-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S++iokGcGERaDqmfT+xhi+xPgJIolji9cVUhLNWkjNK+vubA2m4jT9TRGU5aV3vF y7c8D1Aedo3L0hDaxhG9wQ== /in/edgar/work/20000818/0000931763-00-002071/0000931763-00-002071.txt : 20000922 0000931763-00-002071.hdr.sgml : 20000922 ACCESSION NUMBER: 0000931763-00-002071 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20000818 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: BI INC CENTRAL INDEX KEY: 0000716629 STANDARD INDUSTRIAL CLASSIFICATION: [7380 ] IRS NUMBER: 840769926 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: SEC FILE NUMBER: 005-34634 FILM NUMBER: 705869 BUSINESS ADDRESS: STREET 1: 6400 LOOKOUT RD CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3032181000 MAIL ADDRESS: STREET 1: 6400 LOOKOUT RD CITY: BOULDER STATE: CO ZIP: 80301 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: BI INC CENTRAL INDEX KEY: 0000716629 STANDARD INDUSTRIAL CLASSIFICATION: [7380 ] IRS NUMBER: 840769926 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 6400 LOOKOUT RD CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3032181000 MAIL ADDRESS: STREET 1: 6400 LOOKOUT RD CITY: BOULDER STATE: CO ZIP: 80301 SC 14D9 1 0001.txt SCHEDULE 14D-9 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- SCHEDULE 14D-9 (Rule 14d-101) SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 BI INCORPORATED (Name of Subject Company) BI INCORPORATED (Name of Person(s) Filing Statement) Common Stock, no par value (Title of Class of Securities) 055467 20 3 (CUSIP Number of Class of Securities) David J. Hunter President 6400 Lookout Road Boulder, Colorado 80301 (303) 218-1000 (Name, address and telephone number of person authorized to receive notice and communications on behalf of the person(s) filing statement) Copy to: John G. Lewis, Esq. Ireland, Stapleton, Pryor & Pascoe, P.C. 1675 Broadway, 26th Floor Denver, Colorado 80202 (303) 623-2700 [_]Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. INTRODUCTION This Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") relates to an offer by KBII Acquisition Company, Inc., a Colorado corporation ("Offeror") and a wholly-owned subsidiary of KBII Holdings, Inc., a Delaware corporation ("Parent"), to purchase all of the outstanding Shares (as defined below) of BI Incorporated, a Colorado corporation (the "Company"). Item 1. Subject Company Information. Name and Address. The name of the subject company is BI Incorporated. The address of its principal executive offices is 6400 Lookout Road, Boulder, Colorado 80301, and its telephone number is (303) 218-1000. Securities. The title of the class of equity securities to which this Schedule 14D-9 relates is the common stock, no par value, of the Company, including the associated common stock purchase rights under the Amended and Restated Rights Agreement dated December 1, 1999, and amended August 9, 2000 between the Company and Computershare Trust Company, Inc. (f/k/a American Securities Transfer & Trust, Inc.), as Rights Agent (collectively the "Shares"). A total of 7,968,818 Shares were outstanding on August 10, 2000. An additional 1,641,018 Shares are subject to outstanding stock options. Item 2. Identity and Background of Filing Person. Name and Address. The name, business address and business telephone number of the Company, which is the subject company and the person filing this Schedule 14D-9, are set forth in Item 1 above. Tender Offer and Subsequent Merger. This Schedule 14D-9 relates to the tender offer made by Offeror, disclosed in a Tender Offer Statement on Schedule TO dated August 18, 2000 (as amended or supplemented from time to time, the "Schedule TO"), to purchase all the outstanding Shares at a price of $8.25 per Share, net to the seller in cash (less any required withholding taxes), without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 18, 2000, and filed as Exhibit (a)(1)(A) to the Schedule TO (the "Offer to Purchase"), and the related Letter of Transmittal, filed as Exhibit (a)(1)(B) thereto (which, as they may be amended and supplemented from time to time, together constitute the "Offer"), copies of which are filed as Exhibits (a)(1) and (a)(2) hereto, respectively. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration date of the Offer, a number of Shares which will constitute at least 90% of Shares outstanding at the time that the Shares are accepted for payment pursuant to the Offer (the "Minimum Condition"). Once the Minimum Condition is satisfied and at least 90% of the Shares have been purchased, the Offeror will be merged with and into the Company pursuant to the Colorado Business Corporation Act ("CBCA") pursuant to the provisions that allow a corporation that is at least 90% owned by a subsidiary to merge with that subsidiary without a vote of all shareholders of the parent company. This type of merger is customarily referred to as a "short-form merger." If the Minimum Condition is not satisfied by the expiration of the Offer, but the number of Shares validly tendered pursuant to the Offer represents more than 75% of all Shares outstanding at the time that the Offer is terminated (the "Alternative Condition"), Offeror is relieved of its obligation to accept such tendered Shares, but Offeror and the Company shall, subject to Offeror having received an extension of its financing commitments until such time as a merger can be consummated, take such actions as may be necessary to cause Offeror to be merged with and into the Company pursuant to the provisions of the CBCA that allow a merger to be consummated if it is submitted to all shareholders of the Company and approved by the requisite number of Shares (in this case a majority of the Shares outstanding). This type of merger is customarily referred to as a "long-form merger." 