Exhibit 1
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RIGHTS AGREEMENT
between
NEW FRONTIER MEDIA, INC.
and
CORPORATE STOCK TRANSFER, INC.,
as Rights Agent
Dated as of November 29, 2001
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TABLE OF CONTENTS
Section 1. Certain Definitions 1
Section 2. Appointment of Rights Agent 6
Section 3. Issuance of Rights Certificates 6
Section 4. Form of Rights Certificates 7
Section 5. Countersignature and Registration 8
Section 6. Transfer, Split-Up, Combination and
Exchange of Rights Certificates; Mutilated,
Destroyed, Lost or Stolen Rights Certificates 9
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights 10
Section 8. Cancellation and Destruction of Rights Certificates 12
Section 9. Reservation and Availability of Preferred
Stock 12
Section 10. Preferred Stock Record Date 13
Section 11. Adjustment of Purchase Price,
Number and Kind of Shares or Number of Rights 14
Section 12. Certificate of Adjusted Purchase Price
or Number of Shares 22
Section 13. Consolidation, Merger or Sale or
Transfer of Assets, Cash Flow or
Earning Power 22
Section 14. Fractional Rights and Fractional
Shares 24
Section 15. Rights of Action 26
Section 16. Agreement of Rights Holders 26
Section 17. Rights Certificate Holder Not Deemed a Stockholder 27
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Section 18. Concerning the Rights Agent 27
Section 19. Merger or Consolidation or Change
of Name of Rights Agent 27
Section 20. Duties of Rights Agent 28
Section 21. Change of Rights Agent 30
Section 22. Issuance of New Rights Certificates 31
Section 23. Redemption and Termination 31
Section 24. Exchange 32
Section 25. Notice of Certain Events 34
Section 26. Notices 34
Section 27. Supplements and Amendments 35
Section 28. Successors 36
Section 29. Determinations and Actions by the
Board of Directors, etc. 36
Section 30. Benefits of this Agreement 36
Section 31. Severability 36
Section 32. Governing Law 37
Section 33. Counterparts 37
Section 34. Descriptive Headings 37
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APPENDICES
Appendix A -- Form of Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock
Appendix B -- Form of Rights Certificate
Appendix C -- Form of Summary of Rights
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RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of November 29, 2001 (the "Agreement"),
between NEW FRONTIER MEDIA, INC., a Colorado corporation (the "Company"), and
CORPORATE STOCK TRANSFER, INC., a Colorado corporation (the "Rights Agent").
W I T N E S S E T H
WHEREAS, on November 29, 2001 (the "Rights Dividend Declaration Date"),
the Board of Directors of the Company authorized and declared a dividend
distribution of one Right (as hereinafter defined) for each share of common
stock, par value $.0001 per share, of the Company (the "Common Stock")
outstanding at the close of business on December 21, 2001 (the "Record Date"),
and has authorized the issuance of one Right (as such number may hereinafter be
adjusted pursuant to the provisions of Section 11(p) hereof) for each share of
Common Stock of the Company issued between the Record Date (whether originally
issued or delivered from the Company's treasury) and the Distribution Date (as
hereinafter defined), each Right initially representing the right to purchase
one one-thousandth of a share of Series A Junior Participating Preferred Stock
of the Company (the "Preferred Stock") having the rights, powers and preferences
set forth in the form of Certificate of Designation, Preferences and Rights
attached hereto as Exhibit A, upon the terms and subject to the conditions
hereinafter set forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(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 fifteen percent (15%) or more of the shares of Common Stock then outstanding,
but shall not include: (i) the Company, (ii) any Subsidiary of the Company,
(iii) any employee benefit plan of the Company, or of any Subsidiary of the
Company, or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan, (iv) any Person who,
prior to November 29, 2001 became the Beneficial Owner of fifteen percent (15%)
or more of the shares of Common Stock then outstanding, unless such Person
becomes the Beneficial Owner of (x) one percent (1%) or more of the shares of
Common Stock then outstanding in excess of (y) the percentage of shares of
Common Stock then outstanding beneficially owned by such Person on (a) November
29, 2001 or (b) thereafter, whichever such percentage is less; provided that the
sum of the percentage referred to in clause (y) immediately above, plus 1%,
shall not be less than fifteen percent (15%); (v) any Person who becomes the
Beneficial Owner of fifteen percent (15%) or more of the shares of Common Stock
then outstanding as a result of a reduction in the number of shares of Common
Stock outstanding due to the repurchase of shares of Common Stock by the Company
unless and until such Person, after becoming aware that such Person has become
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the Beneficial Owner of fifteen percent (15%) or more of the then outstanding
shares of Common Stock, acquires beneficial ownership of additional shares of
Common Stock representing one percent (1%) or more of the shares of Common Stock
then outstanding, or (vi) any such Person who has reported or is required to
report such ownership on Schedule 13G under the Securities and Exchange Act of
1934, as amended and in effect on the date of the Agreement (the "Exchange Act")
(or any comparable or successor report) or on Schedule 13D under the Exchange
Act (or any comparable or successor report) which Schedule 13D does not state
any intention to or reserve the right to control or influence the management or
policies of the Company or engage in any of the actions specified in Item 4 of
such schedule (other than the disposition of the Common Stock) and, within 10
Business Days of being requested by the Company to advise it regarding the same,
certifies to the Company that such Person acquired shares of Common Stock in
excess of 14.9% inadvertently or without knowledge of the terms of the Rights
and who, together with all Affiliates and Associates, thereafter does not
acquire additional shares of Common Stock while the Beneficial Owner of 15% or
more of the shares of Common Stock then outstanding; provided, however, that if
the Person requested to so certify fails to do so within 10 Business Days, then
such Person shall become an Acquiring Person immediately after such 10 Business
Day period. For all purposes of this Agreement, any calculation of the number of
shares of Common Stock outstanding at any time, including for purposes of
determining the percentage of such outstanding shares of Common Stock of which
any Person is the Beneficial Owner, shall be made in accordance with the
provisions of Rule 13d-3d(1)(i), as in effect on the date hereof, of the General
Rules and Regulations under the Exchange Act.
(b) "Act" shall mean the Securities Act of 1933, as amended.
(c) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
(d) A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or Associates,
directly or indirectly, has the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," (A) securities tendered pursuant to a
tender or exchange offer made by such Person or any of such Person's Affiliates
or Associates until such tendered securities are accepted for purchase or
exchange, (B) securities issuable upon exercise of Rights at any time prior to
the occurrence of a Triggering Event (as hereinafter defined), or (C) securities
issuable upon exercise of Rights from and after the occurrence of a Triggering
Event which Rights were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date (as hereinafter defined)
or pursuant to Section 3(a) or Section 22 hereof (the "Original Rights") or
pursuant to Section 11(i) hereof in connection with an adjustment made with
respect to any Original Rights;
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(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or has
"beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General
Rules and Regulations under the Exchange Act), including pursuant to any
agreement, arrangement or understanding, whether or not in writing; provided,
however, that a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subparagraph (ii) as a result of an
agreement, arrangement or understanding to vote such security if such agreement,
arrangement or understanding: (A) arises solely from a revocable proxy given in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the General Rules and Regulations
under the Exchange Act, and (B) is not reportable by such Person on Schedule 13D
under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person (or
any of such Person's Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing), for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy as described in the
provision to subparagraph (ii) of this paragraph (d)) or disposing of any voting
securities of the Company; provided, however, that nothing in this paragraph (d)
shall cause a Person engaged in business as an underwriter of securities to be
the "Beneficial Owner" of, or to "beneficially own," any securities acquired
through such Person's participation in good faith in a firm commitment
underwriting until the expiration of forty days after the date of such
acquisition, and then only if such securities continue to be owned by such
Person at such expiration of forty days.
(e) "Business Day" shall mean any day other than a Saturday, Sunday or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
(f) "Close of Business" on any given date shall mean 5:00 P.M., New
York City time, on such date; provided, however, that if such date is not a
Business Day, it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(g) "Common Stock" shall mean the common stock, par value $.0001 per
share, of the Company, except that "Common Stock" when used with reference to
any Person other than the Company shall mean the capital stock of such Person
with the greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such Person.
(h) "Common Stock Equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.
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(i) "Continuing Director" shall mean (i) any member of the Board of
Directors of the Company, while such person is a member of the Board of
Directors, who is not an Acquiring Person or an Affiliate or Associate of an
Acquiring Person, or a representative or nominee of an Acquiring Person or of
any such Affiliate or Associate, and who was a member of Board of Directors
prior to the date of this Agreement, and (ii) any successor of a Continuing
Director, while such successor is a member of the Board of Directors, who is not
an Acquiring Person or an Affiliate or Associate of an Acquiring Person or a
representative or nominee of an Acquiring Person, or of any such Affiliate or
Associate and is recommended or elected to succeed the prior Continuing Director
by a majority of the Continuing Directors
(j) "Current Market Price" shall have the meaning set forth in Section
11(d)(i) hereof.
(k) "Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
(l) "Distribution Date" shall have the meaning set forth in Section
3(a) hereof.
(m) "Equivalent Preferred Stock" shall have the meaning set forth in
Section 11(b) hereof.
(n) "Exchange Act" shall mean the Securities and Exchange Act of 1934.
