or by another eligible guarantor institution, as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934.
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, were not acquired by the undersigned
from, and are not being assigned to an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
------------------------------------
Signature
Form Of Reverse Side Of Right Certificate -- Continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights
represented by the Right Certificate.)
To: Beacon Power Corporation
The undersigned hereby irrevocably elects to exercise ___________ Rights
represented by this Right Certificate to purchase the Preferred Shares (or other
securities or property) issuable upon the exercise of such Rights and requests
that certificates for such Preferred Shares (or other securities or property) be
issued in the name of:
Please insert social security or other identifying number
- ------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining of such
Rights shall be registered in the name of and delivered to:
Please insert social security or other identifying number
- ------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------
Dated: ___________, ___
-----------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States or by another eligible guarantor institution, as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934.
Form of Reverse Side of Right Certificate -- Continued
--------------------
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement).
------------------------------------
Signature
NOTICE
The signature in the Form of Assignment or Form of Election to Purchase, as
the case may be, must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth above in the Form of Assignment or
the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.
EXHIBIT C
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS
AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO
IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS
AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL
AND VOID AND WILL NO LONGER BE TRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES
On October 7, 2002 (the "Record Date"), Beacon Power Corporation (the
"Company") paid a dividend of one preferred share purchase right (a "Right") for
each outstanding share of common stock, par value $0.01 per share, of the
Company (the "Common Shares"). The dividend is payable to the stockholders of
record on the Record Date. Each Right entitles the registered holder to purchase
from the Company one one-hundredth of a share of Series A Junior Participating
Preferred Stock, par value $1.00 per share, of the Company (the "Preferred
Shares") at a price of $22.50 per one one-hundredth of a Preferred Share (the
"Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement (the "Rights Agreement") between the
Company and Equiserve Trust Company N.A., as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (with certain
exceptions, an "Acquiring Person") have acquired beneficial ownership of 15%
(or, in the case of the Perseus Capital, LLC and those who own Common Shares
through it, 30%) or more of the outstanding Common Shares or (ii) such date, if
any, as may be designated by the Board of Directors of the Company following the
commencement of, or first public disclosure of an intention to commence, a
tender or exchange offer for outstanding Common Shares which could result in
such person or group becoming the beneficial owner of more than 15% of the
outstanding Common Shares (the earlier of such dates being the "Distribution
Date"), the Rights will not be represented by a separate certificate, and will
not be transferable apart from the Common Stock, but will instead be evidenced,
(i) with respect to any of the shares of Common Stock held in uncertificated
book-entry form (a "Book-Entry") outstanding as of the Record Date, by such
Book-Entry and (ii) with respect to the shares of Common Stock evidenced by
Common Stock certificates outstanding as of the Record Date, by such Common
Stock certificates, together with a copy of this Summary of Rights.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the Common Shares. Until the Distribution Date (or earlier redemption
or expiration of the Rights), new Common Share certificates issued after the
Record Date upon transfer or new issuance of Common Shares will contain a
notation incorporating the Rights Agreement by reference. Until the Distribution
Date (or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates for Common Shares 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. Until the Distribution
Date (or earlier redemption or expiration of the Rights), transfer on the
Company's stock ownership records of Common Stock represented by a Book-Entry or
a certificate outstanding as the Record Date, and, in each case, with or without
a copy of this Summary of Rights attached thereto, will also constitute the
transfer of the Rights associated with the Common Stock represented by such
Book-Entry or certificate. As soon as practicable following the Distribution
Date, separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the Common Shares as of the close of business on
the Distribution Date and such separate Right Certificates alone will evidence
the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on September 30, 2012 (the "Final Expiration Date"), unless the Final
Expiration Date is advanced or extended or unless the Rights are earlier
redeemed or exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of 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-hundredths 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 minimum preferential
quarterly dividend payment of $1.00 per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per Common Share.
In the event of liquidation, the holders of the Preferred Shares will be
entitled to a minimum preferential liquidation payment of $22.50 per share but
will be entitled to an aggregate payment of 100 times the payment made per
Common Share. Each Preferred Share will have 100 votes, voting together with the
Common Shares. Finally, in the event of any merger, consolidation or other
transaction in which Common Shares are exchanged, each Preferred Share will be
entitled to receive 100 times the amount received per Common Share. These rights
are protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a Preferred Share
purchasable upon exercise of each Right is intended to approximate the value of
one Common Share.
In the event that 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 after a person or group has become an Acquiring Person, 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 (or
its parent) which at the time of such transaction will have a market value of
two times the exercise price of the Right. In the event that any person or group
of affiliated or associated persons becomes an Acquiring Person, each holder of
a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereupon 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.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Shares, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, for shares of Common Shares at an exchange ratio of one
Common Share per Right.
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-hundredth 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 an Acquiring Person becomes such, the Board
of Directors of the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right (the "Redemption Price") payable, at the option of the
Company, in cash, Common Shares or such other form of consideration as the Board
of Directors of the Company shall determine. The redemption of the Rights may be
made effective at such time on such basis 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.
At any time prior to such time as there shall be an Acquiring Person, the
Company may, without the approval of any holder of the Rights, supplement or
amend any provision of the Rights Agreement (including the date on which the
Expiration Date or the Distribution Date shall occur, the amount of the Purchase
Price or the definition of "Acquiring Person"), except that no supplement or
amendment shall be made that reduces the Redemption Price of the Rights. From
and after such time as any person or group of affiliated or associated persons
becomes and Acquiring Person, and subject to applicable law, the Company may,
and the Rights Agent shall if the Company so directs, amend the Rights Agreement
without the approval of any holders of Rights (a) to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision of this Rights Agreement or (b) to
otherwise change or supplement any other provisions in this Agreement in any
matter which the Company may deem necessary or desirable and which in each such
case shall not (i) adversely affect the interests of the holders of Rights as
such (other than an Acquiring Person or an Affiliate or Associate of an
Acquiring Person) (ii) cause the Rights Agreement again to become otherwise
amendable or (iii) cause the Rights again to become redeemable.
Until a Right is exercised or exchanged, 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 Rights 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 Rights Agreement, as the
same may be amended form time to time, which is hereby incorporated herein by
reference.