UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of
the
Securities Exchange Act of 1934 (Amendment
No. )
Filed by
the Registrant
x
Filed by
a Party other than the Registrant
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Check the
appropriate box:
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Preliminary
Proxy Statement
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Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
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x
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Definitive
Proxy Statement
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¨
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Definitive
Additional Materials
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¨
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Soliciting
Material Pursuant to §240.14a-12
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HOUSTON
WIRE & CABLE COMPANY
(Name of
Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other than the
Registrant)
Payment
of Filing Fee (Check the appropriate box):
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Fee
computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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¨
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Fee
paid previously with preliminary
materials.
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¨
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Check
box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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HOUSTON
WIRE & CABLE COMPANY
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD MAY 7, 2010
To Our
Stockholders:
The 2010 annual meeting of stockholders
of Houston Wire & Cable Company will be held at our corporate headquarters,
10201 North Loop East, Houston, Texas 77029 on Friday, May 7, 2010, at
8:30 a.m., Central Time. The 2010 annual meeting of stockholders
is being held for the following purposes:
1. To
elect seven directors to serve on the Board of Directors until the 2011 annual
meeting of stockholders and until their successors have been elected and
qualified (Proposal No. 1);
2. To
ratify the selection of Ernst & Young LLP as the Company’s independent
registered public accounting firm for the year ending December 31, 2010
(Proposal No. 2);
3. To
ratify the Stockholder Rights Plan (Proposal No. 3); and
4. To
transact such other business as may properly come before the annual meeting and
any adjournment or postponement thereof.
Only stockholders of record at the
close of business on March 8, 2010 are entitled to vote at the meeting or at any
postponement or adjournment thereof.
Please act promptly to vote your shares
with respect to the proposals described above. You may vote your
shares by marking, signing, dating and mailing the enclosed proxy
card. You may also vote by telephone or through the Internet by
following the instructions set forth on the proxy card. If you attend the annual
meeting, you may vote in person, even if you have previously submitted a
proxy.
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By
Order of the Board of Directors,
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Nicol G. Graham
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Vice President, Chief Financial Officer, Treasurer and Secretary
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March 23,
2010
TABLE
OF CONTENTS
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Page
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ABOUT
THE MEETING
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5
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What
is the purpose of this proxy statement?
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5
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What
proposals will be voted on at the annual meeting?
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5
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Who
is entitled to vote?
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5
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What
is the difference between a stockholder of record and a beneficial holder
of shares?
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5
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Who
can attend the meeting?
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6
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What
constitutes a quorum?
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6
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How
do I vote?
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6
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Can
I change my vote after I give my proxy?
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6
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How
many votes are required for the proposals to pass?
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6
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How
are abstentions and broker non-votes treated?
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7
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What
if I do not specify a choice for a matter when returning a
proxy?
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7
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Will
anyone contact me concerning this vote?
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7
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What
are the board’s recommendations?
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7
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What
happens if additional matters are presented at the annual
meeting?
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7
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Who
will tabulate and certify the vote?
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7
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STOCK
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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8
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PROPOSAL NO.
1 — ELECTION OF DIRECTORS
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10
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Nominees
Standing for Election to the Board
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10
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Board
Recommendation and Stockholder Vote Required
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11
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CORPORATE
GOVERNANCE AND BOARD COMMITTEES
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11
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Board
Composition
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11
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Board
Leadership Structure and Risk Oversight
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12
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Director
Independence
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12
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Board
Meetings
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12
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Executive
Sessions
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12
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Committees
Established by the Board of Directors
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12
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Compensation
Committee Interlocks and Insider Participation
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15
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Stock
Ownership Guidelines
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15
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Communications
with Directors
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15
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Code
of Business Conduct
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15
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DIRECTOR
COMPENSATION
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16
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EXECUTIVE
COMPENSATION
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17
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REPORT
OF THE COMPENSATION COMMITTEE
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24
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EQUITY
COMPENSATION PLAN INFORMATION
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24
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REPORT
OF THE AUDIT COMMITTEE
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25
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PRINCIPAL
INDEPENDENT ACCOUNTANT FEES AND SERVICES
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26
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PROPOSAL NO.
2 — RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
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27
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General
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27
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Board
Recommendation and Stockholder Vote Required
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27
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PROPOSAL NO.
3 — RATIFICATION OF STOCKHOLDER RIGHTS PLAN
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27
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Introduction
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27
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Purpose
of the Rights Plan
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27
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How
the Rights Plan Works
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27
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Summary
of the Rights Plan
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28
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Board
Recommendation and Stockholder Vote Required
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29
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ANNUAL
REPORT TO STOCKHOLDERS
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29
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STOCKHOLDER
PROPOSALS AND NOMINATIONS FOR 2011 ANNUAL MEETING
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30
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GENERAL
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30
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OTHER
MATTERS
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31
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HOUSTON
WIRE & CABLE COMPANY
10201
North Loop East
Houston,
Texas 77029
PROXY
STATEMENT
This proxy statement contains
information related to the 2010 annual meeting of stockholders of Houston Wire
& Cable Company, a Delaware corporation (the “Company,” “we” or “us”), that
will be held at our corporate headquarters, 10201 North Loop East, Houston,
Texas 77029, on Friday, May 7, 2010, at 8:30 a.m., Central Time, and
at any postponements or adjournments thereof. We are first mailing
notice of availability of this proxy statement and the accompanying proxy card
and 2009 annual report to stockholders (which includes our annual report on
Form 10-K for the year ended December 31, 2009), on or about March 23,
2010.
ABOUT
THE MEETING
What
is the purpose of this proxy statement?
The purpose of this proxy statement is
to provide information regarding matters to be voted on at the 2010 annual
meeting of our stockholders. Additionally, it contains certain
information that the Securities and Exchange Commission (the “SEC”) requires us
to provide annually to stockholders. The proxy statement is also the
document used by our board to solicit proxies to be used at the 2010 annual
meeting. Proxies are solicited to give all stockholders of record an
opportunity to vote on the matters to be presented at the annual meeting, even
if they cannot attend the meeting. The board has designated Charles
A. Sorrentino and Scott L. Thompson as proxies, who will vote the shares
represented by proxies solicited by the board at the annual meeting in
accordance with the stockholders’ instructions.
What
proposals will be voted on at the annual meeting?
Stockholders will vote on the following
proposals at the annual meeting:
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the
election of seven directors, each to serve until the next annual meeting
and until a successor is duly elected and qualified
(Proposal No. 1);
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the
ratification of the selection of Ernst & Young LLP as the Company’s
independent registered public accounting firm (Proposal No.
2);
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the
ratification of the Stockholder Rights Plan (Proposal No. 3);
and
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any
other business properly coming before the annual meeting and any
adjournment or postponement
thereof.
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Who
is entitled to vote?
Only
stockholders of record at the close of business on the record date, March 8,
2010, are entitled to receive notice of the annual meeting and to vote the
shares of common stock that they held on that date at the meeting, or any
postponement or adjournment of the meeting. If your shares are held
in “street name,” please refer to the information forwarded to you by your bank,
broker or other holder of record to see what you must do to vote your
shares.
A
complete list of stockholders entitled to vote at the annual meeting will be
available for examination by any stockholder at our corporate headquarters,
10201 North Loop East, Houston, Texas 77029, during normal business hours
for a period of ten days before the annual meeting and at the annual
meeting.
What
is the difference between a stockholder of record and a beneficial holder of
shares?
If your
shares are registered directly in your name with our transfer agent, American
Stock Transfer and Trust Company, you are considered a stockholder of record
with respect to those shares. If this is the case, the stockholder
proxy materials have been sent or provided directly to you by us.
If your
shares are held in a stock brokerage account or by a bank or other nominee (also
known as held “in street name”), you are considered the “beneficial holder” of
the shares, and your brokerage firm, bank or other nominee is the stockholder of
record. If this is the case, the proxy materials have been forwarded
to you by your brokerage firm, bank or other nominee. As the
beneficial holder, you have the right to direct your broker, bank or other
nominee how to vote your shares. Please contact your broker, bank or
other nominee for instructions on how to vote any shares you beneficially
own.
Who
can attend the meeting?
All
stockholders of record as of March 8, 2010, or their duly appointed proxies, may
attend the meeting. If you hold your shares in “street name,” you
will need to bring a copy of a brokerage or other account statement reflecting
your stock ownership as of the record date and check in at the registration desk
at the meeting.
What
constitutes a quorum?
A quorum
of stockholders is necessary to hold the annual meeting. The presence
at the meeting, in person or by proxy, of the holders of a majority of the
shares of common stock outstanding on the record date will constitute a
quorum. As of the record date, 17,732,737 shares of our common stock
were outstanding. Shares covered by proxies received but marked as
abstentions will be considered present at the meeting for purposes of
establishing a quorum.
How
do I vote?
You may
vote in person at the meeting or by proxy by any of the following
methods:
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Telephoning
the toll-free number listed on the proxy
card;
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Using
the Internet site listed on the proxy
card; or
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Marking,
dating, signing and returning the enclosed proxy
card.
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We
recommend that you vote by proxy even if you plan to attend the meeting so that
we will know as soon as possible that enough votes will be present for us to
hold the meeting. If you vote by proxy, your shares will be voted as
you direct on the proxy card or by telephone or via the Internet. If
you are a stockholder of record and attend the meeting, you may vote at the
meeting or deliver your completed proxy card in person, even if you previously
sent in a proxy card or voted by telephone or via the Internet.
If your
shares are held in “street name,” please refer to the information forwarded to
you by your broker, bank or other holder of record to see what you must do in
order to vote your shares. If you are a “street name” stockholder and
you wish to vote in person at the meeting, you will need to obtain a proxy from
the institution that holds your shares and present it to the inspector of
elections with your ballot when you vote at the annual meeting.
Can
I change my vote after I give my proxy?
You can
revoke your proxy, whether it was given by telephone, Internet or mail, before
it is voted by:
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Delivering
to our Secretary at the address on the first page of this proxy statement
a written notice of revocation of your proxy before or at the annual
meeting and prior to voting;
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Delivering
a new proxy bearing a later date by telephone, via the Internet or by
submitting a duly executed proxy
card; or
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Voting
in person at the annual meeting.
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The last
vote you submit chronologically (by any means) will supersede all prior
votes.
The
powers of the proxy holders with regard to your shares will be suspended if you
attend the meeting in person and so request, although attendance at the meeting
will not, by itself, revoke a previously granted proxy.
How
many votes are required for the proposals to pass?
Each
outstanding share entitles its holder to cast one vote on each matter to be
voted upon at the annual meeting. Directors are elected by a
plurality vote, meaning that the seven director nominees receiving the greatest
numbers of votes will be elected. The proposal to ratify the
selection of our independent registered public accounting firm and the proposal
to ratify the Stockholder Rights Plan each requires the approval of a majority
of the votes present, in person or by proxy, at the annual meeting and entitled
to vote on the matter.
How
are abstentions and broker non-votes treated?
If a
stockholder withholds authority to vote, or abstains from voting, on any
proposal, it will have the same effect as a vote “AGAINST” that
proposal.
Broker
non-votes with respect to any matter will have no effect on the outcome of the
vote on that matter. A “broker non-vote” occurs on a proposal when
shares held of record by a broker are present or represented at the meeting but
the broker is not permitted to vote on that proposal without instruction from
the beneficial owner of the shares and no instruction has been
given.
What
if I do not specify a choice for a matter when returning a proxy?
Stockholders
should specify their choice for each matter on the enclosed proxy. If
no specific instructions are given, validly submitted proxies will be voted
“FOR” the election of all seven nominees for director, “FOR” the ratification of
the appointment of Ernst & Young LLP as our independent registered public
accounting firm and “FOR” the ratification of the Stockholder Rights
Plan.
Will
anyone contact me concerning this vote?
No
arrangements or contracts have been made or entered into with any solicitors as
of the date of this proxy statement, although we reserve the right to engage
solicitors if we deem them necessary. If done, such solicitations may
be made by mail, telephone, facsimile, e-mail or personal
interviews.
What
are the board’s recommendations?
The
board’s recommendations, together with the description of each proposal, are set
forth in this proxy statement. In summary, the board unanimously recommends
that you vote:
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“FOR”
the election of each nominee for director (see
page 10);
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“FOR”
the ratification of Ernst & Young LLP as our independent registered
public accounting firm (see page 27);
and
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“FOR”
the ratification of the Stockholder Rights Plan
(see page 27).
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What
happens if additional matters are presented at the annual
meeting?
Other
than the three proposals described in this proxy statement, we are not aware of
any other business to be acted upon at the annual meeting. If you
grant a proxy, the persons named as proxy holders on the enclosed proxy card
will vote your shares on any additional matters properly presented for a vote at
the meeting as recommended by the board or, if no recommendation is given, in
their own discretion.
Who
will tabulate and certify the vote?
Representatives
of Broadridge Financial Solutions, Inc. will tabulate the votes. A
representative of Schiff Hardin LLP, the Company’s legal counsel, will be the
inspector of elections.
STOCK
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth the beneficial ownership of shares of our common
stock for (i) each stockholder who is known by us to own beneficially more
than 5% of the outstanding shares of our common stock, (ii) each of our
directors, (iii) each of our executive officers named in the Summary
Compensation Table on page 21 and (iv) all of our directors and
executive officers as a group. Except as noted below, the nature of
beneficial ownership for shares shown in this table is sole voting and sole
investment power. The information below is as of March 8, 2010,
unless otherwise indicated.
Beneficial Owner
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Beneficial Ownership
Common Stock
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5% Stockholders
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Number of Shares
(1)
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Percentage
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Royce
& Associates, LLC
(2)
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745
Fifth Avenue
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New
York, NY 10151
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2,118,915
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12.0%
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FMR
LLC
(3)
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82
Devonshire Street
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Boston,
MA 02109
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2,020,000
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11.4%
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Capital
Research Global Investors
(4)
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333
South Hope Street
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Los
Angeles, CA 90071-1406
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1,946,500
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11.0%
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Bank
of America Corporation
(5)
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100
North Tryon Street, Floor 25
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Charlotte,
NC 28255
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1,184,648
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6.7%
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BlackRock,
Inc.
(6)
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40
East 52nd Street
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New
York, NY 10022
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978,277
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5.5%
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Executive
Officers and Directors
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Charles
A. Sorrentino
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1,304,438
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7.4%
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Nicol
G. Graham
(7)
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183,775
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1.0%
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Michael
T. Campbell
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8,044
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*
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I.
Stewart Farwell
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9,000
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*
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Peter
M. Gotsch
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10,746
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*
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Wilson
B. Sexton
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60,000
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*
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William
H. Sheffield
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5,000
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*
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Scott
L. Thompson
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15,000
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*
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All
directors and executive officers as a group (8 persons)
(7)
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1,596,003
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9.0%
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(1)
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The
information contained in this table was furnished to us by the individuals
named in the table and reflects the SEC’s definition of beneficial
ownership.
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(2)
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As
reported in an amendment to Statement on Schedule 13G filed with the SEC
on behalf of Royce & Associates, LLC on January 25,
2010. Royce & Associates, LLC is deemed to be the
beneficial owner of these shares as a result of its acting as investment
adviser to various investment companies registered under Section 8 of the
Investment Company Act of 1940. One of those investment
companies, Royce Low-Priced Stock Fund, beneficially owned 1,465,700
shares of our common stock.
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(3)
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As
reported in an amendment to Statement on Schedule 13G filed with the SEC
on behalf of FMR LLC and Edward C. Johnson 3d, its chairman, on February
16, 2010. Fidelity Management & Research Company, a
wholly-owned subsidiary of FMR LLC, is deemed to be the beneficial owner
of these shares as a result of acting as investment adviser to various
investment companies registered under Section 8 of the Investment Company
Act of 1940. None of these individual investment companies
individually beneficially owned more than 5% of our outstanding common
stock. Fidelity Management & Research Company had no voting
power and shared dispositive power over the shares reflected in the
amendment to Schedule
13G.
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(4)
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As
reported in an amendment to Statement on Schedule 13G filed with the SEC
on behalf of Capital Research Global Investors, a division of Capital
Research and Management Company, on February 9, 2010. Capital
Research Global Investors is deemed to be the beneficial owner of these
shares as a result of its acting as investment adviser to various
investment companies registered under Section 8 of the Investment Company
Act of 1940. One of those investment companies, SMALLCAP World
Fund, Inc., beneficially owns more than 5% of our outstanding common
stock.
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(5)
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As
reported in a Statement on Schedule 13G filed with the SEC on behalf of
Bank of America Corporation and certain of its affiliates on January 29,
2010. Of the shares reported in such Schedule
13G: (i) Bank of America Corporation had shared voting power as
to 1,083,938 shares and shared dispositive power as to 1,184,648 shares;
(ii) Bank of America, N.A. had shared voting power as to 1,058,029 shares
and shared dispositive power as to 1,158,739 shares; (iii) Columbia Asset
Management Advisors, LLC had sole voting power as to 1,058,029 shares,
sole dispositive power as to 834,189 shares and shared dispositive power
as to 324,550 shares; and (iv) no other affiliate of Bank of America
Corporation individually beneficially owned more than 0.1% of our
outstanding common stock.
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(6)
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As
reported in an amendment to Statement on Schedule 13G filed with the SEC
on behalf of BlackRock, Inc. and certain of its affiliates
on
January 29, 2010.
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(7)
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Includes
(i) 60,772 shares owned by Mr. Graham’s individual retirement account,
(ii) 13,750 shares issuable upon the exercise of options that could be
exercised within 60 days after March 8, 2010 and (iii) 5,000 unvested
restricted shares.
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PROPOSAL NO.
1 — ELECTION OF DIRECTORS
Our
amended and restated bylaws provide for each director to stand for election each
year at our annual meeting and to serve until the next annual meeting and until
a successor is duly elected and qualified.
The board
of directors approved the slate of seven nominees upon the recommendation of the
Nominating and Corporate Governance Committee. The board recommends
that the stockholders elect the nominees designated below to serve until our
annual meeting and until their successors are duly elected and
qualified. The nominees for election to the office of director, and
certain information with respect to their backgrounds, are set forth
below.
All seven
of the nominees named herein presently serve as members of the board of
directors.
It is the
intention of the persons named in the accompanying proxy card, unless otherwise
instructed, to vote to elect the nominees named below as the
directors. Each nominee has consented to serve as a director if
elected at this year’s annual meeting. In the event any nominee is
unable to serve as a director, discretionary authority is reserved to the board
to vote for a substitute. The board has no reason to believe that any
nominee named below will be unable to serve if elected.
Nominees
Standing for Election to the Board
Charles
A. Sorrentino, age 65. Director since 1998.
President
and Chief Executive Officer of the Company
Mr. Sorrentino
joined the Company as President and Chief Executive Officer in
1998. Prior to joining us, Mr. Sorrentino served as President of
Pameco Corporation, a national heating, ventilation, air conditioning and
refrigeration distributor, from 1994 to 1998. Prior to working
with Pameco, Mr. Sorrentino served with PepsiCo, Inc. for nine years,
during which time, he held a variety of positions, including Subsidiary
President, Division Vice President and Region Vice President. After
completing college, Mr. Sorrentino served twelve years with United
Technologies (Sundstrand Corporation) in a variety of engineering, sales,
marketing and executive management functions. Mr. Sorrentino
earned an M.B.A. from the University of Chicago and a B.S. in Mechanical
Engineering from Southern Illinois University. He also served in the
United States Marine Corps and is recognized as a Certified Professional
Director in the United States by the National Association of Corporate
Directors. As the only management representative on our board, Mr.
Sorrentino provides an insider’s perspective in board discussions about the
business and strategic direction of the Company and has experience in all
aspects of the Company’s business.
Michael
T. Campbell, age 65. Director since 2008.
Independent
Director
Mr.
Campbell has been a member of the Board of Advisors of Lee Truck Equipment, Inc.
(d/b/a Casper’s Truck Equipment) since July 2007. He performed
project work as a financial and accounting consultant both individually and with
Resources Connection from January 2003 to December 2005. Mr. Campbell
served in the technical support department of the National Office of Deloitte
& Touche LLP, where he was an accounting and auditing partner prior to his
retirement in June 2001. Mr. Campbell is a Certified Public Accountant and
holds an M.B.A. degree from the University of Michigan and a B.S. degree from
the United States Military Academy. As a result of this experience,
he has significant expertise with the financial reporting issues facing the
Company, including SEC reporting and internal control design and implementation.
Mr. Campbell also has extensive experience with mergers and acquisitions,
and capital markets transactions. Mr. Campbell is recognized as a
Certified Professional Director in the United States by the National Association
of Corporate Directors.
I.
Stewart Farwell, age 69. Director since 2006.
Independent
Director
Prior to
his retirement in April 2008, Mr. Farwell held various positions at Rheem
Manufacturing Company, a leading manufacturer of central heating and cooling
products, including President of the Water Heater and HVAC Divisions, Chief
Operating Officer and most recently President & CEO. He now
serves as Special Advisor to Rheem's Board of Directors and Senior Management.
His prior experience also includes serving on the Board of various trade
associations and Chairman of the Gas Appliance Manufacturers
Association. With more than thirty years experience in global
manufacturing and distribution operations, including products with a high copper
content, Mr. Farwell provides critical insight into the operational requirements
of our Company and its end user customers and, in particular, managing the risks
presented by fluctuating commodity prices. Mr. Farwell is recognized
as a Certified Professional Director in the United States by the National
Association of Corporate Directors.
Peter
M. Gotsch, age 45. Director since 1997.
Managing
Member, Ellipse Capital LLC
Mr.
Gotsch has been the managing member of Ellipse Capital LLC, a private equity
firm, since June 2008. Prior to that, Mr. Gotsch was a member of Code
Hennessy & Simmons LLC, since 1989. He holds a B.A. degree from St.
Olaf College and an M.B.A. from Northwestern University. He currently serves as
a director of The Hillman Companies, Inc. and Beacon Roofing Supply,
Inc. As a result of these and other experiences, as well as his over
13 years as a member of our board, Mr. Gotsch has a depth of experience in a
variety of distribution businesses and expertise in the specialty wire and cable
business. Mr. Gotsch is recognized as a Certified Professional
Director in the United States by the National Association of Corporate
Directors.
Wilson
B. Sexton, age 73. Director since 2006.
Chairman
of the Board, Pool Corp.
Mr. Sexton
has been the Chairman of the Board and a director of Pool Corp., a wholesale
distributor of swimming pool supplies, equipment and leisure products, since
1993. From January 1999 to May 2001, Mr. Sexton also
served as Chief Executive Officer of Pool Corp. He is currently on
the Board of Directors of SCP Pool Corporation and Beacon Roofing
Supply, Inc. Mr. Sexton is a Certified Public Accountant
and holds a B.B.A. degree from Southern Methodist University and is recognized
as a Certified Professional Director in the United States by the National
Association of Corporate Directors. As chairman and former chief
executive officer of Pool Corp., Mr. Sexton understands well the issues facing
executive management of a public corporation. He has a strong
financial acumen and extensive managerial experience, having led another
wholesale distribution company through a period of significant
growth.