(o) "Exchange Ratio" shall have the meaning set forth in Section 24
hereof.
(p) "Expiration Date" shall have the meaning set forth in Section 7(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
or other entity.
(s) "Preferred Stock" shall mean shares of Series A Junior
Participating Preferred Stock, par value $0.01 per share, of the Company, and,
to the extent that there are not a sufficient number of shares of Series A
Junior Participating Preferred Stock authorized to permit the full exercise of
the Rights, any other series of preferred stock of the Company designated for
such purpose containing terms substantially similar to the terms of the Series A
Junior Participating Preferred Stock.
(t) "Principal Party" shall have the meaning set forth in Section 13(b)
hereof.
(u) "Purchase Price" shall have the meaning set forth in Section 4(a)
hereof.
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(v) "Qualified Offer" shall have the meaning set forth in Section
11(a)(ii) hereof.
(w) "Record Date" shall have the meaning set forth in the WHEREAS
clause at the beginning of this Agreement.
(x) "Rights" shall have the meaning set forth in the WHEREAS clause at
the beginning of this Agreement.
(y) "Rights Agent" shall have the meaning set forth in the parties
clause at the beginning of this Agreement.
(z) "Rights Certificate" shall have the meaning set forth in Section
3(a) hereof.
(aa) "Rights Dividend Declaration Date" shall have the meaning set
forth in the WHEREAS clause at the beginning of this Agreement.
(bb) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii) hereof.
(cc) "Section 13 Event" shall mean any event described in clauses (x),
(y) or (z) of Section 13(a) hereof.
(dd) "Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
(ee) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed or amended pursuant to Section 13(d) under the
Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has
become such other than pursuant to a Qualified Offer.
(ff) "Subsidiary" shall mean, with reference to any Person, any
corporation of which an amount of voting securities sufficient to elect at least
a majority of the directors of such corporation is beneficially owned, directly
or indirectly, by such Person, or otherwise controlled by such Person.
(gg) "Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.
(hh) "Summary of Rights" shall have the meaning set forth in Section
3(b) hereof.
(ii) "Trading Day" shall have the meaning set forth in Section 11(d)(i)
hereof.
(jj) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
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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 Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-rights agents as it may deem necessary or
desirable.
Section 3. Issuance of Rights Certificates.
(a) Until the earlier of (i) the close of business on the tenth day
after the Stock Acquisition Date (or, if the tenth day after the Stock
Acquisition Date occurs before the Record Date, the close of business on the
Record Date), or (ii) the close of business on the tenth Business Day (or such
later date as the Board shall determine) after the date that a tender or
exchange offer by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan) is first published or
sent or given within the meaning of Rule 14d- 2(a) of the General Rules and
Regulations under the Exchange Act, if upon consummation thereof, such Person
would become an Acquiring Person, in either instance other than pursuant to a
Qualified Offer (the earlier of (i) and (ii) being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the certificates for the
Common Stock registered in the names of the holders of the Common Stock (which
certificates for Common Stock shall be deemed also to be certificates for
Rights) and not by separate certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying shares of
Common Stock (including a transfer to the Company). As soon as practicable after
the Distribution Date, the Rights Agent will send by first-class, insured,
postage-prepaid mail, to each record holder of the Common Stock as of the close
of business on the Distribution Date, at the address of such holder shown on the
records of the Company, one or more right certificates, in substantially the
form of Exhibit B hereto (the "Rights Certificates"), evidencing one Right for
each share of Common Stock so held, subject to adjustment as provided herein. In
the event that an adjustment in the number of Rights per share of Common Stock
has been made pursuant to Section 11(p) hereof, at the time of distribution of
the Rights Certificates, the Company shall make the necessary and appropriate
rounding adjustments (in accordance with Section 14(a) hereof) so that Rights
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. As of and after the Distribution Date,
the Rights will be evidenced solely by such Rights Certificates.
(b) The Company will make available, as promptly as practicable
following the Record Date, a copy of a Summary of Rights, in substantially the
form attached hereto as Exhibit C (the "Summary of Rights") to any holder of
Rights who may so request from time to time prior to the Expiration Date. With
respect to certificates for the Common Stock outstanding as of the Record Date,
until the Distribution Date (or the earlier redemption, expiration or
termination of the Rights), the Rights will be evidenced by such certificates
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for the Common Stock and the registered holders of the Common Stock shall also
be the registered holders of the associated Rights. Until the earlier of the
Distribution Date (or the earlier redemption, expiration or termination of the
Rights), the transfer of any certificates representing shares of Common Stock in
respect of which Rights have been issued shall also constitute the transfer of
the Rights associated with such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of Common Stock
which are issued after the Record Date but prior to the earlier of the
Distribution Date or the redemption, expiration or termination of the Rights.
Certificates for Common Stock issued after the Record Date but prior to the
Distribution Date (or the earlier redemption, expiration or termination of the
Rights) representing such shares of Common Stock shall also be deemed to be
certificates for Rights, and shall bear the following legend:
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT BETWEEN NEW FRONTIER MEDIA,
INC. (THE "COMPANY") AND THE RIGHTS AGENT THEREUNDER (THE "RIGHTS AGREEMENT"),
THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY. UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE
EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS
CERTIFICATE. THE COMPANY WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF
THE RIGHTS AGREEMENT, AS IN EFFECT ON THE DATE OF MAILING, WITHOUT CHARGE,
PROMPTLY AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN
CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY,
ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR
ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER
CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY
BECOME NULL AND VOID.
With respect to such certificates containing the foregoing legend,
until the Distribution Date (or the earlier redemption, expiration or
termination of the Rights), the Rights associated with the Common Stock
represented by such certificates shall be evidenced by such certificates alone
and registered holders of Common Stock shall also be the registered holders of
the associated Rights, and the transfer of any of such certificates shall also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to purchase and
of assignment to be printed on the reverse thereof) shall each be substantially
in the form set forth in Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Rights Certificates, whenever distributed, shall be
dated as of the Record Date and on their face shall entitle the holders thereof
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to purchase such number of one one-thousandths of a share of Preferred Stock as
shall be set forth therein at the price set forth therein (such exercise price
per one one-thousandth of a share, the "Purchase Price"), but the amount and
type of securities purchasable upon the exercise of each Right and the Purchase
Price thereof shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a), Section
11(i) or Section 22 hereof that represents Rights beneficially owned by: (i) an
Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such, or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(E) OF THE RIGHTS AGREEMENT.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the Company
by its President or any Vice President, either manually or by facsimile
signature, and shall have affixed thereto the Company's seal or a facsimile
thereof which shall be attested by the Secretary or an Assistant Secretary of
the Company, either manually or by facsimile signature. The Rights Certificates
shall be countersigned by the Rights Agent, either manually or by facsimile
signature, and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Rights
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Rights Certificates had not ceased to be such officer
of the Company; and any Rights Certificates may be signed on behalf of the
Company by any person who, at the actual date of the execution of such Rights
Certificate, shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
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(b) Following the Distribution Date, the Rights Agent will keep, or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Section 4(b), Section 7(e) and Section
14 hereof, at any time after the close of business on the Distribution Date, and
at or prior to the close of business on the Expiration Date, any Rights
Certificate or Certificates (other than Rights Certificates representing Rights
that may have been exchanged pursuant to Section 24 hereof) may be transferred,
split up, combined or exchanged for another Rights Certificate or Certificates,
entitling the registered holder to purchase a like number of one one-thousandths
of a share of Preferred Stock (or, following a Triggering Event, Common Stock,
other securities, cash or other assets, as the case may be) as the Rights
Certificate or Certificates surrendered then entitles such holder (or former
holder in the case of a transfer) to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Rights Certificate or Certificates
shall make such request in writing delivered to the Rights Agent, and shall
surrender the Rights Certificate or Certificates to be transferred, split up,
combined or exchanged at the principal office or offices of the Rights Agent
designated for such purpose. Neither the Rights Agent nor the Company shall be
obligated to take any action whatsoever with respect to the transfer of any such
surrendered Rights Certificate until the registered holder shall have completed
and signed the certificate contained in the form of assignment on the reverse
side of such Rights Certificate and shall have provided such additional evidence
of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company or the Rights Agent shall
reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b),
Section 7(e), Section 14 hereof and Section 24 hereof, countersign and deliver
to the Person entitled thereto a Rights Certificate or Rights Certificates, as
the case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Rights
Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will execute and deliver a new Rights Certificate of like
tenor to the Rights Agent for countersignature and delivery to the registered
owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
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Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) Subject to Section 7(e) hereof, at any time after the Distribution
Date the registered holder of any Rights Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein including, without
limitation, the restrictions on exercisability set forth in Section 9(c),
Section 11(a)(iii) and Section 23(a) hereof) in whole or in part upon surrender
of the Rights Certificate, with the form of election to purchase and the
certificate on the reverse side thereof duly executed, to the Rights Agent at
the principal office or offices of the Rights Agent designated for such purpose,
together with payment of the aggregate Purchase Price with respect to the total
number of one one-thousandths of a share (or other securities, cash or other
assets, as the case may be) as to which such surrendered Rights are then
exercisable, at or prior to the earlier of (i) 5:00 P.M., New York City time, on
December 21, 2011, or such later date as may be established by the Company,
acting by resolution of its Board of Directors prior to the expiration of the
Rights (such date, as it may be extended by the Board, (the "Final Expiration
Date"), or (ii) the time at which the Rights are redeemed or exchanged as
provided in Section 23 and Section 24 hereof (the earlier of (i) and (ii) being
herein referred to as the "Expiration Date").