2 The Offer is being made pursuant to an Agreement and Plan of Merger dated as of August 10, 2000, among Parent, Offeror and the Company (the "Merger Agreement"). Following the consummation of the Offer and the satisfaction or waiver of certain conditions, Offeror will merge with and into the Company or, at Parent's election and subject to certain conditions, the Company will merge with and into Offeror or another wholly owned subsidiary of Parent (the "Merger"). A copy of the Merger Agreement is filed as Exhibit (e)(1) hereto and is incorporated herein by reference in its entirety. In the Merger, each Share outstanding at the Effective Time (as defined in the Merger Agreement) (other than Shares held by Parent, Offeror or the Company, by any direct or indirect wholly owned subsidiary of Parent or the Company or by shareholders who perfect dissenters' rights pursuant to the CBCA) will, by virtue of the Merger and without any action by the holder thereof, be converted into the right to receive, without interest, an amount in cash equal to $8.25 per Share (less any required withholding taxes) or such greater amount per Share which may be paid pursuant to the Offer. The description of the Merger Agreement is incorporated by reference from Section 13 of the Offer to Purchase (filed as Exhibit (a)(1)(A) to the Schedule TO, under the caption entitled "The Transaction Documents--The Merger Agreement"). The Schedule TO states that the principal executive offices of Parent and Offeror are located at 111 Radio Circle, Mt. Kisco, New York 10549. Item 3. Past Contracts, Transactions, Negotiations and Agreements. Conflicts of Interest. Arrangements Between the Company and its Executive Officers, Directors and Affiliates. Certain contracts, agreements, arrangements and understandings between the Company and its executive officers, directors and affiliates are described in the Information Statement pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended, and Rule 14f-1 thereunder (the "Information Statement") that is attached as Annex B to this Statement and is incorporated herein by reference. Certain contracts, agreements, arrangements, and understandings, and any actual or potential conflicts of interest, between the Company or its affiliates and (i) the Company's executive officers, directors or affiliates, or (ii) the Parent or its executive officers, directors or affiliates, are described in the sections entitled "Election of Directors," "Beneficial Ownership of Common Stock," "Executive Compensation," "Employment Contracts and Termination of Employment and Change-in-Control Agreements," "Related Party Transactions; Compensation Committee Interlocks and Insider Participation" in the Company's Proxy Statement dated September 27, 1999 for its Annual Meeting of Shareholders held on November 16, 1999 (the "1999 Proxy Statement"); the section entitled "Executive Officers of the Company," in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999 (the "1999 Form 10-K); and the sections in the Offer to Purchase under the headings "Certain Information Concerning Offeror and Parent" which are incorporated herein by reference and the section. Copies of the portions of the 1999 Proxy Statement and the 1999 Form 10-K referred to above are filed as Exhibits (e)(2) and (e)(3) hereto, respectively, and those portions are incorporated herein by reference. Proposed Employment and Similar Arrangements. Certain Arrangements and Agreements. The description of the arrangements and agreements between certain present management personnel of the Company on the one hand, and Offeror and Parent, on the other, is incorporated by reference from Section 13 of the Offer to Purchase (filed as Exhibit (a)(1)(A) to the Schedule TO), under the captions entitled "The Transaction Documents-- Stock Voting and Tender Agreement," "--Side Letter," "--Stock Option Grant in Parent," "--Separation Policy" and "--Stockholders' Agreement," as if specifically set forth herein. Interests of Certain Persons in the Offer and the Merger. In considering the recommendations of the Board of Directors of the Company (the "Board of Directors") with respect to the Offer, the Merger and the Merger Agreement and the fairness of the consideration to be received in the Offer and the Merger, shareholders should be aware