William
H. Sheffield, age 61. Director since 2006.
Independent
Director
Mr. Sheffield
is a corporate director and serves on the boards of directors of Ontario Power
Generation Inc., Canada Post Corporation and Velan
Inc. Mr. Sheffield served as Chief Executive Officer of Sappi
Fine Paper from 2001 until 2003. With his knowledge of complex issues
surrounding global companies and his understanding of what makes businesses work
effectively and efficiently, Mr. Sheffield provides valuable insight to our
Board and offers particular expertise in labor relations, critical end user
markets and board governance issues. He holds an MBA and a BSc, and is
recognized as a Certified Professional Director by the National Association of
Corporate Directors in the United States and the Institute of Corporate
Directors in Canada.
Scott
L. Thompson, age 51. Director since 2006.
President
& CEO, Dollar Thrifty Automotive Group
Mr.
Thompson has been the President & CEO of Dollar Thrifty Automotive Group, a
NYSE-listed company engaged in the rental car industry, since October 2008.
Mr. Thompson was a founder of Group 1 Automotive, Inc, a specialty
retailer in the automotive retailing industry, where he served as the CFO and
Treasurer from 1996 until 2004. Mr. Thompson also serves on the
Boards of Directors of Dollar Thrifty Automotive Group and Conn's,
Inc. Mr. Thompson is a Certified Public Accountant and is recognized
as a Certified Professional Director in the United States by the National
Association of Corporate Directors. As chief executive of Dollar Thrifty, Mr.
Thompson successfully led that company through a financial turnaround and return
to profitability. Mr. Thompson’s business experience, proven
leadership and financial expertise have increased the effectiveness of our
Board.
Board
Recommendation and Stockholder Vote Required
The board
of directors recommends a vote “FOR” the election of the nominees named above
(Proposal No. 1 on the accompanying proxy card).
The seven
nominees who receive the greatest number of votes will be elected
directors.
CORPORATE
GOVERNANCE AND BOARD COMMITTEES
Board
Composition
Our board
of directors currently consists of seven directors. Each director is
elected for a term of one year and serves until a successor is duly elected and
qualified or until his or her death, resignation or removal. There
are no family relationships between any of our directors or executive
officers. Our executive officers are elected by and serve at the
discretion of the board of directors.
Board
Leadership Structure and Risk Oversight
Since our IPO, the offices of Chairman
and Chief Executive Officer of the Company have been held by different
individuals.
Our
board is led by an independent Chairman, Mr. Thompson. Our Chief Executive
Officer, Mr. Sorrentino, is the only member of the board who is not an
independent director. We believe that this leadership structure enhances the
accountability of the Chief Executive Officer to the board and strengthens the
board’s independence from management. In addition, separating these roles allows
Mr. Sorrentino to focus his efforts on running our business and managing
the Company in the best interests of our stockholders, while we are able to
benefit from Mr. Thompson’s prior experience as a member of other public
company boards.
The board
takes an active role in monitoring and assessing the Company’s risks, which
include risks associated with operations, credit, financing and capital
investments. Management is responsible for the Company’s day-to-day risk
management activities, and our board’s role is to engage in informed risk
oversight. The Nominating and Corporate Governance Committee with the assistance
of management compiled and coordinated the ranking of a list of risks to which
the Company could be subjected. It also identified the significant risks which
were then reviewed by the Board and assigned for oversight. In fulfilling this
oversight role, our Board of Directors focuses on understanding the nature of
our enterprise risks, including our operations and strategic direction, as well
as the adequacy of our risk management process and overall risk management
system. There are a number of ways our board performs this function, including
the following:
|
·
|
at
its regularly scheduled meetings, the board receives management updates on
our business operations, financial results and strategy and discusses
risks related to the business;
|
|
·
|
the
Audit Committee assists the board in its oversight of risk management by
discussing with management, particularly, the Chief Executive Officer and
Chief Financial Officer, our guidelines and policies regarding financial
and enterprise risk management and risk appetite, including major risk
exposures, and the steps management has taken to monitor and control such
exposures; and
|
|
·
|
through
management updates and committee reports, the board monitors our risk
management activities, including the enterprise risk management process,
risks relating to our compensation programs, and financial and operational
risks being managed by the Company.
|
Director
Independence
The board
of directors has determined that each person who served as a director in 2009,
and each director nominee for 2010, except Mr. Sorrentino is “independent” under
Nasdaq Marketplace Rule 5605(a)(2). Under Rule 5605(a)(2),
a director is considered independent as long as he or she does not have a
relationship with the Company or management which would interfere with the
exercise of independent judgment in carrying out the director’s
responsibilities. The Nasdaq Marketplace Rules also enumerate
certain relationships which preclude a finding of independence and generally
provide that an individual cannot be considered independent if, among other
things, he or she is a current officer or other employee of the issuer or
directly or indirectly receives certain significant payments from the issuer
other than in his or her capacity as a director or board committee
member.
Board
Meetings
The board
met six times during 2009. All persons who were directors during 2009
attended at least 75% of these meetings and meetings of committees on which they
served. Absent special circumstances, each director is expected to
attend the annual meeting of stockholders. All of the directors
attended the 2009 annual meeting of stockholders.
Executive
Sessions
The
independent directors meet in executive sessions separate from management at
least two times a year. The independent directors met in executive
sessions four times during 2009.
Committees
Established by the Board of Directors
The board
has three standing committees: (1) Audit Committee; (2) Nominating and Corporate
Governance Committee; and (3) Compensation Committee.
Audit
Committee.
The Audit Committee consists of
Messrs. Campbell, Thompson, Gotsch and Sexton, each of whom is independent
for purposes of Rule 5605(a)(2) of the Nasdaq Marketplace Rules and
Rule 10A-3(b)(1) under the Securities Exchange Act of 1934. Mr.
Campbell serves as the Chairperson. Each of the Audit Committee members is
financially literate as determined by our board in its business
judgment. The board has also determined that Mr. Campbell and Mr.
Thompson each is an “audit committee financial expert,” as such term is defined
under the applicable SEC rules.
The Audit
Committee met six times in 2009. The Audit Committee operates under a
charter approved by the Board of Directors, which can be found on the “Investor
Relations” section of our website at
http://www.houwire.com
.
Copies will be
provided to stockholders upon request
.
The
principal duties and responsibilities of the Audit Committee are to assist the
board in its oversight of:
|
•
|
the
accounting and financial reporting processes of the Company and the audits
of the financial statements of the
Company;
|
|
•
|
the
independent auditors’ qualifications and independence;
and
|
|
•
|
the
performance of the independent
auditors.
|
Our Audit Committee is also responsible
for:
|
•
|
maintaining
free and open communication between the committee, independent auditors,
and management of the Company;
|
|
•
|
reviewing
and appraising the fairness of related party
transactions; and
|
|
•
|
preparing
the report required to be prepared pursuant to the rules of the SEC for
inclusion in the Company’s annual proxy
statement.
|
The Audit
Committee has the resources and authority appropriate to discharge its duties
and responsibilities, including the authority to select, retain, terminate, and
approve the fees and other retention terms of counsel, accountants or other
experts and advisors, as it deems necessary or appropriate. See the
“Report of the Audit Committee” on page 25.
Nominating and
Corporate Governance Committee.
The Nominating and Corporate
Governance Committee consists of Messrs. Farwell, Sheffield and
Thompson. Mr. Farwell serves as the Chairperson. The board
has determined that all committee members are independent for purposes of
Rule 5605(a)(2) of the Nasdaq Marketplace Rules.
The
Nominating and Corporate Governance Committee met five times in
2009. The Nominating and Corporate Governance Committee operates
under a charter approved by the Board of Directors, which can be found on the
“Investor Relations” section of our website at
http://www.houwire.com
.
Copies will be
provided to stockholders upon request.
The
principal duties and responsibilities of the Nominating and Corporate Governance
Committee are to:
|
•
|
identify
persons that the Committee believes are qualified to be directors of the
Company and consider and evaluate other candidates for director brought to
the attention of the Committee, including persons nominated by
stockholders in accordance with the nomination procedures specified in the
Company’s By-laws or otherwise recommended by
stockholders;
|
|
•
|
recommend
to the board (a) the nominees for election as directors at each annual
meeting of stockholders or at any special meeting of stockholders at which
directors are to be elected and (b) the persons to be appointed by the
board to fill any vacancy on the board (including any vacancy resulting
from an increase in the size of the
board);
|
|
•
|
review
the committee structure of the board and the membership of the board
committees, and recommend to the board nominees for appointment to each of
the committees;
|
|
•
|
review
and reassess, at least annually, the adequacy of the Company’s Corporate
Governance Guidelines and recommend to the board for approval any changes
that the Committee deems necessary or
appropriate;
|
|
•
|
review
any proposals properly submitted by stockholders for inclusion in the
Company’s proxy statement and recommend to the board any action to be
taken in response to such proposals;
and
|
|
•
|
oversee
the annual evaluation of the
board.
|
In
screening and recommending candidates as directors of the Company, the
Nominating and Corporate Governance Committee considers the nature of the
expertise and experience required for the performance of the duties of a
director of a corporation engaged in the Company’s business and such
matters as the relevant business and industry experience, professional
background, age, current employment, community service and other board
service of candidates for directors, as well as the racial, ethnic and
gender diversity of the Board. The committee seeks to
identify, as candidates for director, persons with a reputation for and
record of integrity and good business judgment who (1) have experience in
positions with a high degree of responsibility and are leaders in the
organizations with which they are affiliated, (2) are free from conflicts of
interest that could interfere with a director’s duties to the Company and
its stockholders, and (3) are willing and able to make the necessary
commitment of time and attention required for effective board service. The
Nominating and Corporate Governance Committee also takes into account the
candidate’s level of financial literacy. The Nominating and Corporate
Governance Committee monitors the mix of skills and experience of the
directors in order to assess whether the Board has the necessary tools to
perform its oversight function effectively. The Nominating and
Corporate Governance Committee will consider nominees for our board of directors
recommended by stockholders, using the same criteria as for other
candidates.
The
Nominating and Corporate Governance Committee has the authority to retain a
search firm to be used to identify director candidates. The
Nominating and Corporate Governance Committee has the authority to retain and
terminate any such search firm, including authority to approve the firm’s fees
and other retention terms. The Nominating and Corporate Governance
Committee also has authority to retain other advisors. The Company
will provide for appropriate funding, as determined by the Nominating and
Corporate Governance Committee, for payment of compensation to any search firm
or other advisors.
Stockholder Recommendations for
Director Nominations.
As noted above, the Nominating and
Corporate Governance Committee considers and establishes procedures regarding
recommendations for nomination to the board, including nominations submitted by
stockholders. For information on how to nominate a person for
election as a director at the 2011 annual meeting, please see the discussion
under the heading “Stockholder Proposals and Nominations for 2011 Annual
Meeting.” The Nominating and Corporate Governance Committee will
evaluate all potential candidates in the same manner, regardless of the source
of the recommendation. Based on the information provided to the
Nominating and Corporate Governance Committee, it will make an initial
determination whether to conduct a full evaluation of a candidate. As
part of the full evaluation process, the Nominating and Corporate Governance
Committee may conduct interviews, obtain additional background information and
conduct reference checks of the candidate, among other things. The
Nominating and Corporate Governance Committee may also ask the candidate to meet
with management and other members of the board.
Compensation
Committee.
The Compensation Committee consists of
Messrs. Gotsch, Sexton, and Sheffield. Mr. Gotsch serves as the
Chairperson. The board has determined that all committee members are
(i) independent for purposes of Rule 5605(a)(2) of the Nasdaq
Marketplace Rules, (ii) “non-employee directors” as defined in Rule 16b-3
under the Securities Exchange Act of 1934, and (iii) “outside directors” as
defined by Section 162(m) of the Internal Revenue Code.
The
Compensation Committee met five times in 2009. The Compensation
Committee operates under a charter approved by the Board of Directors and can be
found by accessing the “Investor Relations” section of our website at
http://www.houwire.com
.
Copies of the charter will
be sent to stockholders upon request.
The
principal duties and responsibilities of the Compensation Committee are as
follows:
|
•
|
make
recommendations to the Board with respect to the CEO’s compensation
level;
|
|
•
|
consider
the Company’s performance and relative stockholder return, the value of
similar incentive awards to the CEOs at comparable companies, and the
awards given to the Company’s CEO in past years when determining the
long-term component of the CEO’s
compensation;
|
|
•
|
review
the CEO’s recommendations on compensation of the executive officers of the
Company and make recommendations to the Board with respect thereto and
with respect to the Company’s major compensation policies and
practices;
|
|
•
|
administer
and review the Houston Wire & Cable Company 2006 Stock Plan, including
approving the number and distribution of options under such plan;
and
|
|
•
|
review
and make recommendations to the Board concerning management
development and succession planning activities, including an
appropriate successor in the event of the unexpected death,
incapacity or resignation of the
CEO.
|
The
Compensation Committee has the authority to delegate any of its responsibilities
to subcommittees as it deems appropriate, provided the subcommittees are
composed entirely of independent directors. The Compensation
Committee also may retain a compensation consultant or other advisors to assist
in the evaluation of CEO or executive officer compensation. The
Compensation Committee has authority to retain and terminate any such consulting
firm. The Company will provide for appropriate funding, as determined
by the Compensation Committee, for payment of compensation to any consulting
firm or other advisors employed by the Compensation Committee.
The CEO
may not be present during any deliberations on his compensation.
Compensation
Committee Interlocks and Insider Participation
The
Compensation Committee consists of Messrs. Gotsch, Sexton and Sheffield. None of
the members of the Compensation Committee is or ever was an officer or employee
of the Company or any of its subsidiaries.
Stock
Ownership Guidelines
The board
of directors has adopted stock ownership guidelines encouraging each director to
invest an amount equal to three times the director’s annual cash retainer in the
Company’s common stock. The recommended ownership level should be
achieved within five years after becoming a director.
Communications
with Directors
Stockholders
may communicate any concerns they have regarding the Company, including
recommendations of candidates for director, to the board of directors or to any
member of the board via web form by accessing the investor relations section of
our website at
http://www.houwire.com
and clicking on the “Corporate Governance” and
“Contact Our Board” links, through our Corporate Governance Hotline at
866-373-6359 or by writing to them at the following address:
Houston
Wire & Cable Company
Attention:
[Board of Directors]/[Board Member]
c/o
Manager, Investor Relations
10201
North Loop East
Houston,
TX 77029
Communications
directed to the independent directors should be sent to the attention of the
Chairman of the Nominating and Corporate Governance Committee, c/o Manager,
Investor Relations, at the address indicated above.
Any
stockholder or other interested person who has a particular concern regarding
accounting, internal accounting controls, or other audit matters that he or she
wishes to bring to the attention of the Audit Committee may communicate those
concerns to the Audit Committee or its Chairman, using the address indicated
above.
A
majority of the independent directors of the Company has approved procedures
with respect to the receipt, review and processing of, and any response to,
written communications sent by stockholders and other interested persons to the
board of directors. Any written communication regarding accounting, internal
accounting controls, or other matters are processed in accordance with
procedures adopted by the Audit Committee.
Code
of Business Conduct
The board
has adopted a Code of Business Conduct, most recently updated in November 2009,
a copy of which may be found by accessing the investor relations section of our
website at
http://www.houwire.com
and clicking on the “Corporate Governance”
link. Under the Code of Business Conduct, we insist on honest and
ethical conduct by all of our directors, officers, employees and other
representatives, including but not limited to the following:
|
•
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Our
directors, officers and employees are required to avoid situations in
which their personal, family or financial interests conflict with those of
the Company;
|
|
•
|
Our
directors, officers and employees must refrain from engaging in any
activities that compete with the Company, or which may compromise its
interests;
|
|
•
|
Our
directors, officers and employees must refrain from taking any business or
investment opportunity discovered in the course of employment with or
service to the Company that the director, officer or employee knows, or
should have or has reason to know, would benefit the Company;
and
|
|
•
|
Our
directors, officers and employees must comply with all applicable
governmental laws, rules and
regulations.
|
We are
also committed to ensuring that all disclosures in reports and documents that
the Company files with the SEC, as well as other public communications made by
the Company, are full, fair, accurate, timely and
understandable. Further, we will comply with all laws, rules and
regulations that are applicable to our activities and expect all of our
directors, officers and employees to obey the law. Any violation of
applicable law or any deviation from the standards embodied in the Code of
Business Conduct will result in appropriate corrective and disciplinary action,
up to and including termination of employment.
DIRECTOR
COMPENSATION
Each
independent member of the board of directors, other than the chairman of the
board, receives an annual retainer of $30,000, paid quarterly, plus $1,500 for
each board meeting and $1,000 for each committee meeting attended, with half the
applicable amount paid in connection with a telephonic meeting. The
chairman of each of the Audit Committee, Compensation Committee and Nominating
and Corporate Governance Committee is entitled to receive an additional $5,000
per year. The chairman of the board receives an annual retainer of
$70,000, but receives no additional fee for any board or committee meeting that
he or she attends. All fees may be paid in cash or shares of our
common stock, at the choice of the director. Mr. Sorrentino does not
receive any compensation for his service as a director.
In
addition, upon election to the board, each independent director receives a
one-time grant of an option exercisable for 15,000 shares of our common
stock. Upon re-election, each independent director also receives an
annual grant of an option exercisable for 5,000 shares or, in the case of
the chairman of the board, 10,000 shares. All directors’ options
become exercisable one year after the date of grant. Exercise prices
are set at fair market value at the date of grant. Options may be
forfeited in the event the director terminates, other than by retirement, his or
her relationship with us.
We
reimburse members of our board of directors for any out-of-pocket expenses they
incur in connection with services provided as directors. The
Nominating and Corporate Governance Committee has adopted a policy encouraging
each director to devote at least one day each year to director education, and we
pay for the cost of attending continuing education programs, up to $5,000 per
director per year. Perquisites paid or provided to directors in 2009 were
significantly less than the SEC’s minimum threshold for disclosure
($10,000).
The
following table sets forth all compensation paid to each of our non-employee
directors in 2009:
Name
|
|
Fees Earned
or Paid in Cash
($)
|
|
|
Option Awards
($)
(1)
|
|
|
Total
($)
|
|
Michael
T. Campbell
|
|
|
47,750
|
|
|
|
63,453
|
|
|
|
111,203
|
|
I.
Stewart Farwell
|
|
|
47,250
|
|
|
|
29,895
|
|
|
|
77,145
|
|
Peter
M. Gotsch
|
|
|
52,750
|
|
|
|
29,895
|
|
|
|
82,645
|
|
Wilson
B. Sexton
|
|
|
44,250
|
|
|
|
29,895
|
|
|
|
74,145
|
|
William
H. Sheffield
|
|
|
47,250
|
|
|
|
29,895
|
|
|
|
77,145
|
|
Scott
L. Thompson
|
|
|
70,000
|
|
|
|
59,788
|
|
|
|
129,788
|
|
(1)
|
This
column shows the dollar amount we recognized for financial statement
reporting purposes in 2009 for all option awards that have been granted to
each of our non-employee directors. See note 8 of the Notes to
our Consolidated Financial Statements contained in our Annual Report on
Form 10-K for the year ended December 31, 2009 for a discussion of the
assumptions we made in the valuation of these options. Each of
Messrs. Campbell, Farwell, Sexton, Sheffield and Gotsch, upon their
re-election to the board at the annual meeting of stockholders on May 8,
2009, received an option to purchase 5,000 shares of our common stock at
an exercise price of $10.32 per share. Mr. Thompson received an
option to purchase 10,000 shares for being elected as chairman of the
board. The grant date fair value of each such director’s 2009 option
award and the number of stock options held at March 8, 2010 by
non-employee directors
was:
|
Name
|
|
2009 Grant
Date Fair
Value of
Options ($)
|
|
|
Cumulative
Stock Options
Held (#)
|
|
Michael
T. Campbell
|
|
|
20,200
|
|
|
|
20,000
|
|
I.
Stewart Farwell
|
|
|
20,200
|
|
|
|
30,000
|
|
Peter
M. Gotsch
|
|
|
20,200
|
|
|
|
10,000
|
|
Wilson
B. Sexton
|
|
|
20,200
|
|
|
|
30,000
|
|
William
H. Sheffield
|
|
|
20,200
|
|
|
|
30,000
|
|
Scott
L. Thompson
|
|
|
40,399
|
|
|
|
20,000(*)
|
|
|
*
|
In
addition, Mr. Thompson gave 20,000 options to his two adult children. Mr.
Thompson disclaims beneficial ownership of these
options.
|
Prior to
August 2007, Mr. Gotsch was not considered to be independent, because of his
relationship with a significant stockholder, Code, Hennessy & Simmons II,
L.P., and did not receive any directors’ fees or options. Following
the disposition by Code, Hennessy & Simmons II., L.P. of all of its shares
of Company common stock, Mr. Gotsch was determined to be independent and earned
director fees and received options.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Our
Compensation Committee is empowered to review the chief executive officer’s
recommendations on compensation of our senior management and to make
recommendations regarding major compensation policies and practices. The
Compensation Committee reports its recommendations to the full board of
directors for approval and authorization. The Compensation Committee is also
responsible for setting the annual compensation of the chief executive officer
and administering our stock plans, including approving the number and
distribution of options under the plans. The committee is charged with
recommending, for the approval of the full board of directors, the annual
compensation and compensation procedures for our senior management, including
our executive officers.
Objectives
of Compensation Program
Our
compensation program aims to attract, motivate and retain qualified, energetic
employees who are enthusiastic about our mission and culture. A further
objective of our compensation program is to provide incentives and reward each
employee for his or her contribution to the Company. In addition, we strive to
promote an ownership mentality among key leadership and the board of directors.
Finally, we endeavor to ensure that our compensation program is perceived as
fundamentally fair to all stakeholders.
What
Our Compensation Program is Designed to Reward
Our
compensation program is designed to reward each employee’s contribution to the
Company. In measuring an officer’s contributions, the Compensation Committee
considers a number of factors, including our profitable growth and the
achievement of financial performance targets. The total compensation package for
each member of our senior management includes incentive compensation that is
based primarily on the achievement of financial performance targets. Operating
income is the primary basis for determining incentive compensation, and revenue
growth and inventory turns are secondary factors. In its simplest definition,
operating income is equivalent to operating earnings before interest and taxes.
The Compensation Committee establishes operating income, revenue and inventory
turns targets for the upcoming fiscal year based in part upon the incremental
improvement in those measures over the prior fiscal year. We have not used stock
price performance as a factor in determining annual compensation, because the
price of our common stock is subject to a variety of factors outside our
control.