(b) The Purchase Price for each one one-thousandth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $10.00,
and shall be subject to adjustment from time to time as provided in Section 11
and Section 13(a) hereof and shall be payable in accordance with paragraph (c)
below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price per one one-thousandth of a share of Preferred Stock (or other shares,
securities, cash or other assets, as the case may be) to be purchased as set
forth below and an amount equal to any applicable transfer tax, the Rights Agent
shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition
from any transfer agent of the shares of Preferred Stock (or make available, if
the Rights Agent is the transfer agent for such shares) certificates for the
total number of one one-thousandths of a share of Preferred Stock to be
purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) if the Company shall have elected to
deposit the total number of shares of Preferred Stock issuable upon exercise of
the Rights hereunder with a depositary agent, requisition from the depositary
agent depositary receipts representing such number of one one-thousandths of a
share of Preferred Stock as are to be purchased (in which case certificates for
the shares of Preferred Stock represented by such receipts shall be deposited by
the transfer agent with the depositary agent) and the Company will direct the
depositary agent to comply with such request, (ii) requisition from the Company
the amount of cash, if any, to be paid in lieu of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or, upon the order of the
registered holder of such Rights Certificate, registered in such name or names
10
as may be designated by such holder, and (iv) after receipt thereof, deliver
such cash, if any, to or upon the order of the registered holder of such Rights
Certificate. The payment of the Purchase Price (as such amount may be reduced
pursuant to Section 11(a)(iii) hereof) shall be made in cash or by certified
bank check or bank draft payable to the order of the Company. In the event that
the Company is obligated to issue other securities (including Common Stock) of
the Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution by the
Rights Agent, if and when appropriate. The Company reserves the right to require
prior to the occurrence of a Triggering Event that, upon any exercise of Rights,
a number of Rights be exercised so that only whole shares of Preferred Stock
would be issued.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
the Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of this Section 7(e),
shall become null and void without any further action and no holder of such
Rights shall have any rights whatsoever with respect to such Rights, whether
under any provision of this Agreement or otherwise. The Company shall use all
reasonable efforts to insure that the provisions of this Section 7(e) and
Section 4(b) hereof are complied with, but shall have no liability to any holder
of Rights Certificates or any 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.
(f) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise as
set forth in this Section 7 unless such registered holder shall have (i)
completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company or the Rights Agent shall reasonably request.
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Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split-up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates to the Company, or shall, at the written request
of the Company, destroy such cancelled Rights Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Preferred Stock.
(a) The Company covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued shares of Preferred Stock
(and, following the occurrence of a Triggering Event, out of its authorized and
unissued shares of Common Stock and/or other securities or out of its authorized
and issued shares held in its treasury), the number of shares of Preferred Stock
(and, following the occurrence of a Triggering Event, Common Stock and/or other
securities) that, as provided in this Agreement including Section 11(a)(iii)
hereof, will be sufficient to permit the exercise in full of all outstanding
Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities) issuable
and deliverable upon the exercise of the Rights may be listed on any national
securities exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance upon
such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a Section
11(a)(ii) Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, a registration statement under the Act, with respect to the securities
purchasable upon exercise of the Rights on an appropriate form, (ii) cause such
registration statement to become effective as soon as practicable after such
filing, and (iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Act) until the earlier
of (A) the date as of which the Rights are no longer exercisable for such
securities, and (B) the date of the expiration of the Rights. The Company will
also take such action as may be appropriate under, or to ensure compliance with,
the securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. The Company, acting by resolution of its Board of
Directors (which resolution shall be effective only if it is approved by a
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majority of the Continuing Directors), may temporarily suspend, for a period of
time not to exceed ninety (90) days after the date set forth in clause (i) of
the first sentence of this Section 9(c), the exercisability of the Rights in
order to prepare and file such registration statement 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 has
been rescinded. In addition, if the Company shall determine that a registration
statement is required following the Distribution Date, the Company, acting by
resolution of its Board of Directors (which resolution shall be effective only
if it is approved by a majority of the Continuing Directors), may temporarily
suspend the exercisability of the Rights until such time as a registration
statement has been declared effective. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction if the requisite qualification in such jurisdiction shall not have
been obtained, the exercise thereof shall not be permitted under applicable law,
or a registration statement shall not have been declared effective.
(d) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all one one-thousandths of a share of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the issuance or delivery of the Rights Certificates and
of any certificates for a number of one one-thousandths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) upon the
exercise of Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or the issuance or delivery of a
number of one one-thousandths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in respect of a name other than
that of the registered holder of the Rights Certificates evidencing Rights
surrendered for exercise or to issue or deliver any certificates for a number of
one one-thousandths of a share of Preferred Stock (or Common Stock and/or other
securities, as the case may be) in a name other than that of the registered
holder upon the exercise of any Rights until such tax shall have been paid (any
such tax being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's satisfaction that
no such tax is due.
Section 10. Preferred Stock Record Date. Each person in whose name any
certificate for a number of one one-thousandths of a share of Preferred Stock
(or Common Stock and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of such fractional shares of Preferred Stock (or Common Stock and/or
other securities, as the case may be) represented thereby on, and such
13
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and all applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Preferred Stock (or
Common Stock and/or other securities, as the case may be) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such shares (fractional or otherwise) on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Stock (or Common
Stock and/or other securities, as the case may be) transfer books of the Company
are open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Rights Certificate shall not be entitled to any rights of a stockholder of the
Company with respect to 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 and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Stock payable in shares
of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine
the outstanding Preferred Stock into a smaller number of shares, or (D) issue
any shares of its capital stock in a reclassification of the Preferred Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of Preferred Stock or capital stock, as the case may
be, issuable on such date, shall be proportionately adjusted so that the holder
of any Right exercised after such time shall be entitled to receive, upon
payment of the Purchase Price then in effect, the aggregate number and kind of
shares of Preferred Stock or capital stock, as the case may be, which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Stock transfer books of the Company were open, such holder would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. If an event occurs which
would require an adjustment under both this Section 11(a)(i) and Section
11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be
in addition to, and shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii) hereof.
(ii) In the event any Person shall, at any time after the Rights
Dividend Declaration Date, become an Acquiring Person, unless the event causing
such Person to become an Acquiring Person is a transaction set forth in Section
13(a) hereof, or is an acquisition of shares of Common Stock pursuant to a
tender offer or an exchange offer for all outstanding shares of Common Stock at
14
a price and on terms determined by a majority of the members of the Board of
Directors who are not officers of the Company and who are not representatives,
nominees, Affiliates or Associates of an Acquiring Person, after receiving
advice from one or more investment banking firms, to be (a) at a price which is
fair to stockholders and not inadequate (taking into account all factors which
such members of the Board deem relevant, including, without limitation, prices
which could reasonably be achieved if the Company or its assets were sold on an
orderly basis designed to realize maximum value) and (b) otherwise in the best
interests of the Company and its stockholders (a "Qualified Offer") then,
promptly following the occurrence of such event, proper provision shall be made
so that each holder of a Right (except as provided below and in Section 7(e)
hereof) shall thereafter have the right to receive, upon exercise thereof at the
then current Purchase Price in accordance with the terms of this Agreement, in
lieu of a number of one one-thousandths of a share of Preferred Stock, such
number of shares of Common Stock of the Company as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the then number
of one one-thousandths of a share of Preferred Stock for which a Right was
exercisable immediately prior to the first occurrence of a Section 11(a)(ii)
Event, and (y) dividing that product (which, following such first occurrence,
shall thereafter be referred to as the "Purchase Price" for each Right and for
all purposes of this Agreement) by 50% of the Current Market Price (determined
pursuant to Section 11(d) hereof) per share of Common Stock on the date of such
first occurrence (such number of shares, the "Adjustment Shares").