that certain officers and directors of Parent, Offeror and the Company have interests in the Offer 3 and the Merger, which are described in the sections of the Offer to Purchase listed below, that may present them with potential conflicts of interest. The information contained under the captions "Background of the Offer," "Certain Information Concerning Offeror, Parent" and "The Transaction Documents--The Merger Agreement; Nonsolicitation Obligations and Exceptions (d)" (discussing officer and director indemnification and insurance) in the Offer to Purchase (filed as Exhibit (a)(1)(A) to the Schedule TO) are incorporated herein by reference. Except as described herein or incorporated by these references, there are, as of the date of this Schedule 14D-9, no material contracts, agreements, arrangements or understandings and no material actual or potential conflicts of interest between the Company or its affiliates and (i) the Company's executive officers, directors or affiliates, or (ii) Offeror and Parent or their executive officers, directors or affiliates. The Special Committee and the Board of Directors were aware of these actual and potential conflicts of interest, as well as the agreements described above, and considered them along with the other matters described below in Item 4, "The Solicitation or Recommendation--Reasons for the Recommendation." The Company's directors and officers are entitled to indemnification pursuant to the Colorado Business Corporation Act and pursuant to provisions of the Company's bylaws. A description of these rights is set forth herein at Item 8--"Additional Information" under the caption "Indemnification of Officers and Directors." Item 4. The Solicitation or Recommendation. Recommendation of the Board of Directors. Recommendation of the Special Committee. At a meeting held on August 9, 2000, the Special Committee unanimously recommended (i) that the Board of Directors find that the Merger Agreement, the Offer and the Merger are fair to and in the best interests of the Company's shareholders and (ii) that the form, terms and conditions of the Merger Agreement be approved by the Board of Directors and that the Board of Directors recommend to the shareholders of the Company that they tender their shares pursuant to the Offer. Recommendation of the Company's Board Of Directors. At a meeting held on August 10, 2000, after hearing the Special Committee's recommendation, the Company's Board of Directors, by unanimous vote of those present, and based on, among other things, the recommendation of the Special Committee, (i) determined that the Offer and the Merger are fair to and in the best interests of the Company's shareholders, (ii) approved the form, terms and conditions of the Merger Agreement; and (iii) recommended that the Company's shareholders tender their Shares in the Offer. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY TENDER THEIR SHARES IN THE OFFER. Copies of a letter to the shareholders of the Company communicating the Board's recommendation and the Company's press release announcing the Merger Agreement and the transactions contemplated thereby are filed as Exhibits (a)(3) and (a)(4) hereto, respectively, and are incorporated herein by reference. Background. In late 1998, the Company engaged SunTrust Equitable Securities Corporation ("SunTrust Equitable Securities") as its exclusive financial advisor and investment banker. In preparation for its assignment, SunTrust Equitable Securities conducted a due diligence review and investigation of the Company. In November 1999, the Board of Directors specifically asked SunTrust Equitable Securities to assist it in the evaluation of various possible strategic alternatives to enhance shareholder value, with a focus on the acquisition of the Company. At that time, the Board of Directors formed a Special Committee of the Board of Directors consisting of Jeremy N. Kendall (Board of Directors and Special Committee Chairman), Beverly J. Haddon and William E. Coleman. The Special Committee's duties were to consider strategic alternatives presented to the Company, to enter into discussions and negotiations related to such alternatives and to recommend to the Board of Directors what action, if any, should be taken. SunTrust Equitable Securities then completed preparation of an information package (the "Information Package") concerning the Company which contained historical public financial documents, Company investor presentations and a five-year projected financial plan. Beginning in January 2000, SunTrust Equitable Securities 4 contacted a list of numerous potential strategic and financial partners, inquiring as to interest in acquiring the Company. The Information Package was transmitted to those parties that expressed preliminary interest in the Company and who were willing to sign confidentiality agreements with the Company. These interested recipients included Kohlberg & Company, L.L.C. ("Kohlberg"). Discussions, due diligence and meetings with eight of those parties continued until May 