Elements
of Company’s Compensation Plan and How Each Element Relates to Our
Objectives
Annual
senior management compensation consists of a base salary component, an incentive
component and equity awards, which may include stock options and restricted
stock.
Base Salary.
We
seek to provide our senior management with a level of a base salary in the form
of cash compensation appropriate to their roles and responsibilities. Base
salaries for members of our senior management are established based on each
officer’s qualifications and experience, scope of responsibilities, future
potential and past performance. Base salaries are reviewed annually and adjusted
as necessary to realign salaries with market levels, after taking into account
individual responsibilities, performance and experience.
Incentive Cash
Bonuses.
Our practice is to award incentive cash bonuses to
our senior management based upon their individual performance, as well as
performance objectives of the Company.
Under
Mr. Sorrentino’s employment agreement, his potential bonus is based on
achieving a performance target for the applicable fiscal year, as
follows:
|
·
|
If
we achieve less than 85% of the target for the fiscal year, then no
incentive bonus is paid for that fiscal
year.
|
|
·
|
If
we achieve 100% of the target for the fiscal year, then the incentive
bonus is equal to 50% of Mr. Sorrentino’s base salary as of the end of
that year.
|
|
·
|
If
we achieve 115% or more of the target for the fiscal year, then the
incentive bonus is equal to 100% of the base salary as of the end of that
year.
|
|
·
|
If
we achieve a percentage of the target for the fiscal year that is between
any two of the 85%, 100% or 115% thresholds referred to above, then the
incentive bonus is a percentage of the base salary for that fiscal year
calculated on a straight line basis between the percentage that would
apply at those two thresholds.
|
Under Mr.
Sorrentino’s agreement, the board of directors (or the Compensation Committee)
establishes the specific performance targets for Mr. Sorrentino no later
than sixty days after the beginning of each fiscal
year. Mr. Sorrentino must agree with the performance target
established, and the performance target must be consistent with our business
plan approved by the board of directors for such fiscal year.
For 2009,
the Compensation Committee established the performance target under Mr.
Sorrentino’s agreement as achieving operating income of $27.5
million. Our 2009 operating income was $13.8 million, which is less
than 85% of the $27.5 million, so Mr. Sorrentino was not entitled to receive,
and did not receive, an incentive bonus for 2009. For 2010,
Mr. Sorrentino’s bonus also will be based on achieving a specified
operating income target.
For 2009,
Mr. Graham (and all members of senior management, other than Mr. Sorrentino)
participated in our Senior Management Bonus Program. For each
participant under the program, the potential bonus award was based on the
participant’s salary at the end of the year. In order for any bonus
to be paid for 2009, we needed to achieve the operating income threshold of
$17.5 million set by the Compensation Committee for the year. If the
threshold had been met, then the participant would have received a “basic” bonus
equal to a percentage (ranging from 0% to 40%) of his or her salary, depending
on our performance with respect to targets established for three incentive
factors: operating income, revenue and inventory turns. For 2009, 70%
of the bonus was based on performance against the targets for operating income
(the target for a minimum payout was $17.5 million and for a maximum payout was
$25.0 million), 20% of the bonus was based on performance against the
established targets for revenue (a minimum payout at $270 million and a maximum
at $310 million), and 10% of the bonus was based on performance against the
established targets for inventory turns (a minimum payout at 4.0 times and a
maximum at 4.3 times). The full basic bonus of 40% of salary was
available if we achieved the maximum target for each of the three incentive
factors. The bonus available for each incentive factor was calculated
on a stand-alone basis (provided the operating income threshold was met) and was
calculated on a pro rata, straight line basis between the 0% and 40% level,
provided the specific target for such incentive factor was met. In
addition, there was an additional award potential of 10% of salary, in the event
we achieved at least $50 million in sales of certain proprietary
products.
The 2009
program also provided that a bonus equal to an additional 5% of salary could
have been awarded in the event that we made one or more acquisitions during the
relevant year and the acquired businesses met established financial
goals. The maximum bonus payable (the basic bonus plus the additional
bonus) could not exceed 55% of the participant’s base salary. Under
the program, all bonuses are payable the year following the year for which
performance is being measured, after receipt of (and subject to) the audit of
the financial statements for the relevant year. No award is payable
under the program for any full or partial year to a participant whose employment
terminates prior to the time the bonus is paid. In all cases, the payment is in
the discretion of the Compensation Committee, and the Compensation Committee
retains the right to terminate a participant’s participation in the bonus
program at any time, in which case no bonus may be paid.
In 2009,
we failed to meet the operating income threshold under the Senior Management
Bonus Program, so Mr. Graham and other members of senior management were not
entitled to receive, and did not receive, a bonus under the terms of the
program.
For 2010,
the Senior Management Bonus Program is similar to the program in 2009, but will
be based on targets approved for 2010.
Equity Awards.
In
addition to base salary and incentive compensation, each member of our senior
management is eligible to receive stock option and restricted stock grants under
our stock plan. We believe that through our broad-based plan, the economic
interests of our employees, including our executives, are more closely aligned
to those of the stockholders. The number of stock options or shares of
restricted stock granted to each executive officer is made on a discretionary
basis rather than pursuant to a formula by the Compensation Committee after
consideration of the CEO’s recommendations.
How
the Company Chose Amounts and/or Formulas for Each Element
In 2007,
our Compensation Committee engaged Pearl Meyer & Partners to review
Mr. Sorrentino’s compensation package and to provide a market perspective
to the Compensation Committee with respect to Mr. Sorrentino’s
compensation. The Compensation Committee reviewed the information
prepared by Pearl Meyer & Partners, and then entered into negotiations
with Mr. Sorrentino regarding an appropriate long-term incentive
grant. During these negotiations, the committee considered
Mr. Sorrentino’s tenure with us, our financial results and the success of
our initial public offering. The committee also considered the fact that
Mr. Sorrentino had not received any equity-based compensation in the prior
four years and that Mr. Sorrentino had requested that his compensation
contain a greater equity component than it then did. Based on these
negotiations, the Compensation Committee determined to grant to
Mr. Sorrentino an option to purchase 500,000 shares of our common stock,
which is the maximum annual award permitted under the 2006 Stock Plan, at a
price of $26.19 per share, the closing price of our common stock on the date of
the grant. This option vests in two equal installments on March 9,
2011 and 2012.
In
January 2008, the Compensation Committee awarded Mr. Sorrentino an option to
purchase an additional 65,000 shares at a price of $11.99 per share, and in
December 2008, the Compensation Committee awarded Mr. Sorrentino an option to
purchase an additional 65,000 shares at a price of $9.27 per share, in each case
the exercise price being the closing price of our common stock on the date of
grant. These options vest in two equal installments on the same dates
as the 2007 grant.
The
committee believes that these grants align Mr. Sorrentino’s compensation with
the interests of stockholders and, due to the delayed vesting schedule, will
assist in retaining Mr. Sorrentino as our President and Chief Executive
Officer. In the event of Mr. Sorrentino’s death or permanent disability,
the options will vest on a pro-rata basis based on the percentage of the vesting
period during which Mr. Sorrentino served prior to his death or
disability.
Each
executive officer’s current and prior compensation is considered in setting
future compensation. The elements of our plan (base salary, bonus,
stock options and restricted stock) are similar to the elements used by many
companies. We do not have an exact formula for allocating between
cash and non-cash compensation. In making its annual stock plan
grants in December 2009, the board recognized that many of the stock options
granted in prior years have exercise prices significantly above the current
stock price, which diminishes their value as an incentive to our
employees. Restricted stock awards have no exercise price and
therefore, upon vesting, provide an immediate benefit to
employees. The board therefore determined for 2009 to grant
restricted shares in lieu of stock options, in light of the fact that there was
no payout for 2009 under the Senior Management Bonus Program and to provide an
incentive for the future.
Our chief
executive officer provides recommendations to the Compensation Committee
regarding most compensation matters, including compensation of other members of
key management.
With
respect to current employees, we establish stock plan grant dates well in
advance of any actual grant. The timing of each grant is determined
to coincide with a scheduled meeting of our board of directors and its
Compensation Committee and, except in highly unusual circumstances, we will not
allow discretionary grants at other dates. The grant date is
established when our Compensation Committee approves the grant and all key terms
have been determined. The exercise price of each of our stock options
is the market closing price on the grant date. Our general policy is
for the annual grant to occur in December several weeks after the official
announcement of our third quarter results so that the stock option exercise
price reflects a fully-informed market price. If at the time of any
planned stock option grant any member of our board of directors or any executive
officer is aware of material non-public information, we would not generally make
the planned stock option grant. In such event, as soon as practical
after material information is made public, the Compensation Committee would call
a special meeting and otherwise take all necessary steps to authorize the
delayed stock option grant. Regarding the grant process, the
Compensation Committee does not delegate any related function, and executive
officers are not treated differently from other employees.
Tax Considerations
We have
structured our compensation program to comply with Internal Revenue Code
Sections 162(m) and 409A. Section 162(m) of the
Internal Revenue Code imposes a limitation on tax deductions of any
publicly-held corporation for compensation paid to certain executives in excess
of $1,000,000 in any taxable year, unless the compensation is
performance-based. Section 409A of the Internal Revenue Code
addresses certain nonqualified deferred compensation benefits payable to an
executive and provides that, if such benefits do not comply with
Section 409A, they will be taxable in the first year they are not subject
to a substantial risk of forfeiture. In such case, the executive is
subject to regular federal income tax, interest and an additional federal income
tax of 20% of the benefit includible in income. We have no
individuals with non-performance based compensation paid in excess of the
Internal Revenue Code Section 162(m) tax deduction limit.
Employment
Arrangements and Payments upon Termination of Employment
We
entered into an employment agreement dated April 26, 2006 with
Mr. Sorrentino, our President and Chief Executive Officer, with a term that
extends through April 26, 2011. It provides for a base salary of
$425,000 per year, subject to annual reviews and increases (but not decreases)
by our board. The Compensation Committee approved increases in Mr.
Sorrentino’s base salary to $450,000, effective March 2007, and to $475,000,
effective March 2008. Mr. Sorrentino’s employment agreement entitles
him to an annual bonus of up to 100% of base salary, as described
above. Mr. Sorrentino’s agreement provides for reimbursement of
reasonable business expenses, the employment benefits generally available to our
executives, four weeks of vacation per year and a car allowance of $1,000 per
month. Mr. Sorrentino may participate in our 2006 Stock
Plan. Under his employment agreement, Mr. Sorrentino is entitled
to severance equal to two years’ base salary if we terminate his employment
without cause, or if he terminates his employment for good
reason. The employment agreement limits Mr. Sorrentino’s ability
to compete with us for two years after his employment ends.
Under Mr.
Sorrentino’s employment agreement, the phrases “termination without cause” and
“termination for good reason” are defined as follows:
“termination
without cause” shall mean a termination of Mr. Sorrentino’s employment for any
reason other than by reason of the following: (i) a material breach by Mr.
Sorrentino of his employment agreement or material neglect by Mr. Sorrentino of
his assigned duties, which includes any failure to follow the written direction
of the board of directors (other than by reason of disability), or repeated
refusal by Mr. Sorrentino to perform his assigned duties (other than by reason
of disability) which continues for thirty days following receipt of written
notice from the board of directors; (ii) the commission by Mr. Sorrentino of any
act of fraud or embezzlement against us or the commission of any felony or act
involving dishonesty; (iii) the commission by Mr. Sorrentino of any act of moral
turpitude which actually causes us financial harm; (iv) a material breach by Mr.
Sorrentino of the terms of the confidentiality provisions contained in his
employment agreement or any other confidentiality or non
-
disclosure agreement he has
with us; or (v) Mr. Sorrentino’s commencement of employment with another company
while he is employed by us without the prior consent of the board of
directors.
“termination
for good reason” shall mean the voluntary termination by Mr. Sorrentino of his
employment, if without his prior consent: (i) we relocate our principal
executive offices to a location outside the Houston, Texas metropolitan area;
(ii) we materially reduce his responsibilities, duties, authority, title, or
reporting relationship; or (iii) we act in any way that would reduce his base
salary or if we adversely affect his participation in or materially reduce his
benefit under any of our benefit plans in which he is participating; provided,
however, that a “termination for good reason” shall not be permitted unless Mr.
Sorrentino has given us at least thirty days’ prior written notice that he has a
basis for such a termination, the notice specifies the facts and circumstances
constituting a basis for such a termination, and we do not remedy such facts and
circumstances constituting the basis for his termination for good reason within
the thirty-day period.
Assuming
that Mr. Sorrentino had terminated his employment with us as of
December 31, 2009 (whether “without cause” or “for good reason”), he would
have received 24 months of his then current salary in accordance with our
current general payroll practices (which would equal $475,000 per year for 2010
and 2011). If Mr. Sorrentino terminated his employment on
December 31, 2009 following a change in control, then pursuant to the terms
of our 2006 Stock Plan, in addition to the payments discussed in the preceding
sentence, all of his outstanding options would have fully vested as of the date
of the change in control.
Our other
members of senior management are elected by and serve at the discretion of the
board of directors.
Summary
Compensation Table
The
following table and related notes sets forth information concerning the
compensation paid to our Chief Executive Officer and Chief Financial Officer for
fiscal years 2009, 2008 and 2007. Because our Chief Executive Officer
and Chief Financial Officer are our only executive officers, the following
compensation disclosures have been limited to those two
individuals. For ease of reference, we collectively refer to these
executive officers throughout this section as our “named executive
officers.”
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
(1)
|
|
Stock
Awards
($)
(
2
)
|
Option
Awards
($)
(3)
|
|
Non Equity
Incentive Plan
Compensation
($)
(
4
)
|
|
All Other
Compensation
($)
(
5
)
|
|
Total
($)
|
|
Charles
A. Sorrentino,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President
and Chief
Executive
Officer
|
|
2009
|
|
475,000
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
27,632
|
|
502,632
|
|
|
|
2008
|
|
469,231
|
|
—
|
|
|
—
|
|
597,407
|
|
—
|
|
24,312
|
|
1,090,950
|
|
|
|
2007
|
|
444,231
|
|
—
|
|
|
—
|
|
5,986,350
|
|
10,350
|
|
23,014
|
|
6,463,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicol
G. Graham,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Financial Officer
|
|
2009
|
|
191,394
|
|
—
|
|
|
61,050
|
|
—
|
|
—
|
|
12,101
|
|
264,545
|
|
|
|
2008
|
|
189,291
|
|
—
|
|
|
—
|
|
30,253
|
|
—
|
|
12,760
|
|
232,304
|
|
|
|
2007
|
|
180,600
|
|
45,570
|
|
|
—
|
|
40,680
|
|
—
|
|
14,636
|
|
281,666
|
|
(1)
|
In
2007, the Company did not meet the operating income threshold under the
Senior Management Bonus Program, largely due to certain unbudgeted
expenses, and the Compensation Committee made a discretionary award to Mr.
Graham and other members of senior management (other than Mr. Sorrentino)
equal to 25% of their salaries. The amount shown in this column represents
the discretionary award made to Mr.
Graham.
|
(2)
|
This
column shows the aggregate grant date fair value of the shares of
restricted stock granted. See note 8 of Notes to
Consolidated Financial Statements contained in our Annual Report on Form
10-K for the year ended December 31, 2009 for a discussion of the
assumptions made by the Company in the valuation of these stock
awards.
|
(3)
|
This
column shows the aggregate grant date fair value of the stock options
granted. See note 8 of Notes to Consolidated Financial
Statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2009 for a discussion of the assumptions made by the Company
in the valuation of these option
awards.
|
(4)
|
The
amounts shown for Mr. Sorrentino represent payments made pursuant to the
terms of his current employment agreement. For a description of
the incentive arrangements, please see “Executive Compensation –
Elements of Company’s Compensation Plan and How Each Element Relates to
Our Objectives – Incentive Cash
Bonuses.”
|
(5)
|
All
Other Compensation reported for Mr. Sorrentino represents matching
contribution by the Company to our 401(k) Plan of $9,800 in 2009,
$9,000 in 2008 and $8,712 in 2007; group term life and long-term
disability insurance premiums of $5,832 in 2009, $3,312 in 2008 and $3,302
in 2007; and an auto allowance of $12,000 in 2009, $12,000 in 2008 and
$11,000 in 2007. All Other Compensation reported for
Mr. Graham represents matching contribution by the Company to our
401(k) Plan of $7,361 in 2009, $7,039 in 2008 and $6,944 in 2007;
group term life and long-term disability insurance premiums of $817 in
2009, $1,044 in 2008 and $2,032 in 2007; and personal use of an automobile
of $3,923 in 2009, $4,677 in 2008 and $5,660 in
2007.
|
Grants
of Plan Based Awards
The
following table sets forth information for each named executive officer with
respect to:
|
·
|
Estimated
possible payouts under non-equity incentive plan awards for 2009,
and
|
|
·
|
Restricted
stock granted in 2009.
|
|
|
|
|
|
Estimated Future Payouts
Under Non-Equity Incentive Plan
Awards
(2)
|
|
|
All Other
Stock
Awards:
Number of
Shares of
Stock
|
|
|
Grant
Date Fair
Value of
Stock and
Option
|
|
Name
|
|
Grant
Date
(1)
|
|
|
Threshold
($)
(3)
|
|
|
Target
($)
(4)
|
|
|
Maximum
($)
(5)
|
|
|
Or Units
(#)
(
6
)
|
|
|
Awards
($)
(
7
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles
A. Sorrentino
|
|
|
—
|
|
|
|
—
|
|
|
|
237,500
|
|
|
|
475,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicol
G. Graham
|
|
12/15/09
|
|
|
|
—
|
|
|
|
68,901
|
|
|
|
105,267
|
|
|
|
5,000
|
|
|
|
61,050
|
|
(1)
|
The
“Grant Date” reflects the date on which the Compensation Committee acted
to approve the grant of the award.
|
(2)
|
The
amounts shown for Mr. Sorrentino reflect the amounts that were
payable pursuant to his employment agreement and are based on performance
targets established by the Compensation Committee and board of directors
for 2009. Mr. Sorrentino did not receive a payout under his agreement
for 2009. For a description of Mr. Sorrentino’s employment
agreement, please see “Executive Compensation — Elements of Company’s
Compensation Plan and How Each Element Relates to Our Objectives –
Employment Agreements.” The amounts shown for Mr. Graham
represent the potential payout under our Senior Management Bonus Program
for 2009. No payouts were actually made under the Senior
Management Bonus Program in 2009.
|
(3)
|
Non-Equity Incentive Plan
Awards – Threshold.
Pursuant to our employment agreement
with Mr. Sorrentino, he does not receive any incentive payment unless our
performance exceeds the thresholds set in accordance with his
agreement. Pursuant to the Senior Management Bonus Program, in
which Mr. Graham participates, performance at or below a specific
incentive factor will result in no payment with respect to that incentive
factor. Performance above the minimum goals for each incentive
factor result in a payment (based on a percentage of the executive’s
salary) ranging from $1 to the maximum bonus amount for each incentive
factor, depending on the level at which the performance goal was
attained.
|
(4)
|
Non-Equity Incentive Plan
Awards – Target.
Pursuant to our employment agreement
with Mr. Sorrentino, the amount shown in this column for Mr. Sorrentino
represents 50% of his salary for 2009. The Senior Management
Bonus Program, in which Mr. Graham participates, does not specify a target
amount. Where “target” amounts are not determinable, the SEC
rules require the disclosure of representative amounts based on the
previous fiscal year’s performance. Accordingly, we have
disclosed above in the “Target” column the amount that would be paid under
our 2009 Senior Management Bonus Program to Mr. Graham, based on our
performance in 2008.
|
(5)
|
Non-Equity Incentive Plan
Awards – Maximum.
Pursuant to our employment agreement
with Mr. Sorrentino, the amount shown in this column for Mr. Sorrentino
represents 100% of his salary for 2009, the maximum percentage of his
salary that is available to him under his agreement. Pursuant
to the 2009 Senior Management Bonus Program, the amount shown in this
column for Mr. Graham represents 55% of his salary for 2009, the maximum
percentage of his salary that is available to him under the
program.
|
(6)
|
This
column reflects the number of restricted shares granted to the named
executive officer in 2009.
|
(7)
|
See
footnote 8 to the Consolidated Financial Statements contained in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2009
for a discussion of the assumptions made in the valuation of this
restricted stock award.
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information for each named executive officer with
respect to unexercised options to purchase common stock that remained
outstanding and shares of restricted stock that remained unvested at
December 31, 2009. The Company’s executive officers currently do
not have any other outstanding stock awards.
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested
|
|
|
Market Value
of Shares or
Units of Stock
That Have Not
Vested ($)
|
|
Charles
A. Sorrentino
|
|
|
—
|
|
|
|
500,000
(1)
|
|
|
|
26.19
|
|
03/09/2017
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
65,000
(2)
|
|
|
|
11.99
|
|
01/09/2018
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
65,000
(2)
|
|
|
|
9.27
|
|
12/17/2018
|
|
|
|
|
|
|
|
|
Nicol
G. Graham
|
|
|
3,750
|
|
|
|
1,875
(3)
|
|
|
|
2.67
|
|
12/30/2015
|
|
|
5,000
(7)
|
|
|
|
61,050
|
|
|
|
|
6,000
|
|
|
|
4,000
(4)
|
|
|
|
21.73
|
|
12/20/2016
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
3,000
(5)
|
|
|
|
15.40
|
|
12/18/2017
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
8,000
(6)
|
|
|
|
9.27
|
|
12/17/2018
|
|
|
|
|
|
|
|
|
(1)
|
The
options under this grant vest in equal installments of 250,000 shares per
year on March 9, 2011 and March 9,
2012.
|
(2)
|
The
options under this grant vest in equal installments of 32,500 shares per
year on March 9, 2011 and March 9,
2012.
|
(3)
|
The
remaining options under this grant vest on December 30,
2010.
|
(4)
|
The
remaining options under this grant vest in equal installments of 2,000
shares per year on December 20, 2010 and
2011.
|
(5)
|
The
options under this grant vest in equal installments of 1,000 shares per
year on December 18, 2010, 2011 and
2012.
|
(6)
|
The
options under this grant vest in equal installments of 2,000 shares per
year on December 17, 2010, 2011, 2012 and
2013.
|
(7)
|
The
restricted stock under this grant vests in three equal installments of
1,667 shares per year on December 15, 2012, 2013 and
2014.
|
Option
Exercises and Stock Vested
No executive officer exercised options
to purchase shares of our common stock in 2009.
Defined
Pension Plans, Non-Qualified Defined Contribution Plans and Non-Qualified
Deferred Compensation Plans
We do not
maintain any defined benefit plans, supplemental executive retirement plans,
non-qualified defined contribution plans or non-qualified deferred compensation
plans.
REPORT
OF THE COMPENSATION COMMITTEE
The
Compensation Committee of the Board of Directors has furnished the following
report to the stockholders of the Company in accordance with rules adopted by
the SEC.