(iii) In the event that the number of shares of Common Stock which are
authorized by the Company's certificate of incorporation, but which are not
outstanding or reserved for issuance for purposes other than upon exercise of
the Rights, are not sufficient to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii) of this Section 11(a), the
Company shall (A) determine the value of the Adjustment Shares issuable upon the
exercise of a Right (the "Current Value"), and (B) with respect to each Right
(subject to Section 7(e) hereof), make adequate provision to substitute for the
Adjustment Shares, upon the exercise of a Right and payment of the applicable
Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) preferred
stock or other equity securities of the Company which the Company, acting by
resolution of its Board of Directors (which resolution shall be effective only
if it is approved by a majority of the Continuing Directors), has deemed to have
essentially the same value or economic rights as shares of Common Stock (such
shares of preferred stock being referred to as "Common Stock Equivalents")), (4)
debt securities of the Company, (5) other assets, or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value (less the amount
of any reduction in the Purchase Price), where such aggregate value has been
determined by the Board, acting by resolution of its Board of Directors (which
resolution shall be effective only if it is approved by a majority of the
Continuing Directors), based upon the advice of an independent investment
banking firm selected by the Company, acting by resolution of its Board of
Directors (which resolution shall be effective only if it is approved by a
majority of the Continuing Directors); provided, however, that if the Company
shall not have made adequate provision to deliver value pursuant to clause (B)
above within thirty (30) days following the later of (x) the first occurrence of
15
a Section 11(a)(ii) Event and (y) the date on which the Company's right of
redemption pursuant to Section 23(a) expires (the later of (x) and (y) being
referred to herein as the "Section 11(a)(ii) Trigger Date"), then the Company
shall be obligated to deliver, upon the surrender for exercise of a Right and
without requiring payment of the Purchase Price, shares of Common Stock (to the
extent available) and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread. For purposes of the preceding sentence, the
term "Spread" shall mean the excess of (i) the Current Value over (ii) the
Purchase Price. If the Company, acting by resolution of its Board of Directors
(which resolution shall be effective only if it is approved by a majority of the
Continuing Directors) determines in good faith that it is likely that sufficient
additional shares of Common Stock could be authorized for issuance upon exercise
in full of the Rights, the thirty (30) day period set forth above may be
extended to the extent necessary, but not more than ninety (90) days after the
Section 11(a)(ii) Trigger Date, in order that the Company may seek shareholder
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 action is to be taken pursuant to the first and/or third
sentences of this Section 11(a)(iii), the Company, acting by resolution of its
Board of Directors (which resolution shall be effective only if it is approved
by a majority of the Continuing Directors), (1) shall provide, subject to
Section 7(e) hereof, that such action shall apply uniformly to all outstanding
Rights, and (2) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek such shareholder approval
for such authorization of additional shares and/or to decide the appropriate
form of distribution to be made pursuant to such first sentence and to determine
the value thereof. In the event of any such suspension, the Company shall issue
a public announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section 11(a)(iii), the
value of each Adjustment Share shall be the current market price per share of
the Common Stock on the Section 11(a)(ii) Trigger Date and the per share or per
unit value of any Common Stock Equivalent shall be deemed to equal the current
market price per share of the Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them to
subscribe for or purchase (for a period expiring within forty-five (45) calendar
days after such record date) Preferred Stock (or shares having the same rights,
privileges and preferences as the shares of Preferred Stock ("Equivalent
Preferred Stock")) or securities convertible into Preferred Stock or Equivalent
Preferred Stock at a price per share of Preferred Stock or per share of
Equivalent Preferred Stock (or having a conversion price per share, if a
security convertible into Preferred Stock or Equivalent Preferred Stock) less
than the Current Market Price (as determined pursuant to Section 11(d) hereof)
per share of Preferred Stock 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 shares of Preferred Stock outstanding
on such record date, plus the number of shares of Preferred Stock which the
aggregate offering price of the total number of shares of Preferred Stock and/or
Equivalent Preferred Stock so to be offered (and/or the aggregate initial
16
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 shares of Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock and/or Equivalent Preferred Stock to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible). In case such subscription price may
be paid by delivery of consideration, part or all of which may be in a form
other than cash, the value of such consideration shall be as determined in good
faith by the Company, acting by resolution of its Board of Directors (which
resolution shall be effective only if it is approved by a majority of the
Continuing 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. Shares of Preferred Stock owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively whenever such a
record date is fixed, and in the event that such rights 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 a distribution to
all holders of Preferred Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness, cash (other than a regular quarterly
cash dividend out of the earnings or retained earnings of the Company), assets
(other than a dividend payable in Preferred Stock, but including any dividend
payable in stock other than Preferred Stock) or of 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 Current Market Price (as
determined pursuant to Section 11(d) hereof) per share of Preferred Stock on
such record date, less the fair market value (as determined in good faith by the
Company, acting by resolution of its Board of Directors (which resolution shall
be effective only if it is approved by a majority of the Continuing Directors),
whose determination shall be described in a statement filed with the Rights
Agent) of the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a share of
Preferred Stock, and the denominator of which shall be such Current Market Price
(as determined pursuant to Section 11(d) hereof) per share of Preferred Stock.
Such adjustments shall be made successively whenever such a record date is
fixed, and in the event that such distribution is not so made, the Purchase
Price shall be adjusted to be the Purchase Price which would have been in effect
if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the Current Market
Price per share of Common Stock on any date shall be deemed to be the average of
the daily closing prices per share of such Common Stock for the thirty (30)
consecutive Trading Days immediately prior to such date, and for purposes of
computations made pursuant to Section 11(a)(iii) hereof, the Current Market
Price per share of Common Stock on any date shall be deemed to be the average of
17
the daily closing prices per share of such Common Stock for the ten (10)
consecutive Trading Days immediately following such date; provided, however,
that in the event that the Current Market Price per share of the Common Stock is
determined during a period following the announcement by the issuer of such
Common Stock of (A) a dividend or distribution on such Common Stock payable in
shares of such Common Stock or securities convertible into shares of such Common
Stock (other than the Rights), or (B) any subdivision, combination or
reclassification of such Common Stock, and the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification shall not have occurred prior to the commencement of the
requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth
above, then, and in each such case, the Current Market Price shall be properly
adjusted to take into account ex-dividend trading. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the Nasdaq
National Market or Nasdaq SmallCap Market or, if the shares of Common Stock are
not listed or admitted to trading on the Nasdaq National Market or Nasdaq
SmallCap Market, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
or, if the shares of Common Stock are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or such other system then in use, or, if on any such date the
shares of Common Stock 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 Common Stock selected by the Company, acting by
resolution of its Board of Directors (which resolution shall be effective only
if it is approved by a majority of the Continuing Directors).. If on any such
date no market maker is making a market in the Common Stock, the fair value of
such shares on such date as determined in good faith by the Board shall be used.
The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading is open for the transaction of business or, if the shares of Common
Stock are not listed or admitted to trading on any national securities exchange,
a Business Day. If the Common Stock is not publicly held or not so listed or
traded, Current Market Price per share shall mean the fair value per share as
determined in good faith by the Company, acting by resolution of its Board of
Directors (which resolution shall be effective only if it is approved by a
majority of the Continuing Directors), whose determination shall be described in
a statement filed with the Rights Agent and shall be conclusive for all
purposes.
(ii) For the purpose of any computation hereunder, the Current Market
Price per share of Preferred Stock shall be determined in the same manner as set
forth above for the Common Stock in clause (i) of this Section 11(d) (other than
the last sentence thereof). If the Current Market Price per share of Preferred
Stock cannot be determined in the manner provided above or if the Preferred
Stock is not publicly held or listed or traded in a manner described in clause
18
(i) of this Section 11(d), the Current Market Price per share of Preferred Stock
shall be conclusively deemed to be an amount equal to 1,000 (as such number may
be appropriately adjusted for such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock occurring after the date of
this Agreement) multiplied by the Current Market Price per share of the Common
Stock. If neither the Common Stock nor the Preferred Stock is publicly held or
so listed or traded, Current Market Price per share of the Preferred Stock shall
mean the fair value per share as determined in good faith by the Company, acting
by resolution of its Board of Directors (which resolution shall be effective
only if it is approved by a majority of the Continuing Directors), whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes. For all purposes of this Agreement, the
Current Market Price of a Unit shall be equal to the Current Market Price of one
share of Preferred Stock divided by 1,000.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (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- thousandth of a share of Common Stock
or other share or one-millionth of a share of Preferred Stock, 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
(3) years from the date of the transaction which mandates such adjustment, or
(ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)(ii)
or Section 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock other than Preferred
Stock, thereafter the number of such other shares so receivable upon exercise of
any Right and the Purchase Price thereof shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Stock contained in Sections 11(a), (b),
(c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7, 9,
10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like
terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-thousandths of
a share of Preferred Stock (calculated to the nearest one-millionth) obtained by
19
(i) multiplying (x) the number of one one-thousandths of a share covered by a
Right immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price, and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in lieu of any adjustment in the
number of one one-thousandths of a share of Preferred Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after the adjustment in the
number of Rights shall be exercisable for the number of one one-thousandths of a
share of Preferred Stock for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the nearest
one one-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten (10) days later than the
date of the public announcement. If Rights Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-thousandths of a share of Preferred Stock issuable upon
the exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per one one-thousandth of a
share and the number of one one-thousandths of a share which were expressed in
the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then stated value, if any, of the number of one
one-thousandths of a share of Preferred Stock issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable such number of one one-thousandths of a share
of Preferred Stock at such adjusted Purchase Price.