2000, at which time Kohlberg emerged as the remaining party willing to make an offer for the Company. Additional information regarding the background of the solicitation and recommendation is incorporated by reference from Section 11 (in its entirety) of the Offer to Purchase (filed as Exhibit (a)(1)(A) to the Schedule TO), under the caption "Background of Offer" as if specifically set forth herein. Reasons for Recommendation. The Board of Directors, in approving the Merger Agreement, the Offer, the Merger, and the other transactions contemplated by the Merger Agreement, is recommending that the Company's shareholders tender their shares pursuant to the Offer. The Special Committee, in its recommendation to the Board of Directors, and the Board of Directors in its recommendation to the Company's shareholders considered a variety of factors including, but not limited to, the following: 1. The opinion of the Company's financial advisor, SunTrust Equitable Securities, that based upon and subject to the assumptions and qualifications stated in its opinion, the $8.25 per share to be paid to the shareholders of the Company in the Offer and the Merger is fair, from a financial point of view, to such shareholders of the Company, and the report and analysis presented to the Board of Directors in connection with the SunTrust Equitable Securities' opinion. The full text of SunTrust Equitable Securities' written opinion, dated August 9, 2000, which sets forth the assumptions made, matters considered and limitations on the review undertaken by SunTrust Equitable Securities is set forth in and filed as Annex A hereto and is incorporated herein by reference. Shareholders are urged to read the opinion of SunTrust Equitable Securities in its entirety. 2. The presentation of SunTrust Equitable Securities that included various valuation analyses of the Company, described below under "Opinion of Financial Advisor." 3. The fact that the $8.25 per Share price represents a premium of 91% over the closing sale price of $4.313 on July 31, 2000, the day Offeror, Parent and the Company agreed to the $8.25 Offer price, and a multiple of 1.37X the Company's net book value per share as of June 30, 2000, and a multiple of 1.79X the Company's net tangible book value per share as of June 30, 2000. 4. The Board of Directors' and Special Committee's familiarity with the Company's business, financial condition, results of operations, current business strategy and prospects. 5. The fact that since initiation of the efforts by the Company to seek a transaction in January 2000, no party other than Kohlberg has made an offer for a business combination with the Company. 6. The Company's prospects if it were to remain independent, and the risks and benefits inherent in remaining independent. 7. The possible alternatives to the Offer and the Merger (including the possibility of continuing to operate the Company as an independent entity), the range of possible benefits to the Company's shareholders of such alternatives and the timing and likelihood of accomplishing the goal of any of such alternatives. 8. The fact that the consideration and other terms of the Merger Agreement resulted from arms-length negotiations among Offeror, Parent and the Company, and the Special Committee's and the Board of Directors' belief that $8.25 per Share represented the highest per Share consideration that could be negotiated with Offeror and Parent. 5 9. The fact that the Offer is for 100% of the Company's Common Stock and is conditioned upon there being validly tendered and not withdrawn prior to the expiration date of the Offer, at least 90% of the outstanding Shares. 10. The fact that the Offer and the Merger provide for a prompt tender offer for all Shares to be followed by a second-step merger at the same consideration, thereby enabling the Company's shareholders to obtain the benefits of the transaction at the earliest possible time. 11. The financial ability of Offeror and Parent to consummate the Offer and the Merger. In this regard, the Board of Directors noted that Offeror and Parent had received executed commitment letters from financial institutions providing for all financing necessary to purchase the Shares and to pay all transaction fees in connection with the Offer and the Merger. 