The
Compensation Committee of the Company states that the committee reviewed and
discussed with management the Company’s Compensation Discussion and Analysis
contained in this proxy statement.
Based
upon the review and discussions referred to above, the Compensation Committee
recommended to the Board of Directors that the Company’s Compensation Discussion
and Analysis be included in this proxy statement.
This
report is submitted on behalf of the members of the Compensation
Committee:
|
Peter
M. Gotsch, Chairman
|
|
William
H Sheffield
|
|
Wilson
B. Sexton
|
Dated:
March 9, 2010
EQUITY
COMPENSATION PLAN INFORMATION
The
following table provides information as of December 31, 2009 with respect
to our compensation plans (including individual compensation arrangements) under
which our equity securities are authorized for issuance:
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Plan Category
|
|
Number of
Securities to be
Issued upon
Exercise of
Outstanding
Options, Warrants
and Rights
|
|
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
(3)
|
|
Number of Securities
Remaining Available
for Issuance under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a)
|
|
Equity
compensation plans approved by security holders
(1)
|
|
|
1,140,000
|
|
$
|
19.73
|
|
579,500
|
|
Equity
compensation plans not approved by security holders
(2)
|
|
|
54,896
|
|
$
|
2.32
|
|
—
|
|
(1)
|
Amounts
shown in this row relate solely to stock options granted under our 2006
Stock Plan. The 2006 plan provides for discretionary awards of
stock options and restricted stock to selected employees and
directors. Our board may grant non-qualified or incentive stock
options to selected employees and non-qualified stock options to
non-employee directors. The board may set the terms and
conditions applicable to the options, including the exercise price of the
option, type of option and the number of shares subject to the option. In
any event, each option will expire 10 years from the date of
grant.
|
This row
excludes shares of restricted stock granted under the 2006 plan, which were
granted at no cost to the recipients. Our board may grant restricted stock
awards to directors and selected employees, either for no consideration or for
such appropriate consideration as the board determines. The board has
the discretion to determine the number of shares awarded and the restrictions,
terms and conditions of the award. Subject to the restrictions, the
recipient of an award will be a stockholder with respect to the shares awarded
to him or her and will have the rights of a stockholder with respect to the
shares, including the right to vote the shares and receive dividends, if any, on
the shares. Our board may establish, as restrictions on the stock,
performance goals and targets for participants, which lapse if we achieve the
performance goals and targets for the designated performance
period. The performance goals may be based on one or more business
criteria. Performance goals may be absolute in their terms or measured against
or in relationship to the performance of other companies or indices selected by
the board.
(2)
|
Amounts
shown in this row relate solely to non-qualified stock options granted
under our 2000 Stock Plan. No grants under the 2000 plan have
been made since the Company’s public offering in June 2006 nor will
any be made in the future. Under the 2000 Stock Plan the board
of directors was able to grant non-qualified or incentive stock options to
selected key employees and non-qualified stock options to non-employee
directors. The duration of any option could not exceed
10 years from the grant date. The board was also able to
grant stock awards to key employees and directors for such numbers of
shares, and subject to such vesting requirements, restrictions and other
terms and conditions, as the board determined in its
discretion.
|
(3)
|
Weighted-average
exercise price of outstanding stock
options.
|
REPORT
OF THE AUDIT COMMITTEE
The Audit
Committee of the board is responsible for providing oversight of our accounting
and financial reporting functions. The board appoints the Audit
Committee annually, with the committee consisting of at least three directors.
The Audit Committee operates under a formal charter, which is available on the
Company’s website at
http:www.houwire.com
and by clicking on the
“Corporate Governance” link. The Audit Committee charter sets forth
in detail, the duties and responsibilities of the Audit Committee.
The Audit
Committee relies on the expertise and knowledge of management and Ernst &
Young LLP, the Company’s independent registered public accounting firm, in
carrying out its oversight responsibilities. Management is responsible for the
Company’s financial reporting process including its system of internal controls,
and for the preparation of the consolidated financial statements in accordance
with generally accepted accounting principles. Ernst & Young LLP
is responsible for auditing those financial statements and issuing a report
thereon.
The
Audit Committee reviewed and discussed with management and Ernst & Young LLP
the audited financial statements of the Company for the year ended
December 31, 2009. The Audit Committee also reviewed and discussed with
Ernst & Young LLP the matters required to be discussed by Public Company
Accounting Oversight Board (United States) Auditing Standard AU Section 380
(Communication with Audit Committees) and Rule 2-07 of SEC Regulation
S-X.
In
addition, the Audit Committee received the written disclosures and the letter
from Ernst & Young LLP that are required by the applicable requirements of
the Public Company Accounting Oversight Board regarding the independent
accountant’s communications with the Audit Committee concerning
independence. The disclosures described the relationships and fee
arrangements between the firm and the Company. Consistent with the
applicable requirements of the Public Company Accounting Oversight Board and the
rules and regulations of the SEC, the Audit Committee considered whether the
provision of non-audit services by the independent registered public accounting
firm to the Company for the fiscal year ended December 31, 2009 is
compatible with maintaining Ernst & Young LLP’s independence and has
discussed with Ernst & Young LLP the firm’s independence from the
Company.
Based on
the above-mentioned reviews and discussions with management and Ernst &
Young LLP, the Audit Committee, exercising its business judgment, recommended to
the board that the Company’s audited financial statements be included in its
Annual Report on Form 10-K for the year ended December 31, 2009, for filing
with the SEC.
This
report is submitted on behalf of the members of the Audit
Committee:
|
Michael
T. Campbell, Chairman
|
|
Peter M. Gotsch
|
|
Wilson B. Sexton
|
|
Scott
L. Thompson
|
Dated:
March 9, 2010
PRINCIPAL
INDEPENDENT ACCOUNTANT FEES AND SERVICES
Audit
Committee’s Pre-Approval and Procedures
The Audit
Committee is responsible for the appointment, compensation, retention and
oversight of the work of Ernst & Young LLP, our independent registered
public accounting firm. The independent registered public accounting
firm reports directly to the Audit Committee. As part of its
responsibility, the committee established a policy requiring the pre-approval of
all audit and permissible non-audit services performed by the registered public
accounting firm. In pre-approving services, the Audit Committee
considers whether such services are consistent with the SEC’s rules on
auditor independence.
Prior to
the engagement of the registered public accounting firm for an upcoming
audit/non-audit service period, defined as a twelve-month timeframe,
Ernst & Young LLP submits a detailed list of services expected to be
rendered during that period as well as an estimate of the associated fees for
each of the following four categories of services to the Audit Committee for
approval:
|
·
|
Audit Services
consist
of services rendered by an external auditor for the audit of our annual
consolidated financial statements (including tax services performed to
fulfill the auditor’s responsibility under generally accepted auditing
standards) and internal controls and reviews of financial statements
included in Forms 10-Q, and includes services that generally only an
external auditor can reasonably provide, such as comfort letters,
statutory audits, attest services, consents and assistance with and review
of documents filed with the SEC.
|
|
·
|
Audit-Related Services
consist of assurance and related services by an external auditor that are
reasonably related to audit or review of financial statements, including
employee benefit plan audits, due diligence related to mergers and
acquisitions, and accounting
consultations.
|
|
·
|
Tax Services
consist of
services not included in Audit Services above, rendered by an external
auditor for tax compliance.
|
|
·
|
Other Non-Audit Services
are any other permissible work that is not an Audit, Audit-Related or Tax
Service.
|
Circumstances
may arise during the twelve-month period when it may become necessary to engage
the independent registered public accounting firm for additional services not
contemplated in the original pre-approval. In those instances, the Audit
Committee requires specific pre-approval before engaging the independent
auditor.
The table
below summarizes the fees billed by our independent registered public accounting
firm, Ernst & Young LLP for the fiscal years ended December 31,
2009 and 2008:
Year
|
|
Audit Fees
(1)
|
|
Audit-Related Fees
(2)
|
|
Tax Fees
(3)
|
|
All Other Fees
|
|
Total
|
|
2009
|
|
$
|
339,492
|
|
|
$
|
—
|
|
$
|
48,550
|
|
|
$
|
—
|
|
$
|
388,042
|
|
2008
|
|
$
|
419,099
|
|
|
$
|
—
|
|
$
|
51,500
|
|
|
$
|
—
|
|
$
|
470,599
|
|
(1)
|
Audit
fees include fees for professional services rendered for the audit of our
annual consolidated financial statements (including services related to
the audit of internal control over financial reporting under the
Sarbanes-Oxley Act of 2002) and the reviews of the interim financial
statements included in our Forms
10-Q.
|
(2)
|
There
were no audit-related services for fiscal 2009 and
2008.
|
(3)
|
Tax
fees represent professional services related to tax
compliance.
|
For the
fiscal year ended December 31, 2009, none of the Audit-Related Fees, Tax Fees or
Other Fees were approved in accordance with the exceptions to the pre-approval
requirements set forth in 16 CFR 210.2-01(c)(7)(i)(C).
The Audit
Committee has considered the compatibility of the provision of services covered
by the preceding paragraph with the maintenance of the principal accountant’s
independence from the Company and has determined that the provision of such
services is not incompatible with the maintenance of such
independence. The Audit Committee annually reviews the performance of
the independent registered public accounting firm and the fees charged for their
services.
PROPOSAL
NO. 2 — RATIFICATION OF SELECTION OF INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
General
Stockholder
ratification of the selection of Ernst & Young LLP as the Company’s
independent registered public accounting firm for the year ending December
31, 2010 is not required. However, the board of directors is
submitting the selection of Ernst & Young LLP as the Company’s
independent registered public accounting firm to the stockholders for
ratification to learn the opinion of stockholders on this selection. If
the stockholders fail to ratify Ernst & Young LLP as the independent
registered public accounting firm, the Audit Committee will reassess its
appointment. Even if the selection is ratified, the Audit Committee in its
discretion may direct the appointment of a different independent registered
public accounting firm at any time during the year if it determines that such
change would be in the best interests of the Company and its stockholders.
Representatives of Ernst & Young LLP are expected to be at the annual
meeting of stockholders and will have the opportunity to make a statement, if
they desire to do so, and to respond to appropriate questions from those
attending the meeting.
Board
Recommendation and Stockholder Vote Required
The board
of directors recommends a vote “FOR” the ratification of the selection of Ernst
& Young LLP as the Company’s independent registered public accounting firm
for the year ending December 31, 2010 (Proposal No. 2 on the proxy
card).
The
affirmative vote of the holders of a majority of the votes represented at the
annual meeting in person or by proxy will be required for approval.
PROPOSAL
NO. 3 – RATIFICATION OF STOCKHOLDER RIGHTS PLAN
Introduction
On May
18, 2009, the board of directors adopted a stockholder rights plan (the “Rights
Plan”) to protect the Company and its stockholders from unsolicited attempts or
inequitable offers to acquire the Company. The board of directors is
submitting the Rights Plan to the stockholders for ratification at the annual
meeting. If the stockholders do not ratify the Rights Plan, the board
intends to terminate the Rights Plan after the annual meeting.
Purpose
of the Rights Plan
The
Rights Plan is designed to protect stockholders of the Company from unfair,
abusive or coercive take-over strategies, including the acquisition of control
of the Company by a bidder in a transaction or series of transactions that does
not treat all stockholders equally or fairly or provide all stockholders an
equal opportunity to share in the premium paid on an acquisition of
control. The Rights Plan is not intended to prevent a takeover or
deter fair offers for securities of the Company. To the contrary, it
is designed to encourage anyone seeking to acquire control of the Company to
make an offer that represents fair value to all holders of common stock and to
provide the board of directors with more time to fully consider an unsolicited
takeover bid, and, if appropriate, to explore other alternatives that maximize
stockholder value.
The
Rights Plan was not adopted, and ratification is not being recommended by the
board of directors, in response to or in anticipation of any specific takeover
bid or proposed bid or other transaction. Rather, the Rights Plan is
intended to address the board’s concern that, in the current business
environment in which the Company operates, a potential exists that, the Company
could be the subject of one or more unsolicited takeover attempts. In
response to this concern, the board considered various strategies to deter
unfair or abusive takeover practices and, in particular, whether a stockholder
rights plan would be in the best interests of the Company and its stockholders
and, if so, what characteristics of such a plan would most appropriately serve
those interests.
How
the Rights Plan Works
The board
of directors authorized and declared a dividend of one preferred stock purchase
right (a “Right”) for each share of the Company’s common stock outstanding at
the close of business on May 28, 2009, and thereafter has issued (and will
continue to issue, as long as the Rights Plan is in effect) a Right with each
new share of common stock. In general terms, the Rights impose a
significant penalty upon any person or group that acquires beneficial ownership
of 20% or more of the Company’s outstanding common stock without the prior
approval of the board of directors. The Company, its subsidiaries,
and any individual or entity holding common stock are not subject to the
penalty.
The
Rights are issued pursuant to a Rights Agreement, dated as of May 18, 2009, by
and between the Company and American Stock Transfer & Trust Company, LLC, as
Rights Agent. The following is a summary of the principal terms of
the Rights Agreement. The following summary is a general description
only and is qualified in its entirety by the full text of the Rights Agreement
which appears as Appendix A to this proxy statement.
Summary
of the Rights Plan
The
Rights
. Currently, the Rights trade with, and are inseparable
from, the common stock. The Rights are evidenced by the same stock
certificates as the common stock (or, in the case of uncertificated shares of
common stock, the same book-entry account that evidences record ownership of
such shares) and not by separate Rights certificates. Rights will
accompany all new shares of common stock the Company issues in the future, as
long as the Rights Plan remains in effect.
Each
Right will entitle the holder to buy one one-thousandth of a share of a new
series of junior participating preferred stock (“Preferred Stock”) at a purchase
price of $40, once the Rights become exercisable. Until a Right is
exercised, however, it does not give its holder any additional rights as a
stockholder of the Company.
Exercisability
. The
Rights become exercisable and separate from the common stock on the Distribution
Date. The “Distribution Date” means the earlier of:
|
·
|
The
tenth day after public announcement that any person or group of affiliated
or associated persons (an “Acquiring Person”) has become the beneficial
owner of 20% or more of the Company’s common stock;
and
|
|
·
|
The
tenth business day (or such later date as the board may designate before a
person or group has become the beneficial owner of 20% or more of the
Company’s common stock) after the date of the commencement of, or public
announcement of the intent of any person to commence, a tender or exchange
offer that would, if consummated, result in such person becoming the
beneficial owner of 20% or more of the Company’s common
stock.
|
When
calculating beneficial ownership to determine whether a person or group has
become an Acquiring Person, if the person or any of that person’s affiliates or
associates holds any option, warrant, convertible security, stock appreciation
right or other contractual right or derivative with an exercise or conversion
privilege or a settlement payment or mechanism at a price related to, or a value
determined in reference to, the common stock and that increases in value as the
value of the common stock increases or that provides the holder with an
opportunity to profit from any increase in the value of the common stock, then
that person will be deemed to beneficially own the shares of common stock in
respect of such right or derivative that (i) is disclosed pursuant to a Schedule
13D under the Securities Exchange Act of 1934; or (ii) the board determines
should be deemed to represent beneficial ownership.
Issuance of Right
Certificates
. After the Distribution Date, the Rights Agent
will mail separate certificates evidencing the Rights to each record holder of
the common stock (or, if the common stock is uncertificated, by appropriate
changes to the book-entry account that evidences record ownership of such
shares) at the close of business on the Distribution
Date. Thereafter, the Rights will be transferable separately from the
common stock. Any Rights held by an Acquiring Person are null and
void and may not be exercised.
Consequences of a Person or
Group Becoming an Acquiring Person
.
|
·
|
Flip-In.
If
an Acquiring Person becomes the beneficial owner of 20% or more of the
common stock, then each Right (other than Rights beneficially owned by the
Acquiring Person and certain affiliated persons) will entitle the holder
to purchase, for $40, a number of shares of the Company’s common stock
having a market value of $80.
|
|
·
|
Flip-Over.
If,
after any person has become an Acquiring Person, (1) the Company is
involved in a merger or other business combination in which the Company is
not the surviving corporation or its common stock is exchanged for other
securities or assets or (2) the Company or one or more of its subsidiaries
sells or otherwise transfers assets or earning power aggregating more than
50% of the assets or earning power of the Company and its subsidiaries,
taken as a whole, then each Right (other than Rights beneficially owned by
the Acquiring Person and certain affiliated persons) will entitle the
holder to purchase, for $40, a number of shares of common stock of the
other party to such business combination or sale (or in certain
circumstances, an affiliate) having a market value of
$80.
|
Preferred Stock
Provisions
. Each one one-thousandth of a share of Preferred
Stock, if issued:
|
·
|
will
not be redeemable;
|
|
·
|
will
entitle holders to receive, when, as and if declared by the board of
directors, quarterly dividend payments in an amount per share equal to the
greater of, (a) $0.0001 or (b) the aggregate amount paid with
respect to one share of common
stock;
|
|
·
|
will
entitle holders upon liquidation to $1.00 per
share;
|
|
·
|
will
entitle holders to the same voting power as one share of common stock on
all matters submitted to a vote of the stockholders of the Company;
and
|
|
·
|
will
entitle holders to a per share payment equal to the aggregate amount of
stock, securities, cash and 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 via merger, consolidation, or a similar
transaction.
|
The value
of a one one-thousandth interest in a share of Preferred Stock should
approximate the value of one share of common stock.
Expiration
. The
Rights will expire on May 18, 2012, unless earlier exchanged or
redeemed.
Redemption
. The
board of directors may redeem all of the Rights at a price of $0.001 per Right
at any time before a person or group has become an Acquiring
Person.
Exchange
. At
any time on or after a person or group has become an Acquiring Person (but
before any person or group becomes the beneficial owner of 50% or more of the
outstanding common stock), the board of directors may exchange all or part of
the Rights (other than the Rights beneficially owned by the Acquiring Person and
certain affiliated and associated persons) for shares of common stock at an
exchange ratio of one share of common stock per Right.
Anti-Dilution
Provisions
. The Board of Directors may adjust the purchase
price of the Preferred Stock, the number and kind of shares of Preferred Stock
issuable and the number of outstanding Rights to prevent dilution that may occur
from a stock dividend, stock split or reclassification of the Preferred
Stock. No adjustments to the purchase price of less than 1% will be
made.
Amendments
. As
long as the Rights remain redeemable, the board of directors may amend the
Rights Agreement without the approval of the Rights holders. After a
person or group has become an Acquiring Person, the board may not amend the
Rights Agreement in any way that adversely affects the Rights holders without
the approval of the Rights holders.
Board
Recommendation and Stockholder Vote Required
The board
of directors recommends a vote “FOR” the ratification of the Stockholder Rights
Plan (Proposal No. 3 on the proxy card).
The
affirmative vote of the holders of a majority of the votes represented at the
annual meeting in person or by proxy will be required for approval.
ANNUAL
REPORT TO STOCKHOLDERS
We have
enclosed our 2009 annual report to stockholders with this proxy
statement. The annual report includes our annual report on Form 10-K for
the fiscal year ended December 31, 2009, as filed with the SEC. The annual
report on Form 10-K contains our audited financial statements, along with other
financial information about us. We urge you to read these documents
carefully.
You can
also obtain, free of charge, a copy of our annual report on Form 10-K
by:
|
·
|
accessing
the Investor Relations section of our website at
http://www.houwire.com
and clicking on the “SEC Filings”
link;
|
Houston
Wire & Cable Company — Manager, Investor Relations
10201
North Loop East
Houston,
Texas 77029; or
|
·
|
telephoning
us at: (713) 609-2200.
|
You can
also obtain a copy of our annual report on Form 10-K and other periodic
filings that we make with the SEC from the SEC’s website at
http://www.sec.gov.
STOCKHOLDER
PROPOSALS AND NOMINATIONS FOR 2011 ANNUAL MEETING
The proxy
rules of the SEC permit our stockholders, after notice to the Company, to
present proposals for stockholder action in our proxy statement where such
proposals are consistent with applicable law, pertain to matters appropriate for
stockholder action and are not properly omitted by us in accordance with the
proxy rules. In order for any stockholder proposal to be considered
for inclusion in our proxy statement to be issued in connection with our 2011
annual meeting of stockholders, that proposal must be received at our corporate
headquarters, 10201 North Loop East, Houston, Texas 77029 (Attention: Manager,
Investor Relations), no later than November 22, 2010.
Our
certificate of incorporation and by-laws provide that stockholder action can be
taken only at an annual or special meeting of stockholders and cannot be taken
by written consent in lieu of a meeting. Our certificate of
incorporation and by-laws provide that, except as otherwise required by law,
special meetings of our stockholders can only be called pursuant to a resolution
adopted by a majority of our board of directors or by our chief executive
officer or the chairman of our board of directors. Stockholders are not
permitted to call a special meeting or to require our board to call a special
meeting.
Our
by-laws establish an advance notice procedure for stockholder proposals to be
brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to our board. Stockholders at our
annual meeting may only consider proposals or nominations specified in the
notice of meeting or brought before the meeting by or at the direction of our
board or by a stockholder who was a stockholder of record on the record date for
the meeting and upon giving of notice and provided that the stockholder has
given to our secretary timely written notice, in proper form, of the
stockholder’s intention to bring that business before the
meeting. Specifically, our bylaws provide the following procedure in
order that business may properly come before the stockholders at the annual
meeting. Among other things, stockholders intending to bring business
before the annual meeting must provide written notice of such intent to the
Secretary of the Company. Such notice must be given no earlier than
January 2, 2011 and no later than February 1, 2011. In addition,
the following information must be provided in the written notice: (1) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (2) the name and
address, as they appear on the Company’s books, of the stockholder proposing
such business, (3) the class and number of shares of common stock that are
beneficially owned by the stockholder, (4) any material interest of the
stockholder in such business and (5) a representation that the stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
If the
stockholder proposes to nominate a person as a director, the written notice must
be given no earlier than January 2, 2011 and no later than February 1, 2011 and
must set forth the following information as to each proposed nominee: (1) the
name, age, business address and, if known, residence address of such nominee,
(2) the principal occupation or employment of such nominee, (3) the number of
shares of common stock which are beneficially owned by such nominee, and (4) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, including such person’s written consent to be named as
a nominee and to serve as a director if elected. As to the
stockholder giving the notice, the following information is required: (1) the
name and address, as they appear on the Company’s books, of such stockholder and
(2) the number of shares of common stock beneficially owned by such stockholder.
The Company may require any proposed nominee to furnish such other information
as may reasonably be required by the Company to determine the eligibility of
such proposed nominee to serve as a director of the Company.
GENERAL
Section
16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of
the Securities Exchange Act of 1934 requires our officers, directors and persons
who own more than ten percent of a registered class of our equity securities to
file reports of ownership and changes in ownership on Forms 3, 4 and 5, as
applicable, with the SEC. Officers, directors and stockholders owning
more than ten percent of our common stock are required by the SEC regulations to
furnish us with copies of all Forms 3, 4 and 5 they file.