20
(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 issuance to the holder of any Right exercised after such record date
the number of one one-thousandths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
over and above the number of one one-thousandths of a share of Preferred Stock
and other capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional shares (fractional or otherwise) or securities upon the occurrence of
the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company, acting by resolution of its Board of Directors (which resolution shall
be effective only if it is approved by a majority of the Continuing Directors),
shall be entitled to make such reductions in the Purchase Price, in addition to
those adjustments expressly required by this Section 11, as and to the extent
that it, in its good faith judgment, shall determine to be advisable in order
that any (i) consolidation or subdivision of the Preferred Stock, (ii) issuance
wholly for cash of any shares of Preferred Stock at less than the Current Market
Price, (iii) issuance wholly for cash of shares of Preferred Stock or securities
which by their terms are convertible into or exchangeable for shares of
Preferred Stock, (iv) stock dividends or (v) issuance of rights, options or
warrants referred to in this Section 11, hereafter made by the Company to
holders of its Preferred Stock shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), (ii) merge with or into any other Person (other than a Subsidiary of
the Company in a transaction which complies with Section 11(o) hereof), or (iii)
sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets, cash flow or earning
power aggregating more than 50% of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to any other Person or Persons (other
than the Company and/or any of its Subsidiaries in one or more transactions each
of which complies with Section 11(o) hereof), if (x) at the time of or
immediately after such consolidation, merger or sale there are any rights,
warrants or other instruments or securities outstanding or agreements in effect
which would substantially diminish or otherwise eliminate the benefits intended
to be afforded by the Rights or (y) prior to, simultaneously with or immediately
after such consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
21
(o) The Company covenants and agrees that, after the Distribution Date,
it will not, except as permitted by Section 23 or Section 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
otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding, in the
event that the Company shall at any time after the Rights Dividend Declaration
Date and prior to the Distribution Date (i) declare a dividend on the
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock, or (iii) combine the
outstanding shares of Common Stock into a smaller number of shares, the number
of Rights associated with each share of Common Stock then outstanding, or issued
or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
following the occurrence of such event.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 and Section 13 hereof,
the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate and (c) if a
Distribution Date has occurred, mail a brief summary thereof to each holder of a
Rights Certificate in accordance with Section 27 hereof. The Rights Agent shall
be fully protected in relying on any such certificate and on any adjustment
therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets, Cash
Flow or Earning Power.
(a) In the event that, following the Distribution Date, directly or
indirectly, (x) the Company shall consolidate with, or merge with and into, any
other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), and the Company shall not be the continuing
or surviving corporation of such consolidation or merger, (y) any Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof) shall consolidate with, or merge with or into, the Company, and
the Company shall be the continuing or surviving corporation of such
consolidation or merger and, in connection with such consolidation or merger,
all or part of the outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or any other
property, or (z) the Company shall sell or otherwise transfer (or one or more of
its Subsidiaries shall sell or otherwise transfer), in one transaction or a
series of related transactions, assets, cash flow or earning power aggregating
more than 50% of the assets, cash flow or earning power of the Company and its
22
Subsidiaries (taken as a whole) to any Person or Persons (other than the Company
or any Subsidiary of the Company in one or more transactions each of which
complies with Section 11(o) hereof), then, and in each such case (except as may
be contemplated by Section 13(d) hereof), proper provision shall be made so
that: (i) each holder of a Right, except as provided in Section 7(e) hereof,
shall thereafter have the right to receive, upon the exercise thereof at the
then current Purchase Price in accordance with the terms of this Agreement, such
number of validly authorized and issued, fully paid, non-assessable and freely
tradeable shares of Common Stock of the Principal Party (as such term is
hereinafter defined), not subject to any liens, encumbrances, rights of first
refusal or other adverse claims, as shall be equal to the result obtained by (1)
multiplying the then current Purchase Price by the number of one one-thousandths
of a share of Preferred Stock for which a Right is exercisable immediately prior
to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event
has occurred prior to the first occurrence of a Section 13 Event, multiplying
the number of such one one-thousandths of a share for which a Right was
exercisable immediately prior to the first occurrence of a Section 11(a)(ii)
Event by the Purchase Price in effect immediately prior to such first
occurrence), and dividing that product (which, following the first occurrence of
a Section 13 Event, shall be referred to as the "Purchase Price" for each Right
and for all purposes of this Agreement) by (2) 50% of the Current Market Price
(determined pursuant to Section 11(d)(i) hereof) per share of the Common Stock
of such Principal Party on the date of consummation of such Section 13 Event;
(ii) such Principal Party shall thereafter be liable for, and shall assume, by
virtue of such Section 13 Event, all the obligations and duties of the Company
pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed
to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event; (iv) such Principal Party
shall take such steps (including, but not limited to, the reservation of a
sufficient number of shares of its Common Stock) in connection with the
consummation of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to its shares of Common Stock thereafter deliverable upon the
exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof shall
be of no effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (x) or (y) of
the first sentence of Section 13(a), the Person that is the issuer of any
securities into which shares of Common Stock of the Company are converted in
such merger or consolidation, and if no securities are so issued, the Person
that is the other party to such merger or consolidation; and
(ii) in the case of any transaction described in clause (z) of the
first sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets, cash flow or earning power transferred pursuant
to such transaction or transactions; provided, however, that in any such case,
(1) if the Common Stock of such Person is not at such time and has not been
continuously over the preceding twelve (12) month period registered under
23
Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, "Principal Party" shall refer to such other Person; and (2) in case
such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stocks of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its Common Stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger or sale of assets mentioned in paragraph (a) of this
Section 13, the Principal Party will:
(i) prepare and file a registration statement under the Act, with
respect to the Rights and the securities purchasable upon exercise of the Rights
on an appropriate form, and will use its best efforts to cause such registration
statement to (A) become effective as soon as practicable after such filing and
(B) remain effective (with a prospectus at all times meeting the requirements of
the Act) until the Expiration Date; and
(ii) take such other action as may be necessary to enable the Principal
Party to issue the securities purchasable upon exercise of the Rights, including
but not limited to the registration or qualification of such securities under
all requisite securities laws of jurisdictions of the various states and the
listing of such securities on such exchanges and trading markets as may be
necessary or appropriate; and (iii) will deliver to holders of the Rights
historical financial statements for the Principal Party and each of its
Affiliates which comply in all respects with the requirements for registration
on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. In the event that a
Section 13 Event shall occur at any time after the occurrence of a Section
11(a)(ii) Event, the Rights which have not theretofore been exercised shall
thereafter become exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary, Section
13 shall not be applicable to a transaction described in subparagraphs (x) and
(y) of Section 13(a) if (i) such transaction is consummated with a Person or
Persons who acquired shares of Common Stock pursuant to a tender offer or
exchange offer for all outstanding shares of Common Stock which is a Qualified
Offer as such term is defined in Section 11(a)(ii) hereof (or a wholly owned
24
subsidiary of any such Person or Persons), (ii) the price per share of Common
Stock offered in such transaction is not less than the price per share of Common
Stock paid to all holders of shares of Common Stock whose shares were purchased
pursuant to such tender offer or exchange offer and (iii) the form of
consideration being offered to the remaining holders of shares of Common Stock
pursuant to such transaction is the same as the form of consideration paid
pursuant to such tender offer or exchange offer. Upon consummation of any such
transaction contemplated by this Section 13(d), all Rights hereunder shall
expire.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(p) hereof, or to
distribute Rights Certificates which evidence fractional Rights. In lieu of such
fractional Rights, the Company shall pay to the registered holders of the Rights
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For 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 of the Rights for any day shall be
the last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the Nasdaq National
Market or Nasdaq SmallCap Market or, if the Rights are not listed or admitted to
trading on the Nasdaq National Market or Nasdaq SmallCap Market, as reported in
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading, or if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the- counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights, selected by the Company, acting by
resolution of its Board of Directors (which resolution shall be effective only
if it is approved by a majority of the Continuing 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 Company, acting by
resolution of its Board of Directors (which resolution shall be effective only
if it is approved by a majority of the Continuing Directors) shall be used.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock that
are not integral multiples of one one-thousandth of a share of Preferred Stock,
25
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one one-thousandth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market value of
one one-thousandth of a share of Preferred Stock shall be one one-thousandth of
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) Following the occurrence of a Triggering Event, the Company shall
not be required to issue fractions of shares of Common Stock upon exercise of
the Rights or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company may pay
to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one (1) share of Common Stock. For purposes of this
Section 14(c), the current market value of one share of Common Stock shall be
the closing price of one share of Common Stock (as determined pursuant to
Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
such exercise.
(d) The holder of a Right by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), 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 Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and shall be entitled to specific performance
of the obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of Common Stock;
26
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company and
the Rights Agent may deem and treat the person in whose name a Rights
Certificate (or, prior to the Distribution Date, the associated Common Stock
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary, neither
the Company nor the Rights Agent shall have any liability to any holder of a
Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of one
one-thousandths of a share of Preferred Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 25 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Rights Certificate
shall have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) 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
disbursements 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
27
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
corporate trust, stock transfer or other shareholder services business of the
Rights Agent or any successor Rights Agent, shall be the successor to the Rights
Agent under this Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto; but only if such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior name
or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
28
(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
(including, without limitation, the identity of any Acquiring Person and the
determination of Current Market Price) be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by the
President, any Vice President, the Treasurer, any Assistant Treasurer, the
Secretary or any Assistant 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 only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Rights
Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), 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 Rights 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 Rights Certificate; nor shall it
be responsible for any adjustment required under the provisions of Section 11,
Section 13 or Section 24 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after actual notice of any such adjustment);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Common Stock or
Preferred Stock to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any shares of Common Stock or Preferred Stock will,
when so issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
29
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant 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 to be taken
by it in good faith in accordance with instructions of any such officer.
