Preferred Shareholder Rights Plan by vmd15294

VIEWS: 169 PAGES: 3

									                        Preferred Shareholder Rights Plan
                                   [Poison Pill]
                             Wachtell, Lipton, Rosen & Katz

                           Terms of Recommended Rights Plan
                                  [Rights Agreement]

Issuance: One right to buy one one-hundredth [1/100] of a share of a new series of
preferred stock as a dividend on each outstanding share of common stock of the
company. Until the rights become exercisable, all further issuances of common stock,
including common stock issuable upon exercise of outstanding options, would include
issuances of rights.

Term: 10 years

Exercise Price: An amount per one one-hundredth [1/100] of a share of the preferred
stock which approximates the board’s view of the long-term value of the company’s
common stock. Factors to be considered in setting the exercise price include the
company’s business and prospects, its long-term plans and market conditions. The
exercise price is subject to certain anti-dilution adjustments. For illustration only, assume
an exercise price of $120 per one one-hundredth [1/100] of a share.

Rights Detach and Become Exercisable: The rights are not exercisable and are not
transferable apart from the company’s common stock until the tenth day after such time
as a person or group acquires beneficial ownership of 15% or more of the company’s
common stock or the tenth business day (or such later time as the board of directors may
determine) after a person or group commences a tender or exchange offer the
consummation of which would result in beneficial ownership by a person or group of
15% or more of the company’s common stock. As soon as practicable after the rights
become exercisable, separate right certificates would be issued and the rights would
become transferable apart from the company’s common stock.

Protection Against Creeping Acquisitions by Open Market Purchases [Flip-In
Provision]: In the event a person or group were to acquire a 15% or greater position in
the company, each right then outstanding would “flip-in” and become a right to buy that
number of shares of common stock of the company [from the company] which at the time
of the 15% acquisition had a market value of two times the exercise price of the rights.
The acquirer who triggered the rights would be excluded from this “flip-in” because his
rights would have become null and void upon his triggering the acquisition. Thus, if the
company’s common stock at the time of the “flip-in” were trading at $30 per share and
the exercise price of the rights at such time was $120, each right would thereafter be
exercisable at $120 for eight shares of the company’s common stock. The amendment
provision of the Rights Agreement provides that the 15% threshold can be lowered to not
less than 10%. This board can utilize this provision to provide additional protection
against creeping accumulations.
Protection Against Squeezeouts [Flip-Over Provision]: If, after the rights have been
triggered, an acquiring company were to merge or otherwise combine with the company,
or the company were to sell 50% or more of its assets or earning power to an acquiring
company, each right then outstanding (other than rights held by the acquiring company)
would “flip-over” and thereby would become a right to buy that number of shares of
common stock of the acquiring company which at the time of the such transaction would
have a market value of two times the exercise price of the rights. Thus, if the acquiring
company’s common stock at the time of such transaction were trading at $80 per share
and the exercise price of the rights at such time were $120, each right would thereafter be
exercisable at $120 for eight shares (i.e., the number of shares that could be purchased for
$240, or two times the exercise price of the rights) of the acquiring company’s common
stock.

Exchange: At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding common
stock of the company and before the acquisition by a person or group of 50% or more of
the outstanding common stock of the company, the board of directors may exchange the
rights (other than the rights owned by such person or group, which have become void), in
whole of in part, at an exchange ratio of one share of the company’s common stock (or
one one-hundredth of a share of junior participating preferred stock) per right, subject to
adjustment.

Redemption: The rights are redeemable by the company’s board of directors at a price
of $.01 [one cent] per right at any time prior to the acquisition by a person or group of
beneficial ownership of 15% or more of the company’s common stock. The redemption
of the rights may be made effective at such time, on such basis, and with such conditions
as the board of directors in its sole discretion may establish. Thus, the rights would not
interfere with a negotiated merger or a white knight transaction, even after a hostile
tender offer has been commenced. The rights may prevent a white knight transaction
after a 15% acquisition (unless the exchange feature described above is used to eliminate
the rights and the white knight’s price is adjusted for the issuance of the additional
shares).

Voting: The rights would not have any voting rights.

Terms of Preferred Stock: The preferred stock issuable upon exercise of the rights
would be non-redeemable and rank junior to all other series of the company’s preferred
stock. The dividend, liquidation and voting rights, and the non-redemption features of
the preferred stock are designed so that the value of the one one-hundredth interest in a
share of new preferred stock purchasable with each right will approximate the value of
one share of common stock. Each whole share of preferred stock would be entitled to
receive a quarterly preferential dividend of $1 [one dollar] per share but would be entitled
to receive, in the aggregate, a dividend of 100 times the dividend declared on the
common stock. In the event of liquidation, the holders of the new preferred stock would
be entitled to receive a preferential liquidation payment of $100 per share but would be
entitled to receive, in the aggregate, a liquidation payment equal to 100 times the
payment made per share of common stock. Each share of preferred stock would have
100 votes, voting together with the common stock [for liquidation]. Finally, in the event
of any merger, consolidation or other transaction in which shares of common stock are
exchanged for or changed into other stock or securities, cash and/or other property, each
share of preferred stock would be entitled to receive 100 times the amount received per
share of common stock. The foregoing rights are protected against dilution in the event
additional shares of common stock are issued. Since the “out of the money” right would
not be exercisable immediately, registration of the preferred stock issuable upon the
exercise of the right with the Securities and Exchange Commission need not be effective
until the rights become exercisable and are “in the money” or are so close to being “in the
money” so as to make exercise economically possible.

Federal Income Tax Consequences: The Internal Revenue Service has published a
revenue ruling holding that the adoption of a rights plan is not a taxable event for the
company or its shareholders under the federal income tax laws. The physical distribution
of right certificates upon the rights becoming exercisable should not result in any tax.
After such physical distribution, the rights would be treated for tax purposes as capital
assets in the hands of most shareholders, the tax basis of each right would be zero in most
cases (or, in certain cases, an allocable part of the tax basis of the stock with respect to
which the right was issued) and the holding period of each right would include the
holding period of the stock with respect to which the right was issued. Upon the rights
becoming rights to purchase an acquirer’s common stock, holders of rights probably
would be taxed even if the rights were not exercised. Upon the rights becoming rights to
purchase additional common stock of the company, holders of rights probably would not
have a taxable event. The redemption of the rights for cash and, most likely, the
acquisition of the rights by the company for its stock would each be taxable events. The
use of company stock (with the rights attached) will not interfere with the company’s
ability to engage in tax-free acquisitions nor will it affect any net operating losses of the
company.

Accounting Consequences: The initial issuance of the rights has no accounting or
financial reporting impact. Since the rights would be “out of the money” when issued,
they would not dilute the earning per share. Because the redemption date of the rights is
neither fixed nor determinable, the accounting guidelines do not require the redemption
amount to be accounted for as a long-term obligation of the company. The rights do not
interfere with a company’s ability to consummate a pooling transaction so long as the
transaction is properly structured.

Miscellaneous: The Rights Agreement provides that the company may not enter into
any transaction of the sort which would give rise to the “flip-over” right if, in connection
therewith, there are outstanding securities or there are agreements or arrangements
intended to counteract the protective provisions of the rights. The Rights Agreement may
be amended from time to time in a manner prior to the acquisition of a 15% position (or a
10% position if the board lowers the triggering threshold).

								
To top