Based
solely upon a review of Forms 3 and 4 and any amendments furnished to Houston
Wire & Cable Company, we believe that our directors, officers, and greater
than 10% beneficial owners complied with all applicable Section 16 filing
requirements.
Other
Information
The
expenses of preparing and mailing this proxy statement and the accompanying
proxy card and the cost of solicitation of proxies, if any, will be the
responsibility of Houston Wire & Cable Company. In addition to
the use of mailings, proxies may be solicited by personal interview, telephone
and by our directors, officers and regular employees without special
compensation therefore. We expect to reimburse banks, brokers and
other persons for their reasonable out-of-pocket expenses in handling proxy
materials for beneficial owners of our common stock.
Unless
contrary instructions are indicated on the proxy card, all shares of common
stock represented by valid proxies received pursuant to this solicitation (and
not revoked before they are voted) will be voted “FOR” all of the proposals
described in this proxy statement.
OTHER
MATTERS
Our board
does not know of any other matters that are to be presented for action at the
2010 annual meeting. Should any other matter come before the annual
meeting, however, the persons named in the enclosed proxy will have
discretionary authority to vote all proxies with respect to such matter in
accordance with their judgment.
|
BY
ORDER OF THE BOARD OF DIRECTORS
|
|
|
|
|
|
|
|
Nicol
G. Graham
|
|
Vice
President, Chief Financial Officer, Treasurer and
Secretary
|
Dated:
March 23, 2010
Appendix
A
RIGHTS
AGREEMENT
dated
as of
May
18, 2009
between
HOUSTON
WIRE & CABLE COMPANY
and
AMERICAN
STOCK TRANSFER & TRUST COMPANY, LLC,
as
Rights Agent
TABLE
OF CONTENTS
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SECTION
1.
|
|
Definitions
|
|
1
|
SECTION
2.
|
|
Appointment
of Rights Agent
|
|
6
|
SECTION
3.
|
|
Issuance
of Right Certificates
|
|
6
|
SECTION
4.
|
|
Form
of Right Certificates
|
|
8
|
SECTION
5.
|
|
Countersignature
and Registration
|
|
8
|
SECTION
6.
|
|
Transfer
and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen
Right Certificates
|
|
9
|
SECTION
7.
|
|
Exercise
of Rights; Purchase Price; Expiration Date of Rights
|
|
9
|
SECTION
8.
|
|
Cancellation
and Destruction of Right Certificates
|
|
11
|
SECTION
9.
|
|
Reservation
and Availability of Capital Stock
|
|
11
|
SECTION
10.
|
|
Preferred
Stock Record Date
|
|
12
|
SECTION
11.
|
|
Adjustment
of Purchase Price, Number and Kind of Shares or Number of
Rights
|
|
13
|
SECTION
12.
|
|
Certificate
of Adjusted Purchase Price or Number of Shares
|
|
19
|
SECTION
13.
|
|
Consolidation,
Merger or Sale or Transfer of Assets or Earning Power
|
|
20
|
SECTION
14.
|
|
Fractional
Rights and Fractional Shares
|
|
22
|
SECTION
15.
|
|
Rights
of Action
|
|
24
|
SECTION
16.
|
|
Agreement
of Right Holders
|
|
24
|
SECTION
17.
|
|
Right
Certificate Holder Not Deemed a Stockholder
|
|
25
|
SECTION
18.
|
|
Concerning
the Rights Agent
|
|
25
|
SECTION
19.
|
|
Merger
or Consolidation or Change of Name of Rights Agent
|
|
26
|
SECTION
20.
|
|
Duties
of Rights Agent
|
|
26
|
SECTION
21.
|
|
Change
of Rights Agent
|
|
28
|
SECTION
22.
|
|
Issuance
of New Right Certificates
|
|
29
|
SECTION
23.
|
|
Redemption
|
|
29
|
SECTION
24.
|
|
Exchange
|
|
30
|
SECTION
25.
|
|
Notice
of Proposed Actions
|
|
30
|
SECTION
26.
|
|
Notices
|
|
31
|
SECTION
27.
|
|
Supplements
and Amendments
|
|
32
|
SECTION
28.
|
|
Successors
|
|
32
|
SECTION
29.
|
|
Determinations
and Actions by the Board of Directors, etc
|
|
32
|
TABLE
OF CONTENTS
(continued)
|
|
|
|
Page
|
|
|
|
|
|
SECTION
30.
|
|
Benefits
of this Agreement
|
|
33
|
SECTION
31.
|
|
Severability
|
|
33
|
SECTION
32.
|
|
Governing
Law
|
|
33
|
SECTION
33.
|
|
Counterparts
|
|
33
|
SECTION
34.
|
|
Descriptive
Headings
|
|
33
|
RIGHTS
AGREEMENT
AGREEMENT
(the “
Agreement
”) dated as of May
18, 2009, between Houston Wire & Cable Company, a Delaware corporation (the
“
Company
”), and
American Stock Transfer & Trust Company, LLC, a New York limited liability
trust company, as Rights Agent (the “
Rights Agent
”),
WITNESSETH
WHEREAS
, the Board of
Directors of the Company (the “
Board of Directors
”)
authorized and declared a dividend of one preferred stock purchase right (a “
Right
”) for each share
of Common Stock (as hereinafter defined) outstanding at the close of business on
May 28, 2009 (the “
Record
Date
”) and has authorized the issuance, upon the terms and subject to
the conditions hereinafter set forth, of one Right in respect of each share of
Common Stock issued after the Record Date, each Right representing the right to
purchase, upon the terms and subject to the conditions hereinafter set forth,
one one-thousandth of a share of Preferred Stock (as hereinafter
defined);
NOW, THEREFORE
, the parties
hereto agree as follows:
SECTION 1.
Definitions
.
The
following terms, as used herein, have the following meanings:
“
Acquiring Person
” means any
Person who or which, together with all Affiliates and Associates of such Person,
is the Beneficial Owner of 20% or more of the shares of Common Stock then
outstanding, but shall not include:
(a)
Exempt Persons; or
(b)
any Person who or which, together with all Affiliates and Associates of such
Person, is the Beneficial Owner of 20% or more of the shares of Common Stock
outstanding as of the date hereof (an “
Existing Holder
”), unless
and until such time as such Existing Holder becomes the Beneficial Owner of any
additional shares of Common Stock of the Company (other than pursuant to a
dividend or distribution paid or made by the Company on the outstanding shares
of Common Stock in shares of Common Stock or pursuant to a split or subdivision
of the outstanding shares of Common Stock) that would cause such Existing
Holder’s percentage ownership of shares of Common Stock outstanding to exceed by
any amount such Existing Holder’s percentage ownership (rounded up to the next
whole percentage point) as of the date of this Agreement, in which case such
Existing Holder will become an Acquiring Person.
Notwithstanding
the foregoing, no Person shall become an Acquiring Person:
(i)
as the result of an acquisition of Common Stock by the Company that, by reducing
the number of shares of Common Stock outstanding, increases the proportionate
number of shares of Common Stock beneficially owned by such Person to 20% or
more of the Common Stock then outstanding;
provided, however
, that, if
a Person becomes the Beneficial Owner of 20% or more of the Common Stock then
outstanding by reason of share purchases by the Company and shall, after such
share purchases by the Company, become the Beneficial Owner of any additional
shares of Common Stock, then such Person shall be deemed to be an Acquiring
Person; or
(ii)
if the Board of Directors determines in good faith that such Person who would
otherwise be an Acquiring Person has become such inadvertently and such Person
divests as promptly as practicable a sufficient number of shares of Common Stock
so that such Person would no longer be an Acquiring Person, then such Person
shall not be deemed to be an Acquiring Person for any purposes of this
Agreement. For the avoidance of doubt, if any Person may avoid being
an Acquiring Person by divesting shares of Common Stock as described in this
clause (ii), then such Person shall not be considered to become an Acquiring
Person until the date that the Board of Directors determines in good faith that
such divestiture has not occurred as promptly as practicable.
“
Affiliate
” and “
Associate
” have the
respective meanings ascribed to such terms in Rule 12b-2 under the Exchange Act
as in effect on the date hereof.
A Person
shall be deemed the “
Beneficial Owner
” of, and
shall be deemed to have “
Beneficial Ownership
” of and
to “
beneficially own
”, any securities that:
(a)
such Person or any of its Affiliates or Associates, directly or indirectly,
beneficially owns (as determined pursuant to Rule 13d-3 under the Exchange Act
as in effect on the date hereof);
(b)
such Person or any of its Affiliates or Associates, directly or indirectly,
has:
(i)
the right to acquire (whether such right is exercisable immediately or only upon
the occurrence of certain events or the passage of time or both) pursuant to any
agreement, arrangement or understanding (other than customary agreements with
and between underwriters and selling group members with respect to a bona fide
public offering of securities), or upon the exercise of conversion rights,
exchange rights, rights, warrants, 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 or on behalf of such
Person or any of such Person’s Affiliates or Associates until such tendered
securities are accepted for purchase or exchange, (B) securities that such
Person has a right to acquire upon the exercise of Rights at any time prior to
the time that any Person becomes an Acquiring Person, (C) securities issuable
upon the exercise of Rights from and after the time that any Person becomes an
Acquiring Person if such Rights were acquired by such Person or any of such
Person’s Affiliates or Associates prior to the Distribution Date or pursuant to
Section 3(a) or Section 22 hereof (“
Original Rights
”) or
pursuant to Section 11(a)(i) or Section 11(p) with respect to an adjustment to
Original Rights or (D) Common Stock issuable upon the exercise of options to
purchase Common Stock, if such options are issued pursuant to an employment or
consulting agreement, arrangement or understanding or an employee benefit plan
of the Company or any Subsidiary of the Company and have an exercise price per
share of Common Stock that is greater than the closing price of the Common Stock
as determined pursuant to Section 11(d)(i) on any Trading Day, until such
options are exercised in exchange for Common Stock, in which event the holder
will be deemed to have beneficial ownership of such Common Stock;
or
(ii)
the right to vote (whether such right is exercisable immediately or only upon
the occurrence of certain events or the passage of time or both) pursuant to any
agreement, arrangement or understanding;
provided
that a Person shall
not be deemed the “Beneficial Owner” of or to “beneficially own” any security
under this clause (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 or consent given in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations under the Exchange Act and (B) is not also then reportable
by such Person on Schedule 13D under the Exchange Act (or any comparable or
successor report);
(c)
are beneficially owned, directly or indirectly, by any other Person (or any
Affiliate or Associate thereof) and with respect to which such Person or any of
its Affiliates or Associates has any agreement, arrangement or understanding
(other than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except pursuant to a revocable proxy or
consent as described in clause (b)(ii) immediately above) or disposing of any
such securities;
(d)
are in respect of any Synthetic Long Positions held by such Person or such
Person’s Affiliates or Associates, which Synthetic Long Positions are disclosed
pursuant to a Schedule 13D under the Exchange Act; or
(e)
are in respect of any Synthetic Long Positions held by such Person or such
Person’s Affiliates or Associates, if such Synthetic Long Positions are not
disclosed pursuant to a Schedule 13D under the Exchange Act, if and only if the
Board of Directors determines that such Person shall be deemed to be the
Beneficial Owner of, and to beneficially own, the Common Stock in respect of
such Synthetic Long Positions.
“
Business Day
” means 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.
“
Certificate of Incorporation
” means the Amended and Restated Certificate of Incorporation of the Company, as
amended.
“
Close of business
” on any
given date means 5:00 P.M., New York time, on such date;
provided
that if such date is
not a Business Day “
close of
business
” means 5:00 P.M., New York time, on the next succeeding
Business Day.
“
Common Stock
” means the
Common Stock, par value $0.001 per share, of the Company, unless used with
reference to another Person, in which case “
Common Stock
” means (i) 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 or (ii) if such Person is the subsidiary of another
Person, the capital stock with the greatest voting power, or the equity
securities or other equity interest having power to control or direct the
management, of the Person with ultimate control over such first
Person.
“
Distribution Date
” means the
earlier of (a) the close of business on the tenth day after the Stock
Acquisition Date and (b) the close of business on the tenth Business Day (or
such later day as may be designated prior to the occurrence of a Section
11(a)(ii) Event by action of the Board of Directors) after the date of the
commencement of, or first public announcement of the intent of any Person to
commence, a tender or exchange offer the consummation of which would result in
such Person becoming an Acquiring Person, unless the tenth day or tenth Business
Day, as the case may be, referred to in clauses (a) and (b) above occurs after
the date of public announcement of this Agreement and before the Record Date, in
which event the Distribution Date shall be the close of business on the tenth
day after the Record Date.
“
Exchange Act
” means the
Securities Exchange Act of 1934, as amended, unless otherwise
specified.
“
Exempt Person
” shall mean
the Company or any Subsidiary of the Company, in each case including, without
limitation, in its fiduciary capacity, or any employee benefit plan of the
Company or of any Subsidiary of the Company, or any Person holding Common Stock
for or pursuant to the terms of any such plan or for the purpose of funding any
such plan or funding other employee benefits for employees of the Company or of
any Subsidiary of the Company.
“
Expiration Date
” means the
earlier of (a) the Final Expiration Date and (b) the time at which all Rights
are redeemed as provided in Section 23 or exchanged as provided in Section
24.
“
Final Expiration Date
” means
the close of business on May 18, 2012.
“
Person
” means an individual,
firm, corporation, limited liability company, partnership, association, trust or
any other entity or organization and shall include any successor (by merger or
otherwise) of such entity or organization.
“
Preferred Stock
” means the
Series A Junior Participating Preferred Stock, par value $0.001 per share, of
the Company having the terms set forth in the form of certificate of
designations attached hereto as
Exhibit A
.
“
Purchase Price
” means the
price (subject to adjustment as provided herein) at which a holder of a Right
may purchase one one-thousandth of a share of Preferred Stock (subject to
adjustment as provided herein) upon exercise of a Right, which price shall
initially be $40.00.
“
Section
13 Event
” means any event
described in clauses (x), (y) or (z) of Section 13(a).
“
Securities Act
” means the
Securities Act of 1933, as amended, unless otherwise specified.
“
Stock Acquisition Date
”
means the date of the first public announcement (including the filing of a
report pursuant to Section 13(d) of the Exchange Act) by the Company or an
Acquiring Person that an Acquiring Person has become such.
“
Subsidiary
” of any Person
means any other Person of which securities or other ownership interests having
ordinary voting power, in the absence of contingencies, to elect a majority of
the board of directors or other Persons performing similar functions are at the
time directly or indirectly owned by such first Person.
“
Synthetic Long Position
”
shall mean any option, warrant, convertible security, stock appreciation right
or other contractual right or derivative, whether or not presently exercisable,
that has an exercise or conversion privilege or a settlement payment or
mechanism at a price related to Common Stock or a value determined in whole or
part with reference to, or derived in whole or in part from, the market price or
value of Common Stock (without regard to whether (a) such right or derivative
conveys any voting rights in such Common Stock to such Person, (b) such right or
derivative is subject to settlement in whole or in part in Common Stock or (c)
such Person may have entered into other transactions that hedge the economic
effect of such right or derivative) and that increases in value as the value of
Common Stock increases or that provides to the holder of such right an
opportunity, directly or indirectly, to profit or share in any profit derived
from any increase in the value of Common Stock, but shall not
include:
(i)
rights of a pledgee under a bona fide pledge of Common Stock;
(ii)
rights of all holders of Common Stock to receive Common Stock pro rata, or
obligations to dispose of Common Stock, as a result of a merger, exchange offer
or consolidation involving the Company;
(iii)
rights or obligations to surrender Common Stock, or to have Common Stock
withheld, upon the receipt or exercise of a derivative security or the receipt
or vesting of equity securities, in order to satisfy the exercise price or the
tax withholding consequences of receipt, exercise or vesting;
(iv)
interests in broad-based index options, broad-based index futures and
broad-based publicly traded market baskets of stocks approved for trading by the
appropriate federal governmental authority;
(v)
interests or rights to participate in employee benefit plans of the Company held
by employees or former employees of the Company; or
(vi)
options granted to an underwriter in a registered public offering for the
purpose of satisfying over-allotments in such offering.
The
shares of Common Stock in respect of which a Person has a Synthetic Long
Position shall be the notional or other number of shares of Common Stock
specified in a filing by such Person or any of such Person’s Affiliates or
Associates with the Securities and Exchange Commission in respect of which
shares of Common Stock are the “subject security” or in the documentation
evidencing the Synthetic Long Position as being subject to be acquired upon the
exercise or settlement of the applicable right or derivative or as the basis
upon which the value or settlement amount of such right or derivative, or the
opportunity of the holder of such right or derivative to profit or share in any
profit, is to be calculated in whole or in part or, if no such number of shares
of Common Stock is specified in any filing or documentation, as determined by
the Board of Directors in good faith to be the number of shares of Common Stock
to which the Synthetic Long Position relates.
“
Trading Day
” means with
respect to the Common Stock or any other security a day on which the principal
national securities exchange on which the shares of Common Stock or such
security are listed or admitted to trading is open for the transaction of
business or, if the shares of Common Stock or such security are not listed or
admitted to trading on any national securities exchange, a Business
Day.
“
Triggering Event
” means any
Section 11(a)(ii) Event or any Section 13 Event.
Each term
listed below is defined in the corresponding Section of this
Agreement:
Term
|
|
Section
|
Adjustment
Shares
|
|
11(a)(ii)
|
Agreement
|
|
Preamble
|
Board
of Directors
|
|
Recital
|
common
stock equivalents
|
|
11(a)(iii)(B)
|
Company
|
|
Preamble
|
current
market price
|
|
11(d)(i)(B)
|
equivalent
preferred stock
|
|
11(b)
|
Exchange
Ratio
|
|
24(a)
|
Existing
Holder
|
|
Definition
of “
Acquiring
Person
”
|
Original
Rights
|
|
Definition
of “
Beneficial
Owner
”
|
Principal
Party
|
|
13(b)
|
Redemption
Price
|
|
23(a)
|
Right
|
|
Recital
|
Rights
Agent
|
|
Preamble
|
Right
Certificates
|
|
4(a)
|
Record
Date
|
|
Recital
|
Section
11(a)(ii) Event
|
|
11(a)(ii)
|
Substitution
Period
|
|
11(a)(iii)(c)
|
|
|
|
SECTION 2.
Appointment
of Rights Agent
. The Company hereby appoints the Rights Agent
to act as agent for the Company in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-rights agents as it may deem
necessary or desirable. The Rights Agent shall have no duty to
supervise, and in no event shall be liable for, the acts or omissions of any
such co-rights agent. If the Company appoints one or more co-rights
agents, the respective duties of the Rights Agent and any co-rights agents shall
be apportioned as the Company shall determine.
SECTION 3.
Issuance
of Right Certificates
. (a) Prior to the Distribution Date,
(i) the Rights will be evidenced (unless earlier expired, redeemed or
terminated) by the certificates for the Common Stock (or, in the case of
uncertificated shares of Common Stock, by the book-entry account that evidences
record ownership of such shares) and not by separate Right Certificates and the
registered holders of the Common Stock shall be deemed to be the registered
holders of the associated Rights, and (ii) the Rights will be transferable only
in connection with the transfer of the underlying Shares of Common
Stock. As soon as practicable after the Record Date, the Company will
send a summary of the Rights substantially in the form of
Exhibit C
hereto, by
first-class, postage prepaid mail, to each record holder of the Common Stock as
of the close of business on the Record Date at the address of such holder shown
on the records of the Company.
(b)
As soon as practicable after the Company has notified the Rights Agent of the
occurrence of the Distribution Date, the Company will prepare and execute, the
Rights Agent will countersign, and the Rights Agent (if requested and provided
with all necessary information) 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 or the transfer agent or registrar for Common Stock, one
or more Right Certificates evidencing one Right (subject to adjustment as
provided herein) for each share of Common Stock so held (or if the Common Stock
is uncertificated, by appropriate changes to the book-entry account that
evidences record ownership of such Common Stock). If an adjustment in
the number of Rights per share of Common Stock has been made pursuant to Section
11(p), the Company shall, at the time of distribution of the Right Certificates,
make the necessary and appropriate rounding adjustments (in accordance with
Section 14(a)) so that Right Certificates representing only whole numbers of
Rights are distributed and cash is paid in lieu of any fractional
Rights. From and after the Distribution Date, the Rights will be
evidenced solely by such Right Certificates, and the Rights will be transferable
only separately from the transfer of Common Shares. The Company shall
promptly notify the Rights Agent in writing upon the occurrence of the
Distribution Date and, if such notification is given orally, the Company shall
confirm same in writing on or prior to the Business Day next
following. Until such notice is received by the Rights Agent, the
Rights Agent may presume conclusively for all purposes that the Distribution
Date has not occurred.
(c)
Rights shall be issued in respect of all shares of Common Stock outstanding as
of the Record Date or issued (on original issuance or out of treasury) after the
Record Date but prior to the earlier of the Distribution Date and the Expiration
Date. In addition, in connection with the issuance or sale of shares
of Common Stock following the Distribution Date and prior to the Expiration
Date, the Company (i) shall, with respect to shares of Common Stock so issued or
sold (x) pursuant to the exercise of stock options or under any employee plan or
arrangement or (y) upon the exercise, conversion or exchange of other securities
issued by the Company prior to the Distribution Date and (ii) may, in any other
case, if deemed necessary or appropriate by the Board of Directors, issue Right
Certificates representing the appropriate number of Rights in connection with
such issuance or sale;
provided
that no such Right
Certificate shall be issued if, and to the extent that, (i) the Company shall be
advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Right Certificate would be issued or (ii) appropriate adjustment shall otherwise
have been made in lieu of the issuance thereof.
(d)
Certificates for the Common Stock issued after the Record Date but prior to the
earlier of the Distribution Date and the Expiration Date shall have impressed
on, printed on, written on or otherwise affixed to them a legend in
substantially the following form:
This
certificate also evidences certain Rights as set forth in a Rights Agreement
between Houston Wire & Cable Company (the “
Company
”) and American Stock
Transfer & Trust Company, LLC, dated as of May 18, 2009 (as such agreement
may be supplemented or amended, the “
Rights Agreement
”), the
terms of which are hereby incorporated herein by reference and a copy of which
is on file at the principal executive offices of the Company. The
Company will mail to the holder of this certificate a copy of the Rights
Agreement without charge promptly after receipt of a written request
therefor. Under certain circumstances, as set forth in the Rights
Agreement, such Rights may be evidenced by separate certificates and no longer
be evidenced by this certificate, may be redeemed or exchanged or may
expire. As set forth in the Rights Agreement, Rights issued to, or
held by, any Person who is, was or becomes an Acquiring Person or an 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 be null and void.