(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, however, reasonable care was exercised in the
selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise 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 thirty (30) days' notice in writing mailed to the Company, and to each
transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and, if such resignation occurs after the Distribution Date, to
the registered holders of the Rights Certificates by first-class mail. The
Company may remove the Rights Agent or any successor Rights Agent upon thirty
(30) days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Stock and
Preferred Stock, by registered or certified mail, and, if such removal occurs
after the Distribution Date, to the holders of the Rights Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
30
period of thirty (30) days after giving notice of such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Rights Certificate (who shall,
with such notice, submit his Rights Certificate for inspection by the Company),
then any registered holder of any Rights Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
legal business entity 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,
in good standing, which is authorized under such laws to exercise corporate
trust or stock transfer or shareholder services powers (b) an affiliate of a
legal business entity described in clause (a) of this sentence. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock and the
Preferred Stock, and, if such appointment occurs after the Distribution Date,
mail a notice thereof in writing to the registered holders of the Rights
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such form
as may be approved by the Company, acting by resolution of its Board of
Directors (which resolution shall be effective only if it is approved by a
majority of the Continuing Directors), to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities
or property purchasable under the Rights Certificates made in accordance with
the provisions of this Agreement. In addition, in connection with the issuance
or sale of shares of Common Stock following the Distribution Date and prior to
the redemption or expiration of the Rights, the Company (a) shall, with respect
to shares of Common Stock so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement, granted or awarded as of the
Distribution Date, or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company, and (b) may, in any other case, if deemed
necessary or appropriate by the Company, acting by resolution of its Board of
Directors (which resolution shall be effective only if it is approved by a
majority of the Continuing Directors), issue Rights Certificates representing
the appropriate number of Rights in connection with such issuance or sale;
provided, however, that (i) no such Rights Certificate shall be issued if, and
to the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or the Person to whom such Rights Certificate would be issued, and (ii)
no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
31
Section 23. Redemption and Termination.
(a) The Company, acting by resolution of its Board of Directors (which
resolution shall be effective only if it is approved by a majority of the
Continuing Directors), may, at its option, at any time prior to the earlier of
(i) the close of business on the tenth day following the Stock Acquisition Date
(or, if the Stock Acquisition Date shall have occurred prior to the Record Date,
the close of business on the tenth day following the Record Date), or (ii) the
Final Expiration Date, redeem all but not less than all of the then outstanding
Rights at a redemption price of $0.01 per Right, as such amount may be
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price").
Notwithstanding anything contained in this Agreement to the contrary,
the Rights shall not be exercisable after the first occurrence of a Section
11(a)(ii) Event until such time as the Company's right of redemption hereunder
has expired. The Company may, at its option, pay the Redemption Price in cash,
shares of Common Stock (based on the Current Market Price, as defined in Section
11(d)(i) hereof, of the Common Stock at the time of redemption) or any other
form of consideration deemed appropriate by the Company, acting by resolution of
its Board of Directors (which resolution shall be effective only if it is
approved by a majority of the Continuing Directors).
(b) Immediately upon the action of the Company, acting by resolution of
its Board of Directors (which resolution shall be effective only if it is
approved by a majority of the Continuing Directors), ordering the redemption of
the Rights, evidence of which shall have been filed with the Rights Agent 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 for each Right so held. Promptly after
the action of the Board of Directors ordering the redemption of the Rights, the
Company shall give notice of such redemption to the Rights Agent and the holders
of the then outstanding Rights by mailing such notice to all such holders at
each holder's last address as it appears upon the registry books of the Rights
Agent or, prior to the Distribution Date, on the registry books of the transfer
agent for the Common Stock. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of redemption will state the method by which the payment of the
Redemption Price will be made.
Section 24. Exchange.
(a) The Company, acting by resolution of its Board of Directors (which
resolution shall be effective only if it is approved by a majority of the
Continuing 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
32
pursuant to the provisions of Section 7(e) hereof) for Common Stock at an
exchange ratio of one share of Common Stock per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such exchange ratio being hereinafter referred to as the
"Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors of the
Company shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any such Subsidiary, or any entity holding Common
Stock 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 Stock then outstanding.
(b) Immediately upon the action of the Company ordering the exchange of
any Rights pursuant to subsection (a) of this Section 24 and without any further
action and without any notice, the right to exercise such Rights shall terminate
and the only right thereafter of a holder of such Rights shall be to receive
that number of shares of Common Stock 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 Stock for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
shall be effected pro rata based on the number of Rights (other than Rights
which have become void pursuant to the provisions of Section 7(e) hereof) held
by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Stock (or Equivalent Preferred Stock, as such
term is defined in paragraph (b) of Section 11 hereof) for Common Stock
exchangeable for Rights, at the initial rate of one one-thousandth of a share of
Preferred Stock (or Equivalent Preferred Stock) for each share of Common Stock,
as appropriately adjusted to reflect stock splits, stock dividends and other
similar transactions after the date hereof.
(d) In the event that there shall not be sufficient shares of Common
Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
shares of Common Stock for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of such fractional shares of Common Stock, there shall be
paid to the registered holders of the Rights Certificates with regard to which
such fractional shares of Common Stock would otherwise be issuable, an amount in
cash equal to the same fraction of the current market value of a whole share of
Common Stock. For the purposes of this subsection (e), the current market value
33
of a whole share of Common Stock shall be the closing price of a share of Common
Stock (as determined pursuant to the second sentence of Section 11(d)(i) hereof)
for the Trading Day immediately prior to the date of exchange pursuant to this
Section 24.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section 11(o) hereof), 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 transaction or a series of related transactions,
of more than 50% of the assets, cash flow or earning power of the Company and
its Subsidiaries (taken as a whole) to any other Person or Persons (other than
the Company and/or any of its Subsidiaries in one or more transactions each of
which complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible and 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, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock whichever shall be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii) hereof
shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 26 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Preferred Stock shall be deemed
thereafter to refer to Common Stock and/or, if appropriate, other securities.
34
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing by
the Rights Agent with the Company) as follows:
New Frontier Media, Inc.
5435 Airport Blvd., Suite 100
Boulder, Colorado
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Rights Certificate to or 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 by the Rights Agent with the Company) as follows:
Corporate Stock Transfer
3200 Cherry Creek Drive South
Suite 430
Denver, Colorado 80209
Attention: Corporate Trust Department
Notices or demands authorized by this Agreement to be given or made by
the Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments. Prior to the Distribution Date,
and subject to the last sentence of this Section 27, the Company, acting by
resolution of its Board of Directors (which resolution shall be effective only
if it is approved by a majority of the Continuing Directors), and the Rights
Agent shall, if the Company so directs, supplement or amend any provision of
this Agreement without the approval of any holders of certificates representing
shares of Common Stock. From and after the Distribution Date, the Company and
the Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Rights Certificates in order
(i) to cure any ambiguity, (ii) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder, or (iv) to change or
supplement the provisions hereunder in any manner which the Company may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Rights Certificates (other than an Acquiring Person or an Affiliate
or Associate of an Acquiring Person); provided, this Agreement may not be
supplemented or amended to lengthen any time period hereunder, pursuant to
clause (iii) of this sentence, (A) a time period relating to when the Rights may
be redeemed at such time as the Rights are not then redeemable, or (B) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and/or the benefits to, the holders of Rights. Upon
the delivery of a certificate from an appropriate officer of the Company which
35
states that the proposed supplement or amendment is in compliance with the terms
of this Section 27, the Rights Agent shall execute such supplement or amendment.
Prior to the Distribution Date, the interests of the holders of Rights shall be
deemed coincident with the interests of the holders of Common Stock.
Notwithstanding anything herein to the contrary, this Agreement may not be
amended at a time when the Rights are not redeemable.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors, etc.
For all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d- 3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act. The Board of Directors of the Company (and, where
expressly provided for herein, the Board of Directors and a majority of the
Continuing Directors) shall have the exclusive power and authority to administer
this Agreement and to exercise all rights and powers specifically granted to the
Board or to the Company, or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend the Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board (and, if
applicable, a majority of the Continuing Directors) in good faith, shall (x) be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Rights and all other parties, and (y) not subject the Board, or any of the
directors on the Board to any liability to the holders of the Rights.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
36
court or authority to be invalid, void or unenforceable and the Company, acting
by resolution of its Board of Directors (which resolution shall be effective
only if it is approved by a majority of the Continuing Directors), determines in
its good faith judgment that severing the invalid language from this Agreement
would adversely affect the purpose or effect of this Agreement, the right of
redemption set forth in Section 23 hereof shall be reinstated and shall not
expire until the close of business on the tenth day following the date of such
determination by the Board of Directors. Without limiting the foregoing, if any
provision requiring a specific group of Directors of the Company to act is held
by any court of competent jurisdiction or other authority to be invalid, void or
unenforceable, such determination shall then be made by the Board of Directors
of the Company in accordance with applicable law and the Company's certificate
of incorporation and bylaws.
Section 32. Governing Law. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Colorado and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
sections of this Agreement are inserted 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 their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: NEW FRONTIER MEDIA, INC.
By: /s/ Michael Weiner By: /s/ Mark Kreloff
------------------------------------ ------------------------------
Name: Michael Weiner Name: Mark Kreloff
Title: Executive Vice President Title: Chief Executive Officer
and Secretary
Attest: CORPORATE STOCK TRANSFER, INC.
By: /s/ Corrie Youde By: /s/ Carolyn K. Bell
------------------------------------ ------------------------------
Name: Corrie Youde Name: Carolyn K. Bell
Title: Assistant Title: President
37
Appendix A
FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
NEW FRONTIER MEDIA, INC.
