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).
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