SECTION 4.
Form
of Right Certificates
. (a) The certificates evidencing the
Rights (and the forms of assignment, election to purchase and certificates to be
printed on the reverse thereof) (the “
Right Certificates
”) shall
be substantially in the form of
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 (but which
do not affect the rights, duties, liabilities or responsibilities of the Rights
Agent) and as are not inconsistent with the provisions of this Agreement, or as
may be required to comply with any applicable law, rule or regulation 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. The Right Certificates,
whenever distributed, shall be dated as of the Record Date.
(b)
Any Right Certificate representing Rights beneficially owned by any Person
referred to in Section 7(d)(i), 7(d)(ii) or 7(d)(iii) shall (to the extent
feasible) contain a legend in substantially the following form:
The
Rights represented by this Right 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). This Right Certificate and the Rights represented hereby
may be or may become null and void in the circumstances specified in Section
7(d) of such Agreement.
SECTION 5.
Countersignature
and Registration
. (a) The Right Certificates shall be
executed on behalf of the Company by its Chairman, Chief Executive Officer,
President or Chief Financial Officer, 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 Right Certificates
shall be, either manually or by facsimile, countersigned by the Rights Agent and
shall not be valid for any purpose unless so countersigned. In case
any officer of the Company whose manual or facsimile signature is affixed to the
Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates may, nevertheless, be countersigned by the Rights Agent
and issued and delivered with the same force and effect as though the Person who
signed such Right Certificates had not ceased to be such officer of the
Company. Any Right Certificate may be signed on behalf of the Company
by any Person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such Person was not such an officer.
(b)
Following the Distribution Date, receipt by the Rights Agent of notice to
that effect and all other relevant information referred to in Section 3, the
Rights Agent will keep or cause to be kept, at its principal office or offices
designated as the place for surrender of Right Certificates upon exercise,
transfer or exchange, books for registration and transfer of the Right
Certificates. Such books shall show with respect to each Right
Certificate the name and address of the registered holder thereof, the number of
Rights indicated on the certificate and the certificate number.
SECTION 6.
Transfer
and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates
.
(a) At any time after the Distribution Date and prior to the Expiration Date,
any Right Certificate or Certificates may, upon the terms and subject to the
conditions set forth below in this Section 6(a), be transferred or exchanged for
another Right Certificate or Certificates evidencing a like number of Rights as
the Right Certificate or Certificates surrendered. Any registered
holder desiring to transfer, split up, combine or exchange any Right Certificate
or Certificates shall make such requests in writing delivered to the Rights
Agent, and shall surrender such Right Certificate or Certificates (with, in the
case of a transfer, the form of assignment and 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. Neither the Rights
Agent nor the Company shall be obligated to take any action whatsoever with
respect to the transfer of any such surrendered Right Certificate or
Certificates until the registered holder of the Rights has complied with the
requirements of Section 7(e) and paid a sum sufficient to cover any tax or
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Right Certificates as required by Section 9(e)
hereof. Upon satisfaction of the foregoing requirements, the Rights
Agent shall, subject to Sections 4(b), 7(d), 14 and 24, countersign and deliver
to the Person entitled thereto a Right Certificate or Certificates as so
requested. The Rights Agent shall promptly forward any such sum
collected by it to the Company or to such Persons as the Company shall specify
by written notice. The Rights Agent shall have no duty or obligation
under any Section of this Agreement which requires the payment of taxes or
charges unless and until it is satisfied that all such taxes and/or charges have
been paid.
(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 Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security satisfactory to them, and, at the Company’s request, reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Right Certificate
if mutilated, the Company will issue and deliver a new Right Certificate of like
tenor to the Rights Agent for countersignature and delivery to the registered
owner in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
SECTION 7.
Exercise
of Rights; Purchase Price; Expiration Date of Rights
.
(a) The
registered holder of any Right Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein, including Sections 7(d), 7(e),
9(c), 11(a) and 24) in whole or in part at any time after the Distribution Date
and prior to the Expiration Date upon surrender of the Right Certificate, with
the form of election to purchase and the certificate on the reverse side thereof
properly completed and duly executed, to the Rights Agent at the principal
office or offices of the Rights Agent designated for such purpose, together with
payment (in lawful money of the United States of America by certified check or
bank draft payable to the order of the Company) of the aggregate Purchase Price
with respect to the Rights then to be exercised and an amount equal to any tax
or charge required to be paid under Section 9(e) hereof. Except for
those provisions herein which expressly survive the termination of this
Agreement, this Agreement shall terminate at such time as the Rights are no
longer exercisable hereunder.
(b)
Upon satisfaction of the requirements of Section 7(a) and subject to Section
20(k), the Rights Agent shall thereupon promptly (i) (A) requisition from any
transfer agent of the Preferred Stock (or make available, if the Rights Agent is
the transfer agent therefor) certificates for the total number of one
one-thousandths of a share of Preferred Stock to be purchased (and the Company
hereby irrevocably authorizes each such transfer agent to comply with all such
requests) or (B) if the Company shall have elected to deposit the shares of
Preferred Stock issuable upon exercise of the Rights 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 hereby directs each such depositary agent to
comply with such request, (ii) when necessary to comply with this Rights
Agreement, promptly requisition from the Company the amount of cash, if any, to
be paid in lieu of issuance of fractional shares in accordance with Section 14
and (iii) after receipt of such certificates or depositary receipts and cash, if
any, when necessary to comply with this Rights Agreement, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate (with such certificates or receipts registered in such name or names
as may be designated by such holder). If the Company is obligated to
deliver Common Stock, other securities or assets pursuant to this Agreement, the
Company will make all arrangements necessary so that such other securities and
assets are available for delivery by the Rights Agent, if and when necessary to
comply with this Rights Agreement.
(c)
If the registered holder of any Right Certificate shall exercise less than all
the Rights evidenced thereby, a new Right Certificate evidencing the number of
Rights remaining unexercised shall be issued by the Rights Agent and delivered
to, or upon the order of, the registered holder of such Right Certificate,
registered in such name or names as may be designated by such holder, subject to
the provisions of Section 14.
(d)
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 Associate or Affiliate of an
Acquiring Person) who becomes a transferee after the Acquiring Person becomes
such or (iii) a transferee of an Acquiring Person (or of any Associate or
Affiliate of an Acquiring Person) 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 (or any Associate or Affiliate of an Acquiring Person) to
holders of equity interests in such Acquiring Person (or in any such Associate
or Affiliate) or to any Person with whom such Acquiring Person (or any such
Associate or Affiliate) has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer that the Board
of Directors determines is part of a plan, arrangement or understanding that has
as a primary purpose or effect the avoidance of this Section 7(d), 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(d) and
Section 4(b) are complied with, but shall have no liability to any holder of
Right Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or its Affiliates and
Associates or any transferee of any of them hereunder.
(e)
Notwithstanding anything in this Agreement to the contrary, neither the Rights
Agent nor the Company shall be obligated to undertake any action with respect to
a registered holder of Rights upon the occurrence of any purported transfer
pursuant to Section 6 or exercise pursuant to this Section 7 unless such
registered holder (i) shall have properly completed and duly signed the
certificate contained in the form of assignment or election to purchase, as the
case may be, set forth on the reverse side of the Right Certificate surrendered
for such transfer or exercise, as the case may be, (ii) shall not have indicated
an affirmative response to clause 1 or 2 thereof and (iii) 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.
SECTION 8.
Cancellation
and Destruction of Right Certificates
.
All Right
Certificates surrendered for exercise, transfer, split up, combination or
exchange shall, if surrendered to the Company or to any of its agents, be
delivered to the Rights Agent for cancellation or in cancelled form, or, if
surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
this Agreement. The Company shall deliver to the Rights Agent for
cancellation and retirement, and the Rights Agent shall so cancel and retire,
any other Right Certificate purchased or acquired by the Company otherwise than
upon the exercise thereof. The Rights Agent shall deliver all
cancelled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such cancelled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
SECTION 9.
Reservation
and Availability of Capital Stock
.
(a) The Company
covenants and agrees that it will cause to be reserved and kept available a
number of shares of Preferred Stock that are authorized but not outstanding or
otherwise reserved for issuance sufficient to permit the exercise in full of all
outstanding Rights as provided in this Agreement.
(b)
So long as the Preferred Stock issuable upon the exercise of 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
securities reserved for such issuance to be listed on any such exchange upon
official notice of issuance upon such exercise.
(c)
The Company shall use its best efforts (i) to file, as soon as practicable
following the earliest date after the occurrence of a Section 11(a)(ii) Event as
of which the consideration to be delivered by the Company upon exercise of the
Rights has been determined in accordance with Section 11(a)(iii), or as soon as
is required by law following the Distribution Date, as the case may be, a
registration statement under the Securities Act with respect to the securities
issuable upon exercise of the Rights, (ii) to cause such registration statement
to become effective as soon as practicable after such filing and (iii) to cause
such registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the earlier of (A) the
date as of which the Rights are no longer exercisable for such securities and
(B) the Expiration Date. 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 may temporarily suspend, for a period of time not
to exceed 120 days after the date set forth in Section 9(c)(i), 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 is no longer in
effect. The Company shall notify the Rights Agent whenever it makes a
public announcement pursuant to this Section 9(c) and give the Rights Agent a
copy of such announcement. Notwithstanding any such provision of this
Agreement to the contrary, the Rights shall not be exercisable for securities in
any jurisdiction if the requisite qualification in such jurisdiction shall not
have been obtained, such exercise therefor shall not be permitted under
applicable law or a registration statement in respect of such securities shall
not have been declared effective.
(d)
The Company covenants and agrees that it will take all such action as may be
necessary to insure that all one one-thousandths of a share of Preferred Stock
issuable upon the exercise of Rights shall, at the time of delivery of the
certificates for such securities (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 taxes and charges that may be payable in respect of the issuance or
delivery of the Right Certificates and of any certificates for Preferred Stock
upon the exercise of Rights. The Company shall not, however, be
required to pay any tax or charge that may be payable in respect of any transfer
involved in the issuance or delivery of any Right Certificates or of any
certificates for Preferred Stock to a Person other than the registered holder of
the applicable Right Certificate, and prior to any such transfer, issuance or
delivery, any such tax or other governmental charge shall have been paid by the
holder of such Right Certificate at the time of surrender or it shall have been
established to the Company’s or the Rights Agent’s satisfaction that no such tax
or charge is due.
SECTION 10.
Preferred
Stock Record Date
.
Each Person
(other than the Company) in whose name any certificate for Preferred Stock (or
Common Stock 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 Preferred Stock (or Common Stock or other securities, as the case
may be) represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable taxes or charges) was duly
made;
provided
that if
the date of such surrender and payment is a date upon which the transfer books
of the Company relating to the Preferred Stock (or Common Stock or other
securities, as the case may be) are closed, such Person shall be deemed to have
become the record holder of such shares on, and such certificate shall be dated,
the next succeeding Business Day on which the applicable transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a
stockholder of the Company with respect to shares for which the Rights shall be
exercisable, including 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
.
(a)
(i) If the Company shall at any time after the date of this Agreement
(A) pay a dividend on the Preferred Stock payable in shares of Preferred Stock,
(B) subdivide the outstanding Preferred Stock into a greater number of shares,
(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 involving the Company), the Purchase Price in effect immediately prior to
the record date for such dividend or the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of Preferred
Stock or other capital stock issuable on such date shall be proportionately
adjusted so that each holder of a Right shall (except as otherwise provided
herein, including Section 7(d)) thereafter be entitled to receive, upon exercise
thereof at the Purchase Price in effect immediately prior to such date, the
aggregate number and kind of shares of Preferred Stock or other 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 applicable transfer books of the Company were
open, such holder would have been entitled to receive upon such exercise and by
virtue of such dividend, subdivision, combination or
reclassification. If an event occurs that requires an adjustment
under both this Section 11(a)(i) and Section 11(a)(ii), 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).
(ii)
At any time after the date of this Agreement, upon any Person, alone or together
with its Affiliates and Associates, becoming an Acquiring Person (a “
Section 11(a)(ii) Event
”),
subject to Section 24 hereof, proper provision shall promptly be made so that
each holder of a Right shall (except as otherwise provided herein, including
Section 7(d)) thereafter be entitled to receive, upon exercise thereof at the
Purchase Price in effect immediately prior to the first occurrence of a Section
11(a)(ii) Event, in lieu of Preferred Stock, such number of duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock of the
Company (such shares being referred to herein as the “
Adjustment Shares
”) as shall
be equal to the result obtained by dividing (x) the product obtained by
multiplying the Purchase Price in effect immediately prior to the first
occurrence of a Section 11(a)(ii) Event by the number of one one-thousandths of
a share of Preferred Stock for which a Right was exercisable immediately prior
to such first occurrence (such product being thereafter referred to as the “
Purchase Price
” for
each Right and for all purposes of this Agreement) by (y) 50% of the current
market price (determined pursuant to Section 11(d)(i)) per share of Common Stock
on the date of such first occurrence;
provided
that if the
transaction that would otherwise give rise to the foregoing adjustment is also
subject to the provisions of Section 13, then only the provisions of Section 13
shall apply and no adjustment shall be made pursuant to this Section
11(a)(ii). The Company shall give the Rights Agent written notice of
the identity of any such Acquiring Person, Associate or Affiliate, or the
nominee of any of the foregoing, and the Rights Agent may rely on such notice in
carrying out its duties under this Agreement and shall be deemed not to have any
knowledge of the identity of any such Acquiring Person, Associate or Affiliate,
or the nominee of any of the foregoing unless and until it shall have received
such notice.
(iii)
If the number of shares of Common Stock that are authorized by the Company’s
Certificate of Incorporation but not outstanding or reserved for issuance other
than upon exercise of the Rights is not sufficient to permit the exercise in
full of the Rights in accordance with Section 11(a)(ii), the Company shall, with
respect to each Right, make adequate provision to substitute for the Adjustment
Shares, upon payment of the Purchase Price then in effect, (A) (to the extent
available) Common Stock and then, (B) (to the extent available) other equity
securities of the Company that are essentially equivalent to shares of Common
Stock in respect to dividend, liquidation and voting rights (such securities
being referred to herein as “
common stock equivalents
”)
and then, if necessary, (C) other equity or debt securities of the Company, cash
or other assets, a reduction in the Purchase Price or any combination of the
foregoing, having an aggregate value (determined by the Board of Directors based
upon the advice of a nationally recognized investment banking firm) equal to the
value of the Adjustment Shares;
provided
that (x) the Company
may, and (y) if the Company shall not have made adequate provision as required
above to deliver value within 30 days following the first occurrence of a
Section 11(a)(ii) Event (the “
Substitution Period
”), then
the Company shall be obligated to deliver, upon the surrender for exercise of a
Right and without requiring payment of the Purchase Price, (1) (to the extent
available) Common Stock and then (2) (to the extent available) common stock
equivalents and then, if necessary, (3) other equity or debt securities of the
Company, cash or other assets or any combination of the foregoing, having an
aggregate value (determined by the Board of Directors based upon the advice of a
nationally recognized investment banking firm) equal to the excess of the value
of the Adjustment Shares over the Purchase Price. To the extent that
the Company determines that some action is to be taken pursuant to the preceding
sentence, the Company (X) shall provide, subject to Section 7(d), that such
action shall apply uniformly to all outstanding Rights and (Y) may suspend the
exercisability of the Rights until the expiration of the Substitution Period in
order to decide the appropriate form and value of any consideration to be
delivered as referred to in the preceding sentence. If any such
suspension occurs, the Company shall issue a public announcement (with prompt
written notice thereof to the Rights Agent) stating that the exercisability of
the Rights has been temporarily suspended, as well as a public announcement
(with prompt written notice thereof to the Rights Agent) at such time as the
suspension is no longer in effect. For purposes of this Section
11(a)(iii), the value of the Common Stock shall be the current market price per
share of Common Stock (as determined pursuant to Section 11(d)) on the date of
the first occurrence of a Section 11(a)(ii) Event; any common stock equivalent
shall be deemed to have the same value as the Common Stock on such date; and the
value of other securities or assets shall be determined pursuant to Section
11(d)(iii).
(b)
If the Company fixes 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 45 calendar days after such record date)
Preferred Stock (or securities having the same rights, privileges and
preferences as the shares of Preferred Stock (“
equivalent preferred stock
”)) or securities convertible into or exercisable for Preferred Stock (or
equivalent preferred stock) at a price per share of Preferred Stock (or
equivalent preferred stock) (in each case, taking account of any conversion or
exercise price) less than the current market price (as determined pursuant to
Section 11(d)) 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 date by a fraction, the
numerator of which shall be the sum of the number of shares of Preferred Stock
outstanding on such record date, plus the number of shares of Preferred Stock
which the aggregate price (taking account of any conversion or exercise price)
of the total number of shares of Preferred Stock (and any equivalent preferred
stock) so to be offered would purchase at such current market price and the
denominator of which shall be the sum of the number of shares of Preferred Stock
outstanding on such record date plus the number of additional shares of
Preferred Stock (and any equivalent preferred stock) so to be
offered. If such subscription price may be paid by delivery of
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors, whose determination shall be described in a written statement filed
with the Rights Agent and shall be conclusive for all
purposes. 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 if such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price that would
then be in effect if such record date had not been fixed.
(c)
If the Company fixes a record date for the making of a distribution to all
holders of Preferred Stock (including any such distribution made in connection
with a consolidation or merger involving the Company) of evidences of
indebtedness, equity securities other than Preferred Stock, assets (other than a
regular periodic cash dividend out of the earnings or retained earnings of the
Company) or rights, options or warrants (excluding those referred to in Section
11(b), 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)) per share of Preferred Stock on
such record date, less the value (as determined pursuant to Section 11(d)(iii))
of such evidences of indebtedness, equity securities, assets, rights, options or
warrants so to be distributed with respect to one share of Preferred Stock and
the denominator of which shall be such current market price per share of
Preferred Stock. Such adjustment shall be made successively whenever
such a record date is fixed, and if such distribution is not so made, the
Purchase Price shall be adjusted to be the Purchase Price that would then be 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) or 14, 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 30
consecutive Trading Days immediately prior to, but not including, such date; for
purposes of computations made pursuant to Section 11(a)(iii), 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 ten
consecutive Trading Days immediately following, but not including, such date;
and for purposes of computations made pursuant to Section 14, the “current
market price” per share of Common Stock for any Trading Day shall be deemed to
be the closing price per share of Common Stock for such Trading Day;
provided
that if 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 exercisable for or convertible into shares of such Common Stock
(other than the Rights) or (B) any subdivision, combination or reclassification
of such Common Stock, and prior to, but not including, the expiration of the
requisite 30 Trading Day or ten Trading Day period, as set forth above, after
the ex-dividend date for such dividend or distribution, or the record date for
such subdivision, combination or reclassification, then, and in each such case,
the “
current 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 New York Stock Exchange or, if the shares
of Common Stock are not listed or admitted to trading on the New York Stock
Exchange, 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 NASDAQ Stock
Market (“
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 Board of 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 of Directors (or,
if at the time of such determination there is an Acquiring Person, by a
nationally recognized investment banking firm selected by the Board of
Directors), which 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 Section 11(d)(i) (other than the last sentence
thereof). If the current market price per share of Preferred Stock
cannot be determined in such manner, 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
Common Stock (as determined pursuant to Section 11(d)(i) (other than the last
sentence thereof)). If neither the Common Stock nor the Preferred
Stock is publicly held or so listed or traded, the “current market price” per
share of the Preferred Stock shall be determined in the same manner as set forth
in the last sentence of Section 11(d)(i). For all purposes of this
Agreement, the “current market price” of one one-thousandth of a share of
Preferred Stock shall be equal to the “current market price” of one share of
Preferred Stock divided by 1,000.
(iii)
For the purpose of any computation hereunder, the value of any securities or
assets other than Common Stock or Preferred Stock shall be the fair value as
determined in good faith by the Board of Directors, or, if at the time of such
determination there is an Acquiring Person, by a nationally recognized
investment banking firm selected by the Board of Directors, which determination
shall be described in a written statement filed with the Rights Agent and shall
be conclusive for all purposes.
(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 1% in the Purchase Price;
provided
that any adjustments
that 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 ten-thousandth of a share of Common Stock or
other share or one-millionth of a share of Preferred Stock, as the case may
be.
(f)
If at any time, as a result of an adjustment made pursuant to Section 11(a)(ii)
or Section 13(a), the holder of any Right shall be entitled to receive upon
exercise of such Right 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 Section 11, and the
provisions of Sections 7, 9, 10, 13 and 14 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
hereunder shall evidence the right to purchase, at the Purchase Price then in
effect, the then applicable number of one one-thousandths of a share of
Preferred Stock and other capital stock of the Company issuable 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 Section 11(b) and 11(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
(i) multiplying (x) the number of one one-thousandths of a share of Preferred
Stock for which a Right was exercisable 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 issuable upon the exercise of
a Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of one one-thousandths of a
share of Preferred Stock for which such 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 ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement (with prompt
written notice thereof to the Rights Agent) of its election to adjust the number
of Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Right Certificates have been issued, shall be at least ten days later
than the date of the public announcement. If Right Certificates have
been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record date Right
Certificates evidencing, subject to Section 14, the additional Rights to which
such holders shall be entitled as a result of such adjustment, or, at the option
of the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be distributed
shall be issued, executed, countersigned and delivered 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 Right
Certificates on the record date specified in the public
announcement.
(j)
Irrespective of any adjustment or change in the Purchase Price or the
number of one one-thousandths of a share of Preferred Stock issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price per one one-thousandths of a share
and the number of shares that were expressed in the initial Right Certificates
issued hereunder.
(k)
Before taking any action that would cause an adjustment reducing the
Purchase Price below the par 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 that 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.
(l)
In any case in which this Section 11 shall require that an adjustment in
the Purchase Price be made effective as of a record date for a specified event,
the Company may elect to defer (with prompt written notice thereof to the Rights
Agent) 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 or other capital stock of the Company, if any, issuable
upon such exercise over and above the number of one one-thousandths of a share
of Preferred Stock or other capital stock of the Company, if any, issuable upon
such exercise on the basis of the Purchase Price in effect prior to such
adjustment;
provided
that the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder’s right to receive such additional shares upon
the occurrence of the event requiring such adjustment.
(m)
Anything in this Section 11 to the contrary notwithstanding, the Company
shall be entitled to make such reductions in the Purchase Price, in addition to
those adjustments expressly required by this Section 11, as and to the extent
that it, in its sole discretion, shall determine to be advisable in order that
any consolidation or subdivision of the Preferred Stock, issuance wholly for
cash of any Preferred Stock at less than the current market price, issuance
wholly for cash of Preferred Stock or securities that by their terms are
convertible into or exercisable for Preferred Stock, stock dividends or issuance
of rights, options or warrants referred to in this Section 11, hereafter made by
the Company to the holders of its Preferred Stock, shall not be taxable to such
stockholders.