Pursuant to Section 8.3 of the Business Corporation Act
of the State of Colorado
The undersigned, Mark Kreloff, Chairman and Chief Executive Officer,
and Michael Weiner, Executive Vice President and Secretary, of NEW FRONTIER
MEDIA, INC., a corporation organized and existing under the Business Corporation
Act of the State of Colorado, in accordance with the provisions of Section 8.3
thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Amended and Restated Certificate of Incorporation of the said Corporation,
the said Board of Directors on November 29, 2001, adopted the following
resolution creating a series of 30,000 shares of Preferred Stock designated as
Series A Junior Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions of
its Restated Certificate of Incorporation, a series of Preferred Stock
of the Corporation be and it hereby is created, and that the
designation and amount thereof and the voting powers, preferences and
relative, participating, optional and other special rights of the
shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the number of
shares constituting such series shall be 30,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior
to the shares of Series A Junior Participating Preferred Stock with
respect to dividends, the holders of shares of Series A Junior
Participating Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the
first day of January, April, July and October 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
1
issuance of a share or fraction of a share of Series A Junior
Participating Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $.01 or (b) subject to the
provision for adjustment hereinafter set forth, 1,000 times the
aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise), declared on the Common Stock, par
value $.0001 per share, of the Corporation (the "Common Stock") since
the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Junior
Participating Preferred Stock. In the event the Corporation shall at
any time after November 29, 2001 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each
such case the amount to which holders of shares of Series A Junior
Participating 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 Junior Participating Preferred Stock as provided in
Paragraph (A) above 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 $0.01 per
share on the Series A Junior Participating 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 Junior Participating Preferred Stock
from the Quarterly Dividend Payment Date next preceding the date of
issue of such shares of Series A Junior Participating Preferred Stock,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless 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 Junior Participating 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 Junior Participating 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 Junior Participating Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 30 days prior to the
date fixed for the payment thereof.
2
Section 3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock
shall entitle the holder thereof to 1,000 votes on all matters
submitted to a vote of the stockholders of the Corporation. In the
event the Corporation shall at any time after the Rights Declaration
Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares,
then in each such case the number of votes per share to which holders
of shares of Series A Junior Participating Preferred Stock were
entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Junior Participating Preferred Stock and the
holders of shares of Common Stock shall vote together as one class on
all matters submitted to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to
six (6) quarterly dividends thereon, the occurrence of such contingency
shall mark the beginning of a period (herein called a "default period")
which shall extend until such time when all accrued and unpaid
dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all shares of Series A Junior
Participating Preferred Stock then outstanding shall have been declared
and paid or set apart for payment. During each default period, all
holders of Preferred Stock (including holders of the Series A Junior
Participating Preferred Stock) with dividends in arrears in an amount
equal to six (6) quarterly dividends thereon, voting as a class,
irrespective of series, shall have the right to elect two (2)
directors.
(ii) During any default period, such voting right of the
holders of Series A Junior Participating Preferred Stock may be
exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(C) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders,
provided that neither such voting right nor the right of the holders of
any other series of Preferred Stock, if any, to increase, in certain
cases, the authorized number of directors shall be exercised unless the
holders of fifteen percent (15%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a
quorum of the holders of Common Stock shall not affect the exercise by
the holders of Preferred Stock of such voting right. At any meeting at
3
which the holders of Preferred Stock shall exercise such voting right
initially during an existing default period, they shall have the right,
voting as a class, to elect directors to fill such vacancies, if any,
in the Board of Directors as may then exist up to two (2) directors or,
if such right is exercised at an annual meeting, to elect two (2)
directors. If the number which may be so elected at any special meeting
does not amount to the required number, the holders of the Preferred
Stock shall have the right to make such increase in the number of
directors as shall be necessary to permit the election by them of the
required number. After the holders of the Preferred Stock shall have
exercised their right to elect directors in any default period and
during the continuance of such period, the number of directors shall
not be increased or decreased except by vote of the holders of
Preferred Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or pari passu with the Series A
Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
directors, the Board of Directors may order, or any stockholder or
stockholders owning in the aggregate not less than fifteen percent
(15%) of the total number of shares of Preferred Stock outstanding,
irrespective of series, may request, the calling of a special meeting
of the holders of Preferred Stock, which meeting shall thereupon be
called by the President, a Vice-President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant to this
Paragraph (C)(iii) shall be given to each holder of record of Preferred
Stock by mailing a copy of such notice to him at his last address as
the same appears on the books of the Corporation. Such meeting shall be
called for a time not earlier than 20 days and not later than 60 days
after such order or request or in default of the calling of such
meeting within 60 days after such order or request, such meeting may be
called on similar notice by any stockholder or stockholders owning in
the aggregate not less than fifteen percent (15%) of the total number
of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this Paragraph (C)(iii), no such special meeting shall be
called during the period within 60 days immediately preceding the date
fixed for the next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, shall continue
to be entitled to elect the whole number of directors until the holders
of Preferred Stock shall have exercised their right to elect two (2)
directors voting as a class, after the exercise of which right (x) the
directors so elected by the holders of Preferred Stock shall continue
in office until their successors shall have been elected by such
holders or until the expiration of the default period, and (y) any
vacancy in the Board of Directors may (except as provided in Paragraph
(C)(ii) of this Section 3) be filled by vote of a majority of the
remaining directors theretofore elected by the holders of the class of
stock which elected the director whose office shall have become vacant.
References in this Paragraph (C) to directors elected by the holders of
a particular class of stock shall include directors elected by such
directors to fill vacancies as provided in clause (y) of the foregoing
sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect directors
shall cease, (y) the term of any directors elected by the holders of
4
Preferred Stock as a class shall terminate, and (z) the number of
directors shall be such number as may be provided for in the
certificate of incorporation or by-laws irrespective of any increase
made pursuant to the provisions of Paragraph (C)(ii) of this Section 3
(such number being subject, however, to change thereafter in any manner
provided by law or in the certificate of incorporation or by-laws). Any
vacancies in the Board of Directors effected by the provisions of
clauses (y) and (z) in the preceding sentence may be filled by a
majority of the remaining directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating 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 Junior Participating Preferred Stock
outstanding shall have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up)
with the Series A Junior Participating Preferred Stock, except
dividends paid ratably on the Series A Junior Participating
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up)
with the Series A Junior Participating Preferred Stock, provided
that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange
for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Junior Participating Preferred
Stock; or
(iv) purchase or otherwise acquire for consideration
any shares of Series A Junior Participating Preferred Stock, or
any shares of stock ranking on a parity with the Series A Junior
Participating 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
5
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 Junior
Participating Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued
as part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless,
prior thereto, the holders of shares of Series A Junior Participating
Preferred Stock shall have received an amount equal to $1,000 per share of
Series A Participating Preferred Stock, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment (the "Series A Liquidation Preference"). Following the
payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Junior Participating Preferred Stock unless, prior thereto, the holders of
shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth
in subparagraph (C) below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and the Common Adjustment
in respect of all outstanding shares of Series A Junior Participating
Preferred Stock and Common Stock, respectively, holders of Series A Junior
Participating Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference
and the liquidation preferences of all other series of preferred stock, if
any, which rank on a parity with the Series A Junior Participating Preferred
Stock, then such remaining assets shall be distributed ratably to the holders
of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
6
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case
the shares of Series A Junior Participating Preferred Stock shall at the same
time be similarly exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 1,000 times the
aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series
A Junior Participating 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 Junior Participating
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 Corporation's Preferred Stock as
to the payment of dividends and the distribution of assets, unless the terms
of any such series shall provide otherwise.
Section 10. Amendment. At any time when any shares of Series A Junior
Participating Preferred Stock are outstanding, neither the Restated
Certificate of Incorporation of the Corporation nor this Certificate of
Designation shall be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding
shares of Series A Junior Participating Preferred Stock, voting separately as
a class.
Section 11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder,
in proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of
all other rights of holders of Series A Junior Participating Preferred Stock.
7
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury this ____
day of _______________, 2001.
___________________________________
Mark Kreloff,
Chief Executive Officer
Attest:
________________________________________
Michael Weiner,
Executive Vice President and Secretary
8
Appendix B
[Form of Rights Certificate]
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER DECEMBER 21, 2011 UNLESS EXTENDED PRIOR THERETO BY THE
COMPANY, ACTING BY RESOLUTION OF ITS BOARD OF DIRECTORS, OR EARLIER IF REDEEMED
BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, ACTING BY RESOLUTION OF ITS BOARD OF DIRECTORS (WHICH RESOLUTION SHALL
BE EFFECTIVE ONLY IF IT IS APPROVED BY A MAJORITY OF THE CONTINUING DIRECTORS,
AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT), AT $0.01 PER RIGHT ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS
BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS
AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID.
[THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY
OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED
HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(E)
OF SUCH AGREEMENT.]*
* The portion of the legend in brackets shall be inserted only if applicable and
shall replace the preceding sentence.
Rights Certificate
NEW FRONTIER MEDIA, INC.