(n)
The Company covenants and agrees that it will not at any time after the
Distribution Date (i) consolidate, merge or otherwise combine with or (ii) sell
or otherwise transfer (or permit any of its Subsidiaries to sell or otherwise
transfer), in one transaction or a series of related transactions, assets 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
if (x) at the time of or immediately after such consolidation, merger,
combination or sale there are any rights, warrants or other instruments or
securities outstanding or any agreements or arrangements in effect that 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, combination or sale, the shareholders of a Person
who constitutes, or would constitute, the “Principal Party” for the purposes of
Section 13 shall have received a distribution of Rights previously owned by such
Person or any of its Affiliates and Associates.
(o)
The Company covenants and agrees that after the Distribution Date, it
will not, except as permitted by Sections 23, 24 and 27, 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 substantially diminish or otherwise
eliminate the benefits intended to be afforded by the Rights.
(p)
Notwithstanding anything in this Agreement to the contrary, if at any
time after the date hereof and prior to the Distribution Date the Company shall
(i) pay a dividend on the outstanding shares of Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock into a larger
number of shares or (iii) combine the outstanding 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 as contemplated by
Section 3(c), 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 or any event affecting the Rights or their exercisability
(including without limitation an event which causes Rights to become null and
void) occurs as provided in Sections 11 and 13, the Company shall (a) promptly
prepare a certificate setting forth such adjustment and a brief, reasonably
detailed statement of the facts, computations and methodology 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) mail a brief summary thereof to each holder of a Right Certificate (or,
if prior to the Distribution Date, to each holder of a certificate representing
shares of Common Stock) in the manner set forth in Section 26. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment or statement therein contained and shall have no duty or
liability with respect to, and shall not be deemed to have knowledge of, any
adjustment or any such event unless and until it shall have received such a
certificate.
SECTION 13.
Consolidation,
Merger or Sale or Transfer of Assets or Earning Power
.
(a) If,
after the occurrence of a Section 11(a)(ii) Event, directly or
indirectly,
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(x)
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the
Company shall consolidate with, merge into, or otherwise combine with, any
other Person, and the Company shall not be the continuing or surviving
corporation of such consolidation, merger or
combination;
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(y)
|
any
Person shall merge into, or otherwise combine with, the Company, and the
Company shall be the continuing or surviving corporation of such merger or
combination and, in connection with such merger or combination, all or
part of the outstanding shares of Common Stock shall be changed into or
exchanged for other stock or securities of the Company or any other
Person, cash or any other property;
or
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(z)
|
the
Company or one or more of its Subsidiaries shall sell or otherwise
transfer, in one transaction or a series of related transactions, assets
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 or one or more wholly-owned
Subsidiaries of the Company),
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then, and
in each such case, proper provision shall promptly be made so that,
(i)
each holder of a Right (except as otherwise provided herein, including pursuant
to Section 7(d)) shall thereafter be entitled to receive, upon exercise thereof
at the Purchase Price in effect immediately before the first occurrence of any
Triggering Event, such number of duly authorized, validly issued, fully paid and
nonassessable shares of freely tradable Common Stock of the Principal Party, not
subject to any rights of call or first refusal, liens, encumbrances or other
claims, as shall be equal to the result obtained by dividing:
(A)
the product obtained by multiplying the Purchase Price in effect immediately
before the first occurrence of any Triggering Event by the number of one
one-thousandths of a share of Preferred Stock for which a Right was exercisable
immediately before the occurrence of any Triggering Event (such product being
thereafter referred to as the “
Purchase Price
” for each
Right and for all purposes of this Agreement), by
(B)
50% of the current market price (determined pursuant to Section 11(d)(i)) per
share of the Common Stock of such Principal Party on the date of consummation of
such consolidation, merger, combination, sale or transfer;
(ii)
the Principal Party shall thereafter be liable for, and shall assume, by virtue
of such consolidation, merger, combination, sale or transfer, 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 shall apply
only to such Principal Party following the first occurrence of a Section 13
Event; and
(iv)
such Principal Party shall take such steps (including the authorization
and reservation of a sufficient number of shares of its Common Stock to permit
exercise of all outstanding Rights in accordance with this Section 13(a)) 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 the shares of its Common Stock thereafter
deliverable upon the exercise of the Rights.
(b)
“
Principal
Party
” means,
(i)
in the case of any transaction described in Sections 13(a)(x) or (y), (1)
the Person that is the issuer of the securities into which the shares of Common
Stock are converted in such merger or consolidation or, if there is more than
one such issuer, the issuer of Common Stock having the greatest aggregate market
value of shares outstanding, or (2) if no securities are so issued, (x) the
Person that is the other party to the merger, if such Person survives such
merger, or, if there is more than one such Person, the Person that is the issuer
of Common Stock having the greatest aggregate market value of shares outstanding
or (y) if the Person that is the other party to the merger does not survive the
merger, the Person that does survive the merger (including the Company if it
survives) or (z) the Person resulting from the consolidation; and
(ii)
in the case of any transaction described in Section 13(a)(z), the Person
that is the party receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transaction, or, if each Person that
is a party to such transaction or transactions receives the same portion of the
assets or earning power so transferred or if the Person receiving the greatest
portion of the assets or earning power cannot be determined, whichever of such
Persons is the issuer of Common Stock having the greatest aggregate market value
of shares outstanding;
provided
that in any such
case, (A) if the Common Stock of such Person is not at such time and has not
been continuously over the preceding 12-month period registered under 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; (B) 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 of shares outstanding; or (C) if such Person is
owned, directly or indirectly, by a joint venture formed by two or more Persons
that are not owned, directly or indirectly, by the same Person, the rules set
forth in clauses (A) and (B) above shall apply to each of the owners having an
interest in the venture as if the Person owned by the joint venture was a
Subsidiary of both or all of such joint venturers, and the Principal Party in
each such case shall bear the obligations set forth in this Section 13 in the
same ratio as its interest in such Person bears to the total of such
interests.
(c)
The Company shall not consummate any such consolidation, merger,
combination, sale or transfer unless the Principal Party shall have a sufficient
number of authorized shares of its Common Stock that are not outstanding or
otherwise 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 Sections 13(a) and
13(b) and providing that, as soon as practicable after the date of any
consolidation, merger, combination, sale or transfer mentioned in Section 13(a),
the Principal Party, at its own expense, shall:
(i)
prepare and file a registration statement under the Securities Act with
respect to the securities issuable upon exercise of the Rights, and will use its
best efforts to cause such registration statement (A) to become effective as
soon as practicable after such filing and (B) to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act) until
the Expiration Date; and
(ii)
deliver to holders of the Rights historical financial statements for the
Principal Party and each of its Affiliates that comply in all respects with the
requirements for registration on Form 10 under the Exchange Act.
(d)
The Company covenants and agrees that it shall not enter into any
transaction of the type described in clauses (x), (y) and (z) of Section 13(a)
if at the time of or immediately after such consolidation, merger, sale,
transfer or other transaction there are any rights, warrants or other
instruments or securities outstanding or agreements in effect that would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights.
(e)
The provisions of this Section 13 shall similarly apply to successive
mergers, consolidations, combinations, sales or other transfers. If
any Section 13 Event shall occur at any time after the occurrence of a Section
11(a)(ii) Event, the Rights that have not theretofore been exercised shall
thereafter become exercisable in the manner described in
Section 13(a).
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), or to distribute Right
Certificates that evidence fractional Rights. In lieu of any such
fractional Rights, the Company shall pay to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable an amount in cash equal to the same fraction of the current market
price of a whole Right. For purposes of this Section 14(a), the
current market price of a whole Right shall be the closing price of a Right for
the Trading Day immediately prior to the date on which such fractional Rights
would otherwise have been issuable. The closing price of a Right for
any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, 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 Board of Directors. If on any such date no such
market maker is making a market in the Rights, the current market price of the
Rights on such date shall be as determined in good faith by the Board of
Directors or, if at the time of such determination there is an Acquiring Person,
by a nationally recognized investment banking firm selected by the Board of
Directors), which determination shall be described in a written statement filed
with the Rights Agent and shall be conclusive for all purposes.
(b)
The Company shall not be required to issue fractions of shares of Preferred
Stock (other than fractions that are multiples of one one-thousandth of a share
of Preferred Stock) upon exercise of the Rights or to distribute certificates
that evidence fractional shares of Preferred Stock (other than fractions that
are multiples of one one-thousandth of a share of Preferred
Stock). In lieu of any such fractional shares of Preferred Stock, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market price of one one-thousandth of a share of
Preferred Stock. For purposes of this Section 14(b), the current
market price 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)) for the Trading Day immediately prior to the date
of such exercise.
(c)
Following the occurrence of any Triggering Event or upon any exchange
pursuant to Section 24, the Company shall not be required to issue fractions of
shares of Common Stock upon exercise of the Rights or to distribute certificates
that evidence fractional shares of Common Stock. In lieu of
fractional shares of Common Stock, the Company shall pay to the registered
holders of Right Certificates at the time such Rights are exercised or exchanged
as herein provided an amount in cash equal to the same fraction of the current
market price of a share of Common Stock. For purposes of this Section
14(c), the current market price of a share of Common Stock shall be the closing
price of a share of Common Stock (as determined pursuant to Section 11(d)(i))
for the Trading Day immediately prior to the date of such exercise or
exchange.
(d)
The holder of a Right by the acceptance of the Right expressly waives his right
to receive any fractional Rights or any fractional shares upon exercise of a
Right except as permitted by this Section 14.
(e)
Whenever a payment for fractional Rights or fractional shares is to be
made by the Rights Agent, the Company shall (i) promptly prepare and deliver to
the Rights Agent a certificate setting forth in reasonable detail the facts
related to such payments and the prices and/or formulas utilized in calculating
such payments, and (ii) provide sufficient monies to the Rights Agent in the
form of fully collected funds to make such payments. The Rights Agent
shall be fully protected in relying upon such a certificate and shall have no
duty with respect to, and shall not be deemed to have knowledge of any payment
for, fractional Rights or fractional shares under any Section of this Agreement
relating to the payment of fractional Rights or fractional shares unless and
until the Rights Agent shall have received such a certificate and sufficient
monies.
SECTION 15.
Rights
of Action
.
All rights of action in respect of this Agreement, excepting the
rights of action given to the Rights Agent under Section 18 and Section 20
hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of
certificates representing Common Stock); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of any certificate representing
Common Stock), without the consent of the Rights Agent or of the holder of any
other Right Certificate (or, prior to the Distribution Date, of any certificate
representing 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 Right Certificate in the manner provided in such
Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations by the Company of the obligations of, any Person subject to this
Agreement.
SECTION 16.
Agreement
of Right Holders
.
Every holder of
a Right by accepting the same consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a)
prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of Common Stock;
(b)
as of and after the Distribution Date, the Right 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 and properly
executed;
(c)
subject to Sections 6 and 7, the Company and the Rights Agent may deem
and treat the Person in whose name a Right Certificate (or, prior to the
Distribution Date, a certificate representing shares of Common Stock) is
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Right Certificate
or the certificate representing shares of Common Stock 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(d),
shall 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, judgment, decree or ruling (whether interlocutory or final) issued
by a court or by a governmental, regulatory, self-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
that the Company
must use its best efforts to have any such injunction, order, judgment, decree
or ruling lifted or otherwise overturned as soon as possible.
SECTION 17.
Right
Certificate Holder Not Deemed a Stockholder
.
No holder, as
such, of any Right Certificate shall be entitled to vote, receive dividends or
be deemed for any purpose the holder of the shares of capital stock that may at
any time be issuable on the exercise of the Rights represented thereby, nor
shall anything contained herein or in any Right Certificate be construed to
confer upon the holder of any Right Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in Section 25(c)), or
to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Right Certificate shall have been exercised in
accordance with the provisions hereof.
SECTION 18.
Concerning
the Rights Agent
.
(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 preparation, negotiation, delivery, amendment,
execution or administration of this Agreement and the exercise and performance
of its duties hereunder. The Company also agrees to indemnify the
Rights Agent for, and to hold it harmless against, any loss, liability, damage,
judgment, fine, penalty, claim, demand, settlement, cost or expense (including,
without limitation, the reasonable fees and expenses of legal counsel), incurred
without gross negligence, bad faith or willful misconduct on the part of the
Rights Agent (which gross negligence, bad faith or willful misconduct must be
determined by a final, non-appealable order, judgment, decree or ruling of a
court of competent jurisdiction), for any action taken, suffered or omitted by
the Rights Agent in connection with the acceptance, administration or
performance of its duties under this Agreement. The costs and
expenses incurred in enforcing this right of indemnification shall be paid by
the Company to the extent that the Rights Agent is entitled to indemnification
under this Section 18. The provisions of this Section 18 and Section
20 below shall survive the termination of this Agreement, the exercise or
expiration of the Rights and the resignation, replacement or removal of the
Rights Agent.
(b)
The Rights Agent shall be authorized and protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its acceptance and administration of this Agreement or the
exercise or performance of its duties hereunder in reliance upon any Right
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, instruction, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof. The Rights Agent shall not be deemed to have
knowledge of any event of which it was supposed to receive notice thereof
hereunder, and the Rights Agent shall be fully protected and shall incur no
liability for failing to take any action in connection therewith unless and
until it has received such notice.
SECTION 19.
Merger or
Consolidation or Change of Name of Rights Agent
.
(a) Any Person into which
the Rights Agent or any successor Rights Agent may be merged or with which it
may be consolidated, or any Person resulting from any merger or consolidation to
which the Rights Agent or any successor Rights Agent shall be a party, or any
Person succeeding to the 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;
provided
that such Person
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
(b)
In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement
SECTION 20.
Duties
of Rights Agent
.
The Rights
Agent undertakes to perform only the duties and obligations expressly imposed by
this Agreement (and no implied duties) upon the following terms and conditions,
by all of which the Company and the holders of Right Certificates, by their
acceptance thereof, shall be bound:
(a)
The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company or an employee of the Rights Agent), and the advice or
opinion of such counsel shall be full and complete authorization and protection
to the Rights Agent, and the Rights Agent shall incur no liability for or in
respect of any action taken, suffered or omitted by it in the absence of gross
negligence, bad faith and willful misconduct and in accordance with such advice
or 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 the
current market price of any security) be proved or established by the Company
prior to taking, suffering or omitting to take 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 Chairman, Chief Executive Officer, President or Chief
Financial Officer of the Company and delivered to the Rights Agent; and such
certificate shall be full and complete authorization and protection to the
Rights Agent and the Rights Agent shall incur no liability for or in respect of
any action taken, suffered or omitted in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c)
The Rights Agent shall be liable hereunder to the Company and any other
Person only for its own gross negligence, bad faith or willful misconduct (which
gross negligence, bad faith or willful misconduct must be determined by a final,
non-appealable order, judgment, decree or ruling of a court of competent
jurisdiction). Anything to the contrary notwithstanding, in no event
shall the Rights Agent be liable for special, punitive, indirect, consequential
or incidental loss or damage of any kind whatsoever (including but not limited
to lost profits), even if the Rights Agent has been advised of the likelihood of
such loss or damage. Any liability of the Rights Agent under this
Agreement will be limited to an amount equal to five (5) times the amount of
annual fees paid by the Company to the Rights Agent.
(d)
The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e)
The Rights Agent shall not be under any responsibility in respect of the
validity of this Agreement or the execution and delivery hereof (except the due
execution hereof by the Rights Agent) or in respect of the validity or execution
of any Right Certificate (except its countersignature thereof); nor shall it be
responsible for any breach by the Company of any covenant or condition contained
in this Agreement or in any Right Certificate; nor shall it be responsible for
any change in the exercisability of the Rights (including the Rights becoming
null and void pursuant to Section 7(d)) or any change or adjustment in the terms
of the Rights (including the manner, method or amount thereof) provided for in
Sections 3, 11, 13, 23 or 24, or the ascertaining of the existence of facts that
would require any such change or adjustment (except with respect to the exercise
of Rights evidenced by Right Certificates after receipt of the certificate
described in Section 12 hereof, upon which the Rights Agent may rely); 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 Right Certificate or as to
whether any shares of Common Stock or Preferred Stock will, when issued, be duly
authorized, validly issued, fully paid and nonassessable.
(f)
The Company agrees that it will perform, execute, acknowledge and deliver or
cause to be performed, executed, acknowledged and delivered all such further and
other acts, instruments and assurances as may reasonably be required by the
Rights Agent for the carrying out or performing by the Rights Agent of the
provisions of this Agreement.
(g)
The Rights Agent is hereby authorized and directed to accept instructions
with respect to the performance of its duties hereunder from the Chairman, Chief
Executive Officer, President or Chief Financial Officer of the Company, and to
apply to such officers for advice or instructions in connection with its duties,
and such instructions shall be full authorization and protection to the Rights
Agent, and the Rights Agent shall not be liable for or in respect of any action
taken, suffered or omitted to be taken by it in the absence of gross negligence,
bad faith and willful misconduct and in accordance with instructions of any such
officer or for any delay in acting while waiting for those
instructions. The Rights Agent shall be fully authorized and
protected in relying upon the most recent instructions received by any such
officer. Any application by the Rights Agent for written instructions
from the Company may, at the option of the Rights Agent, set forth in writing
any action proposed to be taken, suffered or omitted by the Rights Agent under
this Agreement and the date on and/or after which such action shall be taken or
suffered or such omission shall be effective. The Rights Agent shall
not be liable for any action taken or suffered by, or omission of, the Rights
Agent in accordance with a proposal included in any such application on or after
the date specified in such application (which date shall not be less than five
Business Days after the date any officer of the Company actually receives such
application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking any such action (or the effective date in
the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken,
suffered or omitted.
(h)
The Rights Agent and any shareholder, affiliate, 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 the Rights Agent were not
the Rights Agent under this Agreement. Nothing herein shall preclude
the Rights Agent or any such shareholder, affiliate, director, officer or
employee from acting in any other capacity for the Company or for any other
Person.
(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 (through its
directors, officers and employees) 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, to any holders of Rights or to any other Person resulting from any such
act, default, neglect or misconduct, absent gross negligence, bad faith or
willful misconduct in the selection and continued employment thereof (which
gross negligence, bad faith or willful misconduct must be determined by a final,
non-appealable order, judgment, decree or ruling of a court of competent
jurisdiction).
(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 it believes 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 Right 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 cases may be, has either not been completed or
indicates an affirmative response to clause 1 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 30 days’ notice in writing to the Company pursuant to
the requirements of Section 26 and to each transfer agent of the Common Stock
and Preferred Stock by registered or certified mail, and, subsequent to the
Distribution Date, to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights
Agent upon 30 days’ notice in writing pursuant to the requirements of Section 26
and to each transfer agent of the Common Stock and Preferred Stock by registered
or certified mail, and, subsequent to the Distribution Date, to the holders of
the Right Certificates by first-class mail. If the Rights Agent shall
resign or be removed or shall otherwise become incapable of acting, the Company
shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of 30 days after giving notice of
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company), then the registered holder of any Right Certificate
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be (a) a Person organized and doing business
under the laws of the United States or of any state of the United States, in
good standing that is authorized under such laws to exercise stock transfer or
corporate trust powers and is subject to supervision or examination by federal
or state authority and that has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50,000,000 or (b) an Affiliate of such
Person. 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. 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,
subsequent to the Distribution Date, mail a notice thereof in writing to the
registered holders of the Right Certificates. Failure to give any
notice provided for in this Section 21, or any defect therein, shall not affect
the legality or validity of the resignation or removal of the Rights Agent or
the appointment of the successor Rights Agent, as the case may
be.
SECTION 22.
Issuance
of New Right Certificates
.
Notwithstanding
any of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares of
stock issuable upon exercise of the Rights made in accordance with the
provisions of this Agreement.
SECTION 23.
Redemption
.
(a) At any time
before the occurrence of a Section 11(a)(ii) Event, the Board of Directors may,
at its option, redeem all but not less than all of the then outstanding Rights
at a redemption price of $0.001 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
”).
(b)
Immediately upon the effectiveness of a redemption of Rights pursuant to
Section 23(a) and without any further action and without any notice, the right
to exercise the Rights will terminate and thereafter the only right of the
holders of Rights shall be to receive the Redemption Price for each Right so
held. The Company shall promptly thereafter give notice of such
redemption to the Rights Agent and the holders of the Rights in the manner set
forth in Section 26;
provided
that the failure to
give, or any defect in, such notice shall not affect the validity of such
redemption. Any notice that is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which
the payment of the Redemption Price will be made. Neither the Company
nor any of its Affiliates or Associates may redeem, acquire, exchange or
purchase for value any Rights at any time in any manner other than that
specifically set forth in Sections 23 or 24, and other than in connection with
the purchase, acquisition or redemption of shares of Common Stock prior to the
Distribution Date.
SECTION 24.
Exchange
.
(a) At
any time on or after the occurrence of a Section 11(a)(ii) Event, the Board of
Directors may, at its option, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become null and
void pursuant to Section 7(d)) for shares of 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 shall not
be empowered to effect such exchange at any time after any Person (other than an
Exempt Person), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the shares of Common Stock then
outstanding.
(b)
Immediately upon the effectiveness of an exchange of any Rights pursuant
to Section 24(a) and without any further action and without any notice, the
right to exercise such Rights will terminate and thereafter the only right 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 thereafter give notice of
such exchange to the Rights Agent and the holders of the Rights to be exchanged
in the manner set forth in Section 26;
provided
that the failure to
give, or any defect in, such notice shall not affect the validity of such
exchange. Any notice that 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 shares of Common Stock for Rights will be effected and, in
the event of any partial exchange, the number of Rights that will be
exchanged. Any partial exchange shall be effected pro rata based on
the number of Rights (other than Rights that have become null and void pursuant
to Section 7(d)) held by each holder of Rights.
(c)
In any exchange pursuant to this Section 24, the Company, at its option,
may substitute common stock equivalents (as defined in Section 11(a)(iii)) for
shares of Common Stock exchangeable for Rights, at the initial rate of one
common stock equivalent for each share of Common Stock, as appropriately
adjusted to reflect adjustments in dividend, liquidation and voting rights of
common stock equivalents pursuant to the terms thereof, so that each common
stock equivalent delivered in lieu of each share of Common Stock shall have
essentially the same dividend, liquidation and voting rights as one share of
Common Stock.
SECTION 25.
Notice
of Proposed Actions
.
(a) If 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), (ii) to offer to the holders of its 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, (iii)
to effect any reclassification of its Preferred Stock (other than a
reclassification involving only the subdivision or combination of outstanding
shares of Preferred Stock), (iv) to effect any consolidation or merger with any
other Person, or to effect 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 assets 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 or (v) to effect the liquidation, dissolution or winding
up of the Company, then, in each such case, the Company shall give to the Rights
Agent and, to the extent feasible, to each holder of a Right, in accordance with
Section 26, a notice of such proposed action, which shall specify the record
date for the purposes of any such dividend, distribution or offering of rights
or warrants, or the date on which any 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 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 Section 25(a)(i) or 25(a)(ii) above at least 20 days prior to
the record date for determining holders of the Preferred Stock entitled to
participate in such dividend, distribution or offering, and in the case of any
such other action, at least 20 days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of Preferred
Stock, whichever shall be the earlier. The failure to give notice
required by this section or any defect therein shall not affect the legality or
validity of the action taken by the Company or the vote upon any such
action.
(b)
Notwithstanding anything in this Agreement to the contrary, prior to the
Distribution Date, a public filing by the Company with the Securities and
Exchange Commission shall constitute sufficient notice to the holders of
securities of the Company, including the Rights, for purposes of this Agreement,
and no other notice need be given to such holders.
(c)
If a Triggering Event shall occur, then, in any such case, (i) the Company shall
as soon as practicable thereafter give to the Rights Agent and to each holder of
a Right, in accordance with Section 26, a notice of the occurrence of such
event, which shall specify the event and the consequences of the event to
holders of Rights under Sections 11(a)(ii) or 13, as the case may be, and (ii)
all references in Section 25(a) to Preferred Stock shall be deemed thereafter to
refer to Common Stock or other capital stock, as the case may be.
SECTION 26.
Notices
.
Any notice, request,
instruction or other communication under this Agreement shall be in writing and
delivered by hand, first-class mail (postage prepaid), overnight courier service
or facsimile:
if to the
Company, to:
Houston
Wire & Cable Company
10201
North Loop East
Houston,
Texas 77029
Attention: Secretary
Facsimile: (713)
609-2168
if
to the Rights Agent, to:
American
Stock Transfer & Trust Company, LLC
6201
15
th
Avenue
Brooklyn,
New York 11219
Attention: Office
of the General Counsel
Facsimile: (718)
331-1852
or such
other Person, address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such
communication shall be effective (a) if delivered by hand, when such delivery is
made at the address specified in this Section 26, (b) if delivered by overnight
courier service, the next Business Day after such communication is sent to the
address specified in this Section 26, (c) if delivered by first-class mail
(postage prepaid), five days following the date on which such communication is
sent to the address specified in this Section 26 or (d) if delivered by
facsimile, when such facsimile is transmitted to the facsimile number specified
in this Section 26 and confirmation of the receipt thereof is
received. Notices or demands authorized by this Agreement to be given
or made by the Company or the Rights Agent to the holder of any Right
Certificate (or, prior to the Distribution Date, to the holder of any
certificate representing shares of Common Stock) shall be sufficiently given or
made if sent by first-class mail (postage prepaid) to the address of such holder
shown on the registry books of the Company or the transfer agent or registrar
for the Common Stock.
SECTION 27.
Supplements
and Amendments
.
Subject to the other provisions of this Section 27, for so long as
the Rights are redeemable, the Company may, and the Rights Agent shall, if the
Company so directs, supplement or amend any provision of this Agreement in any
respect without the approval of any holders of shares of Common
Stock. Subject to the other provisions of this Section 27, at any
time when the Rights are no longer redeemable, the Company may, and the Rights
Agent shall if the Company so directs, supplement or amend this Agreement
without the approval of any holders of Rights;
provided
that no such
supplement or amendment may (a) adversely affect the interests of the holders of
Rights as such (other than an Acquiring Person or an Affiliate or Associate of
an Acquiring Person), (b) cause this Agreement again to become amendable other
than in accordance with this sentence or (c) cause the Rights again to become
redeemable. Upon the delivery of a certificate from an appropriate
officer of the Company and, if requested by the Rights Agent, an opinion of
counsel, that 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. Notwithstanding anything contained in this
Agreement to the contrary, the Rights Agent may, but shall not be obligated to,
enter into any supplement or amendment that materially affects the Rights
Agent’s own rights, duties, obligations or immunities under this
Agreement.
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
.
The Board of
Directors shall have the exclusive power and authority to administer this
Agreement and to exercise all rights and powers specifically granted to the
Board of Directors or to the Company, or as may be necessary or advisable in the
administration of this Agreement, including the right and power to (a) interpret
the provisions of this Agreement and (b) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or exchange or not to redeem or exchange 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) that are done or made by the Board
of 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 of Directors to any liability to the holders of the
Common Stock or the Rights. The Rights Agent is entitled always to
assume the Company’s Board of Directors acted in good faith and shall be fully
protected and incur no liability in reliance thereon.
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 Right Certificates (and, prior to
the Distribution Date, 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 Right Certificates (and, prior to the Distribution Date, 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
that if any such
excluded term, provision, covenant or restriction shall materially and adversely
affect the rights, immunities, duties or obligations of the Rights Agent, the
Rights Agent shall be entitled to resign upon 10 Business Days’ notice in
writing to the Company pursuant to the requirements of Section 26.
SECTION 32.
Governing
Law
.
This Agreement, each Right and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such state applicable to contracts to be made and performed
entirely within such state;
provided
,
however
, that all
provisions, regarding the rights, duties, obligations and liabilities of the
Rights Agent shall be governed by and construed in accordance with the laws of
the State of New York 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 one and the same instrument.
SECTION 34.
Descriptive
Headings
.
The
captions herein are included for convenience of reference only, do not
constitute a part of this Agreement and shall be ignored in the construction and
interpretation hereof.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
|
HOUSTON
WIRE & CABLE COMPANY
|
|
|
|
By:
|
/s/
Nicol G. Graham
|
|
|
Name:
|
Nicol
G. Graham
|
|
|
Title:
|
Vice
President and Chief Executive
Officer
|
|
AMERICAN
STOCK TRANSFER & TRUST COMPANY, LLC, as Rights
Agent
|
|
|
|
By:
|
/s/
Herbert J. Lemmer
|
|
|
Name:
|
Herbert
J. Lemmer
|
|
|
Title:
|
Vice
President
|
EXHIBIT
A
FORM
OF CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF
SERIES
A JUNIOR PARTICIPATING PREFERRED STOCK
OF
HOUSTON
WIRE & CABLE COMPANY
Pursuant
to Section 151 of the General Corporation Law of the State of
Delaware
We, the
undersigned officers of Houston Wire & Cable Company, a Delaware corporation
(the “
Corporation
”),
pursuant to the provisions of Sections 103 and 151 of the General Corporation
Law of the State of Delaware, do hereby state and certify that pursuant to the
authority vested in the Board of Directors of the Corporation by the Amended and
Restated Certificate of Incorporation of the Corporation, as amended, the Board
of Directors on May 18, 2009, duly adopted the following resolution creating a
series of 100,000 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 Amended and Restated
Certificate of Incorporation, as amended, 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:
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 100,000.
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 Series A Junior
Participating Preferred Stock with respect to dividends, the holders of shares
of Series A Junior Participating Preferred Stock, in preference to the shares of
Common Stock, par value $0.001 per share, of the Corporation (the “
Common Stock
”), and any
other stock of the Corporation junior to the Series A Junior Participating
Preferred Stock with respect to dividends, 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 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) $0.10 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
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. If the Corporation shall at any time after May 28, 2009 (the “
Rights Declaration Date
”) (i) declare or pay any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock into a larger number of
shares, 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 Section 2(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, if 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 $0.10 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 60 days prior to the date fixed
for the payment thereof.
3.
Voting Rights
. In addition to any other voting rights required by law, the holders
of shares of Series A Junior Participating Preferred Stock shall have only 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, and each fractional share of Series A Junior
Participating Preferred Stock shall entitle the holder thereof to a pro rata
fractional vote. If 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 into a
larger number of shares 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) 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.
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 or set aside for payment, 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 (a) 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 (b) held by employees of the Corporation or a subsidiary of
the Corporation upon the termination of their employment with the Corporation or
a subsidiary of the Corporation; 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 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 Section 4(A), purchase or otherwise acquire
such shares at such time and in such manner.
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 canceled promptly after the acquisition
thereof. All such shares shall, upon their cancellation, become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth in the Amended and Restated Certificate of Incorporation.
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 Junior
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 Section 6(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 one with respect to such Preferred Stock and Common Stock, on a per
share basis, respectively.
(B) If,
however, 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, that 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. If, however, 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 .
(C) If
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 into a larger number of shares or (iii) combine the
outstanding Common Stock into a smaller number of shares, through a reverse
stock split of otherwise, 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.
7.
Consolidation
,
Merger
,
etc
. If 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 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 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. If 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 into a
larger number of shares 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.
8.
No Redemption
. The shares of Series A Junior Participating Preferred Stock shall
not be redeemable.
9.
Rank.
The Series
A Junior Participating Preferred Stock shall rank junior with respect to payment
of dividends and on liquidation to all other series of the Corporation’s
preferred stock outstanding on the date hereof and to all such other series that
may be issued after the date hereof except to the extent that any such other
series specifically provides that it shall rank junior to the Series A Junior
Participating Preferred Stock.
10.
Amendment.
The
Amended and Restated Certificate of Incorporation of the Corporation shall not
be amended in any manner that 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 at least a majority of the outstanding shares of Series A Junior
Participating Preferred Stock, voting separately as a class.
11.
Fractional Shares.
Series A Junior Participating Preferred Stock may be issued in fractions of a
share that shall entitle the holder, in proportion to such holder’s fractional
shares, to exercise voting rights, to receive dividends thereon, and to
participate in any distribution of assets and to have the benefit of all other
rights of holders of Series A Junior Participating Preferred Stock.
IN
WITNESS WHEREOF, Houston Wire & Cable Company affirms the foregoing as true
and has caused this Certificate to be duly executed by the authorized officers
below as of this 18th day of May, 2009.
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HOUSTON
WIRE & CABLE COMPANY
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By:
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Name:
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Title:
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EXHIBIT
B
[FORM
OF RIGHT CERTIFICATE]
No.
R-
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_____________
Rights
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NOT
EXERCISABLE AFTER THE EARLIER OF
·
AND THE DATE ON
WHICH THE RIGHTS EVIDENCED HEREBY ARE REDEEMED OR EXCHANGED BY THE COMPANY AS
SET FORTH IN THE RIGHTS AGREEMENT. AS SET FORTH IN THE RIGHTS
AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN
ACQUIRING PERSON OR AN 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 BE NULL AND VOID. [THE RIGHTS REPRESENTED BY
THIS RIGHT CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR
BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR AN ASSOCIATE OF AN ACQUIRING
PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). THIS RIGHT
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BE OR MAY BECOME NULL AND VOID
IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(d) OF THE RIGHTS AGREEMENT.]
1
RIGHT
CERTIFICATE
HOUSTON
WIRE & CABLE COMPANY
This
Right Certificate certifies that ______________________, or registered assigns,
is the registered holder of the number of Rights set forth above, each of which
entitles the holder (upon the terms and subject to the conditions set forth in
the Rights Agreement dated as of May 18, 2009 (the “
Rights Agreement
”) between
Houston Wire & Cable Company, a Delaware corporation (the “
Company
”), and American
Stock Transfer & Trust Company, LLC (the “
Rights Agent
”), to purchase
from the Company, at any time after the Distribution Date and prior to the
Expiration Date, ___ one-thousandth[s] of a fully paid, nonassessable share of
Series A Junior Participating Preferred Stock (the “
Preferred Stock
”) of the
Company at a purchase price of $40.00 per one one-thousandth of a share (the “
Purchase Price
”),
payable in lawful money of the United States of America, upon surrender of this
Right Certificate, with the form of election to purchase and related certificate
duly executed, and payment of the Purchase Price at an office of the Rights
Agent designated for such purpose.
Terms
used herein and not otherwise defined herein have the meanings assigned to them
in the Rights Agreement.
1
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If applicable, insert this
portion of the legend and delete the preceding
sentence.
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The
number of Rights evidenced by this Right Certificate (and the number and kind of
shares issuable upon exercise of each Right) and the Purchase Price set forth
above are as of May 18, 2009, and may have been or in the future be adjusted as
a result of the occurrence of certain events, as more fully provided in the
Rights Agreement.
Upon the
occurrence of a Section 11(a)(ii) Event, if the Rights evidenced by this Right
Certificate are beneficially owned by (a) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, (b) a transferee of an Acquiring Person (or
any such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such, or (c) under certain circumstances specified in the Rights
Agreement, a transferee of an Acquiring Person (or any such Associate or
Affiliate) who becomes a transferee prior to or concurrently with the Acquiring
Person becoming such, 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.
This
Right Certificate is subject to all of the terms, provisions and conditions of
the Rights Agreement, which terms, provisions and conditions are hereby
incorporated herein by reference and made a part hereof and to which Rights
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights
Agreement.
Upon
surrender at the principal office or offices of the Rights Agent designated for
such purpose and subject to the terms and conditions set forth in the Rights
Agreement, any Rights Certificate or Certificates may be transferred or
exchanged for another Rights Certificate or Certificates evidencing a like
number of Rights as the Rights Certificate or Certificates
surrendered.
Subject
to the provisions of the Rights Agreement, the Board of Directors may, at its
option,
(a)
at any time before the occurrence of a Section 11(a)(ii) Event,
redeem all but not less than all the then outstanding Rights at a redemption
price of $.001 per Right, subject to adjustment pursuant to the terms of the
Rights Agreement; or
(b)
at any time on or after the occurrence of a Section 11(a)(ii) Event
(but before such Person becomes the Beneficial Owner of 50% or more of the
shares of Common Stock then outstanding), exchange all or part of the then
outstanding Rights (other than Rights held by the Acquiring Person and certain
related Persons) for shares of Common Stock at an exchange ratio of one share of
Common Stock per Right. If the Rights shall be exchanged in part, the
holder of this Right Certificate shall be entitled to receive upon surrender
hereof another Right Certificate or Certificates for the number of whole Rights
not exchanged.
No
fractional shares of Preferred Stock are required to be issued upon the exercise
of any Right or Rights evidenced hereby (other than fractions that are multiples
of one one-thousandth of a share of Preferred Stock, that 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. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Certificates for the
number of whole Rights not exercised.
No holder
of this Right Certificate shall be entitled to vote, receive dividends or be
deemed for any purpose the holder of the shares of capital stock that may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights
Agreement.
This
Right Certificate shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Rights Agent.
IN WITNESS WHEREOF
, the
Company has caused this instrument to be duly executed under its corporate seal
by its authorized officers.
Dated as
of _________ __, ____
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HOUSTON
WIRE & CABLE COMPANY
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By:
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Name:
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Title:
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AMERICAN
STOCK TRANSFER & TRUST COMPANY, LLC, as Rights Agent
Form
of Reverse Side of Right Certificate
FORM
OF ASSIGNMENT
(To
be executed if the registered holder desires to
transfer
the Right Certificate.)
FOR
VALUE RECEIVED
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hereby
sells, assigns and transfers unt
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(Please
print name and address of transferee)
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this
Right Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ______________________
Attorney, to transfer the within Right Certificate on the books of the
within-named Company, with full power of
substitution.
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Dated:
_____________________, ____
______________________________________
Signature
Signature
Guaranteed:
CERTIFICATE
The
undersigned hereby certifies by checking the appropriate boxes
that:
(1)
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the Rights evidenced by this
Right Certificate [ ] are [ ] are not being assigned 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 in the Rights
Agreement);
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(2)
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after due inquiry and to the best
knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights
evidenced by this Right Certificate from any Person who is, was or became
an Acquiring Person or an Affiliate or Associate of an Acquiring
Person.
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Dated:
_____________________, ____
______________________________________
Signature
The
signatures to the foregoing Assignment and Certificate must correspond to the
name as written upon the face of this Right Certificate in every particular,
without alteration or enlargement or any change whatsoever.
FORM
OF ELECTION TO PURCHASE
(To be
executed if the registered holder desires to exercise
Rights
represented by the Right Certificate.)
To:
Houston Wire & Cable
Company
The
undersigned hereby irrevocably elects to exercise ____________ Rights
represented by this Right Certificate to purchase shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person that may be issuable upon the exercise of the
Rights) and requests that certificates for such securities 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 Right
Certificate, a new Right 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)
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the
Rights evidenced by this Right 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 in the Rights Agreement);
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(2)
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after
due inquiry and to the best knowledge of the undersigned, it [ ] did [ ]
did not acquire the Rights evidenced by this Right Certificate from any
Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring
Person.
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Dated:
________________, ____
______________________________________
Signature
The
signature to the foregoing Election to Purchase and Certificate must correspond
to the name as written upon the face of this Right Certificate in every
particular, without alteration or enlargement or any change
whatsoever.
EXHIBIT
C
HOUSTON
WIRE & CABLE COMPANY
STOCKHOLDER
RIGHTS PLAN
Summary
of Terms
On May
18, 2009, the Board of Directors of Houston Wire & Cable Company (the
“Company”) declared a dividend of one preferred stock purchase right for each
outstanding share of the Company’s Common Stock par value $0.001 share (the
“Common Stock”), payable to holders of record as of the close of business on May
28, 2009 (a “Right”). The terms and conditions of the Rights are set
forth in a Rights Agreement, dated as of May 18, 2009, between the Company and
American Stock Transfer & Trust Company, LLC, as Rights
Agent. The following summary description of the Rights is qualified
by reference to the Rights Agreement, as set forth in the final paragraph
below.
Transfer
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Prior
to the Distribution Date
1
, the Rights will be
evidenced by the certificates for (or, for uncertificated shares, by the
book-entry account that evidences ownership of) the Common Stock and will
be transferred with the Common Stock, and the registered holders of the
Common Stock will be deemed to be the registered holders of the
Rights.
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After
the Distribution Date, the Rights Agent will mail separate certificates
evidencing the Rights to each record holder of the Common Stock as of the
close of business on the Distribution Date (or, if the Common Stock is
uncertificated, by appropriate changes to the book-entry account that
evidences record ownership of such Common Stock), and thereafter the
Rights will be transferable separately from the Common
Stock.
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1
“Distribution Date” means the
earlier of:
(1)
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the tenth day after public
announcement that any person or group has become the beneficial owner of
20% or more of the Company’s Common Stock;
and
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(2)
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the tenth business day (or such
later date as the Board may designate before a person or group has become
the beneficial owner of 20% or more of the Company’s Stock) after the date
of the commencement of, or public announcement of the intent of any person
to commence, a tender or exchange offer that would, if consummated, result
in such person becoming the beneficial owner of 20% or more of the
Company’s Common Stock;
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unless
the tenth day or tenth Business Day, as the case may be, referred to in clauses
(a) and (b) above occurs after the date of public announcement of this Agreement
and before the Record Date, in which event the Distribution Date shall be the
close of business on the tenth day after the Record Date.
Exercise
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Prior
to the Distribution Date, the Rights will not be
exercisable.
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After
the Distribution Date, each Right will be exercisable to purchase, for
$40.00(the “Purchase Price”), one one-thousandth of a share of Series A
Junior Participating Preferred Stock, par value $0.001 per share, of the
Company.
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Flip-In
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If
any person or group of affiliated or associated persons (an “Acquiring
Person”) becomes the beneficial owner of 20% or more of the Common Stock
after the date of the Rights Agreement (other than as a result of
repurchases of stock by the Company or certain inadvertent actions and
excluding certain holders of more than 20% of the outstanding Common Stock
as of the date of the Rights Agreement who do not acquire any additional
shares of Common Stock after that date that would cause such holders to
exceed their percentage ownership (rounded up to the nearest whole
percentage point) of outstanding Common Stock as of the date of the Rights
Agreement), then, after the Distribution Date, each Right (other than
Rights beneficially owned by the Acquiring Person and certain affiliated
persons) will entitle the holder to purchase, for the Purchase Price, a
number of shares of the Common Stock having a market value of twice the
Purchase Price.
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When
calculating a person’s or group of affiliated or associated persons’
beneficial ownership to determine whether such person or group has become
an Acquiring Person, if the person or any of that person’s affiliates or
associates holds any option, warrant, convertible security, stock
appreciation right or other contractual right or derivative with an
exercise or conversion privilege or a settlement payment or mechanism at a
price related to, or a value determined in reference to, Common Stock and
that increases in value as the value of Common Stock increases or that
provides the holder with an opportunity to profit from any increase in the
value of Common Stock (a “Synthetic Long Position”), then that person
shall be deemed to beneficially own the Common Stock in respect of (i) any
Synthetic Long Position that is disclosed pursuant to a Schedule 13D under
the Exchange Act; and (ii) any Synthetic Long Position if not so disclosed
on a Schedule 13D, if and only if the Board determines that such person
shall be deemed to beneficially own the Common Stock in respect of such
Synthetic Long Position.
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Flip-Over
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If,
after any person has become an Acquiring Person, (1) the Company is
involved in a merger or other business combination in which the Company is
not the surviving corporation or its Common Stock is exchanged for other
securities or assets or (2) the Company or one or more of its subsidiaries
sell or otherwise transfer assets or earning power aggregating more than
50% of the assets or earning power of the Company and its subsidiaries,
taken as a whole, then each Right (other than Rights beneficially owned by
the Acquiring Person and certain affiliated persons) will entitle the
holder to purchase, for the Purchase Price, a number of shares of common
stock of the other party to such business combination or sale (or in
certain circumstances, an affiliate) having a market value of twice the
Purchase Price.
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Exchange
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At
any time on or after a Person has become an Acquiring Person (but before
any person becomes the beneficial owner of 50% or more of the outstanding
Common Stock), the Board of Directors may exchange all or part of the
Rights (other than the Rights beneficially owned by the Acquiring Person
and certain affiliated and associated persons) for shares of Common Stock
at an exchange ratio of one share of Common Stock per
Right.
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Redemption
|
The
Board of Directors may redeem all of the Rights at a price of $0.001 per
Right at any time before a Person has become an Acquiring
Person.
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Expiration
|
The
Rights will expire on May 18, 2012, unless earlier exchanged or
redeemed.
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Amendments
|
For
so long as the Rights are redeemable, the Rights Agreement may be amended
in any respect.
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At
any time after the Rights are no longer redeemable, the Rights Agreement
may be amended by the Board of Directors in any respect that does not (i)
adversely affect the Rights holders (other than any Acquiring Person and
certain affiliated or associated persons), (ii) cause the Rights Agreement
again to become amendable other than in accordance with this paragraph or
(iii) cause the Rights again to become redeemable.
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Voting
Rights
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Rights
holders have no rights as a stockholder of the Company, including no right
to vote and no right to receive dividends.
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Antidilution
Provisions
|
The
Rights Agreement includes antidilution provisions designed to prevent
efforts to diminish the efficacy of the
Rights.
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Taxes
|
While
the dividend of the Rights will not be taxable to stockholders or to the
Company, stockholders or the Company may, depending upon the
circumstances, recognize taxable income if the Rights become exercisable
as set forth above.
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A copy of
the Rights Agreement has been 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 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.