This certifies that, or registered assigns, is the registered owner of
the number of Rights set forth above, each of which entitles the owner thereof,
subject to the terms, provisions and conditions of the Rights Agreement, dated
as of November 29, 2001 (the "Rights Agreement"), between NEW FRONTIER MEDIA,
INC., a Colorado corporation (the "Company"), and CORPORATE STOCK TRANSFER,
INC., a Colorado corporation (the "Rights Agent"), to purchase from the Company
at any time prior to 5:00 P.M. (New York City time) on December 21, 2011 (unless
such date is extended prior thereto by the Board of Directors on the terms set
forth in the Rights Agreement) at the office or offices of the Rights Agent
designated for such purpose, or its successors as Rights Agent, one
one-thousandth of a fully paid, non-assessable share of Series A Junior
Participating Preferred Stock (the "Preferred Stock") of the Company, at a
purchase price of $10.00 per one one-thousandth of a share (the "Purchase
Price"), upon presentation and surrender of this Rights Certificate with the
Form of Election to Purchase and related Certificate duly executed. The number
of Rights evidenced by this Rights Certificate (and the number of shares which
1
may be purchased upon exercise thereof) set forth above, and the Purchase Price
per share set forth above, are the number and Purchase Price as of November 29,
2001, based on the Preferred Stock as constituted at such date. The Company
reserves the right to require prior to the occurrence of a Triggering Event (as
such term is defined in the Rights Agreement) that a number of Rights be
exercised so that only whole shares of Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Associate or
Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities, which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain events,
including Triggering Events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-thousandths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Rights Certificate or Rights Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Company, acting by resolution of its
Board of Directors (which resolution shall be effective only if it is approved
by a majority of the Continuing Directors, as such term is defined in the Rights
Agreement) at a redemption price of $0.01 per Right at any time prior to the
earlier of the close of business on (i) the tenth day following the Stock
Acquisition Date (as such time period may be extended pursuant to the Rights
2
Agreement), and (ii) the Final Expiration Date. In addition, under certain
circumstances following the Stock Acquisition Date, the Rights may be exchanged,
in whole or in part, for shares of the Common Stock, or shares of preferred
stock of the Company having essentially the same value or economic rights as
such shares. Immediately upon the action of the Board of Directors of the
Company, acting by resolution (which resolution shall be effective only if it is
approved by a majority of the Continuing Directors, as such term is defined in
the Rights Agreement), authorizing any such exchange, and without any further
action or any notice, the Rights (other than Rights which are not subject to
such exchange) will terminate and the Rights will only enable holders to receive
the shares issuable upon such exchange.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-thousandth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement. The Company, at its election, may require that a number of Rights be
exercised so that only whole shares of Preferred Stock would be issued.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give consent to or withhold consent from 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 Rights Certificate shall have been exercised as provided in
the Rights Agreement.
This Rights 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 _______________, ____
NEW FRONTIER MEDIA, INC.
By: __________________________________
Name: ________________________________
Title: ________________________________
Countersigned:
CORPORATE STOCK TRANSFER
___________________________________
Authorized Signature
3
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED ________________________________________
hereby sells, assigns and transfers unto ______________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________ Attorney,
to transfer the within Rights Certificate on the books of the within named
Company, with full power of substitution.
Dated: __________________, _____
_______________________________________
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: _______________, _____ _____________________________________
Signature
Signature Guaranteed:
4
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights
represented by the Rights Certificate.)
To: NEW FRONTIER MEDIA, INC.
The undersigned hereby irrevocably elects to exercise __________
Rights represented by this Rights Certificate to purchase the shares of
Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person which may be issuable upon the
exercise of the Rights) and requests that certificates for such shares be issued
in the name of and delivered to:
Please insert social security or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance 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:
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
5
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: ______________, _____ ______________________________________
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any
change whatsoever.
6
Appendix C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On November 29, 2001, the Board of Directors of NEW FRONTIER MEDIA,
INC. (the "Company") declared a dividend distribution of one Right for each
outstanding share of Company Common Stock to stockholders of record at the close
of business on December 21, 2001 (the "Record Date"). Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a share
("Unit") of Series A Junior Participating Preferred Stock, par value $0.01 per
share (the "Series A Preferred Stock") at a Purchase Price of $10.00 per Unit,
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement") between the Company and Corporate
Stock Transfer, Inc., as Rights Agent.
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights Certificates will
be distributed. Subject to certain exceptions specified in the Rights Agreement,
the Rights will separate from the Common Stock and a Distribution Date will
occur upon the earlier of (i) 10 days following a public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person") has
acquired beneficial ownership of 15% or more of the outstanding shares of Common
Stock after November 29, 2001 (the "Stock Acquisition Date"), other than as a
result of repurchases of stock by the Company or certain inadvertent actions by
institutional or certain other stockholders or (ii) 10 business days (or such
later date as the Board shall determine) following the commencement of a tender
offer or exchange offer that would result in a person or group becoming an
Acquiring Person. Until the Distribution Date, (i) the Rights will be evidenced
by the Common Stock certificates and will be transferred with and only with such
Common Stock certificates, (ii) new Common Stock certificates issued after the
Record Date will contain a notation incorporating the Rights Agreement by
reference and (iii) the surrender for transfer of any certificates for Common
Stock outstanding will also constitute the transfer of the Rights associated
with the Common Stock represented by such certificate. Pursuant to the Rights
Agreement, the Company reserves the right to require prior to the occurrence of
a Triggering Event (as defined below) that, upon any exercise of Rights, a
number of Rights be exercised so that only whole shares of Preferred Stock will
be issued.
The Rights are not exercisable until the Distribution Date and will
expire at 5:00 P.M. (New York City time) on December 21, 2011, unless such date
is extended or the Rights are earlier redeemed or exchanged by the Company as
described below.
If there were to be a Distribution Date, Rights Certificates will be
mailed to holders of record of the Common Stock as of the close of business on
the Distribution Date, and thereafter the separate Rights Certificates alone
will represent the Rights. Except as otherwise determined by the Board of
Directors, only shares of Common Stock issued prior to the Distribution Date
will be issued with Rights.
1
In the event that a Person becomes an Acquiring Person, except pursuant
to an offer for all outstanding shares of Common Stock which the independent
directors determine to be fair and not inadequate to and to otherwise be in the
best interests of the Company and its stockholders, after receiving advice from
one or more investment banking firms (a "Qualified Offer"), each holder of a
Right will thereafter have the right to receive, upon exercise, Common Stock
(or, in certain circumstances, cash, property or other securities of the
Company) having a value equal to two times the exercise price of the Right.
Notwithstanding any of the foregoing, following the occurrence of the event set
forth in this paragraph, all Rights that are, or (under certain circumstances
specified in the Rights Agreement) were, beneficially owned by any Acquiring
Person will be null and void. However, Rights are not exercisable following the
occurrence of the event set forth above until such time as the Rights are no
longer redeemable by the Company as set forth below.
For example, at an exercise price of $10 per Right, each Right not
owned by an Acquiring Person (or by certain related parties) following an event
set forth in the preceding paragraph would entitle its holder to purchase $20
worth of Common Stock (or other consideration, as noted above) for $10. Assuming
that the Common Stock had a per share value of $5 at such time, the holder of
each valid Right would be entitled to purchase four shares of Common Stock for
$10.
In the event that, at any time following the Stock Acquisition Date,
(i) the Company engages in a merger or other business combination transaction in
which the Company is not the surviving corporation (other than with an entity
which acquired the shares pursuant to a Qualified Offer), (ii) the Company
engages in a merger or other business combination transaction in which the
Company is the surviving corporation and the Common Stock of the Company is
changed or exchanged, or (iii) 50% or more of the Company's assets, cash flow or
earning power is sold or transferred, each holder of a Right (except Rights
which have previously been voided as set forth above) shall thereafter have the
right to receive, upon exercise, common stock of the acquiring company having a
value equal to two times the exercise price of the Right. The events set forth
in this paragraph and in the second preceding paragraph are referred to as the
"Triggering Events."
At any time after a person becomes an Acquiring Person and prior to the
acquisition by such person or group of fifty percent (50%) or more of the
outstanding Common Stock, the Company may exchange the Rights (other than Rights
owned by such person or group which have become void), in whole or in part, at
an exchange ratio of one share of Common Stock, or one one-thousandth of a share
of Preferred Stock (or of a share of a class or series of the Company's
preferred stock having equivalent rights, preferences and privileges), per Right
(subject to adjustment).
At any time until ten days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $0.01 per
Right (payable in cash, Common Stock or other consideration deemed appropriate
by the Board of Directors). Immediately upon the action of the Board of
Directors ordering redemption of the Rights, the Rights will terminate and the
only right of the holders of Rights will be to receive the $0.01 redemption
price.
2
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for
common stock of the acquiring company or in the event of the redemption of the
Rights as set forth above.
Any of the provisions of the Rights Agreement may be amended by the
Company prior to the Distribution Date. After the Distribution Date, the
provisions of the Rights Agreement may be amended by the Board in order to cure
any ambiguity, to make changes which do not adversely affect the interests of
holders of Rights, or to shorten or lengthen any time period under the Rights
Agreement. The foregoing notwithstanding, no amendment may be made at such time
as the Rights are not redeemable.
A copy of the Rights Agreement is being filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Rights Agent
or the Secretary of the Company including by means of internet posting or other
electronic distribution. In addition, the Securities and Exchange Commission
maintains a web site (http://www.sec.gov) that contains the Company's Form 8-A
and other information regarding 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, which is incorporated herein by reference.
3