12. The fact that the Merger Agreement permits the Company to furnish information to and participate in negotiations with third parties in response to an unsolicited acquisition proposal if a majority of the Board of Directors (a) reasonably determines in good faith, after consultation with an independent, nationally recognized investment bank, that taking such action would be reasonably likely to lead to the delivery to the Company of a superior proposal and (b) determines in good faith, after receiving the advice of outside legal counsel, that it is necessary to take such actions in order to comply with its fiduciary duties under applicable law. 13. The fact that the Board of Directors is permitted to terminate the Merger Agreement if prior to the purchase of Shares pursuant to the Offer, a superior proposal is received by the Company and the Board of Directors reasonably determines in good faith, after receiving the advice of outside legal counsel, that it is necessary to terminate the Merger Agreement and enter into a new agreement to effect the superior proposal in order to comply with its fiduciary duties under applicable law. 14. The terms of the Merger Agreement, including the parties' representations, warranties and covenants and the conditions to their respective obligations. The foregoing discussion of the information and factors considered by the Special Committee and the Board of Directors is not intended to be exhaustive, but includes the material factors considered by the Special Committee and the Board of Directors. The Special Committee and the Board of Directors also considered the actual and potential conflicts of interest described above in Item 3. In view of the wide variety of factors considered in connection with their review of the Offer, the Special Committee and the Board found it impractical to, and therefore did not, quantify or otherwise assign relative weights to the specific factors it considered in reaching its conclusion and recommendation. Rather, the Special Committee and the Board of Directors viewed their positions and recommendations as being based on the totality of the information presented to and considered by it. In addition, it is possible that different members of the Special Committee and the Board of Directors assigned different weights to the various factors described above. Opinion of Financial Advisor. In connection with the Offer, the Company engaged SunTrust Equitable Securities to provide an opinion as to the fairness, from a financial point of view, of the Offer Price to the Board of Directors. SunTrust Equitable Securities is a nationally recognized firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with merger transactions and other types of acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. The Company selected SunTrust Equitable Securities to render a fairness opinion on the basis of its experience and expertise in transactions similar to the Merger and its reputation and experience in the corrections industry. Pursuant to the Company's engagement with SunTrust Equitable Securities, SunTrust Equitable Securities assisted in locating a buyer for the Company's Correctional Information Systems business, which was sold in April 1999. SunTrust Equitable Securities received a fee of $250,000 plus expenses of $39,000 for this transaction. 6 SunTrust Equitable Securities has no material relationships with the Company, Offeror or Parent, or their respective affiliates, except as described herein. SunTrust Banks, Inc., SunTrust Equitable Securities' parent company, may have lending relationships with companies in which Offeror and Parent have investments. In the ordinary course of business, SunTrust Equitable Securities or SunTrust Banks, Inc. may solicit companies in which Offeror and Parent have investments and may provide advisory or other services to those companies. At the August 9, 2000, meeting of the Board of Directors, SunTrust Equitable Securities delivered its oral opinion (as subsequently confirmed in writing as of that date) that, as of that date, and based upon and subject to the limitations, assumptions and qualifications stated in the opinion, the Offer Price to be paid in the Offer and the Merger to the holders of the Company common stock is fair, from a financial point of view, to such holders of the Company common stock. No limitations were imposed by the Board of Directors upon SunTrust Equitable Securities related to the investigations made or the procedures followed by it in rendering its opinion (the "SunTrust Opinion"). The full text of the SunTrust Opinion, which states the assumptions made, matters considered and limitations of review by SunTrust Equitable Securities is attached to this Schedule 14D-9 as Annex A and is incorporated by reference. The opinion should be read carefully and in its entirety in connection with this Schedule 14D-9. The following summary of the SunTrust Opinion is qualified by the full text of the SunTrust Opinion. The SunTrust Opinion is not a recommendation as to whether any shareholder of the Company should tender shares pursuant to the Offer, vote in favor of the Merger or as to any other matter relating to the Offer or the Merger. In connection with its opinion, SunTrust Equitable Securities, among other things: . reviewed publicly available financial and other financial information, reports, forecasts and other internal information that were provided to SunTrust Equitable Securities by or on behalf of the Company . reviewed the Merger Agreement . compared financial positions and operating results of the Company to other companies in the corrections industry . considered, to the extent available, the financial terms of other similar transactions recently effected which it believed to be comparable to the Offer . reviewed and discussed the historical and current operations of the Company, its financial condition and prospects with management and representatives of the Company . conducted other financial studies, analyses and investigations and reviewed other information and factors as it found appropriate for purposes of the SunTrust Opinion In connection with its review, SunTrust Equitable Securities did not independently verify and relied on the accuracy and completeness in all material respects of all of the financial and other information and data publicly available or furnished to or otherwise reviewed by it. SunTrust Equitable Securities assumed for purposes of the SunTrust Opinion that the Company's financial forecasts were reasonably prepared on bases reflecting the best available estimates at the time of preparation as to the future financial performance of the Company and good faith judgments of the management of the Company. SunTrust Equitable Securities relied on management's projections. SunTrust Equitable Securities did not express an opinion related to the forecasts or the assumptions on which they were based. SunTrust Equitable Securities also assumed that there were no material changes in the Company's assets, financial condition, results of operations, business or prospects since the date of the last financial statements made available to SunTrust Equitable Securities. SunTrust Equitable Securities relied on advice of counsel to the Company as to all legal matters related to the Company, the Offer, the Merger and the Merger Agreement. SunTrust Equitable Securities has assumed that the Offer and the Merger will be completed 7 in a manner that complies in all respects with the applicable provisions of the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. In addition, SunTrust Equitable Securities did not assume responsibility for making an independent evaluation, appraisal or physical inspection of the assets or liabilities (contingent or otherwise) of the Company and was not furnished with any appraisals. Finally the SunTrust Opinion was based on economic, monetary, market and other conditions as they existed and could be evaluated on the date of the SunTrust Opinion and did not address the fairness of the Offer Price as of any other date. Where analyses in the SunTrust Opinion present information regarding the multiples implied by the Offer Price, the Offer Price has been valued for purposes of analysis at $8.25 per Share. Intent to Tender. To the Company's knowledge after reasonable inquiry, all of the Company's executive officers, directors and affiliates intend to tender all Shares held of record or beneficially by them pursuant to the Offer (other than Shares issuable on the exercise of options and Shares, if any, which if tendered could cause such persons to incur liability under the provisions of Section 16(b) of the Exchange Act), subject to and consistent with any fiduciary obligations of such persons. Item 5. Persons/Assets Retained, Employed, Compensated or Used. The Company engaged SunTrust Equitable Securities in a letter agreement dated November 25, 1998, to act as its financial advisor and render its fairness opinion in connection with the Offer and Merger. Pursuant to the terms of SunTrust Equitable Securities' engagement, the Company has agreed to pay SunTrust Equitable Securities for its services an aggregate financial advisory fee equal to approximately $1,312,500 as follows: (a) a valuation fee of $50,000, (b) a retainer fee of $50,000, (c) an additional fee of $150,000 following the delivery of its oral opinion to the Board of Directors, and (d) a financial advisory fee of one and one-quarter percent (1.25%) of the aggregate consideration on a sale transaction. The Company has also agreed to reimburse SunTrust Equitable Securities for its reasonable out-of-pocket expenses which are expected to be approximately $70,000. The Company has paid $100,000 in fees to SunTrust Equitable Securities, so far. Under a separate letter agreement, the Company has agreed to indemnify SunTrust Equitable Securities, its affiliates, and their respective partners, directors, officers, agents, consultants, employees and controlling persons against certain liabilities, including liabilities under the federal securities laws. In the ordinary course of its business, SunTrust Equitable Securities actively trades securities of the Company for its own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in the securities. A summary of the material provisions of the agreements with BB&T Capital Markets, a division of Scott & Stringfellow, Inc., as Dealer Manager, and Innisfree M&A Incorporated, as Information Agent, is included in Section 17 of the Offer to Purchase (filed as Exhibit (a)(1)(A) to the Schedule TO), and is incorporated herein by reference. Except as disclosed herein and in the Offer to Purchase, a copy of which is filed herewith as Exhibit (a)(1) and portions of which are incorporated herein by reference, neither the Company nor anyone acting on its behalf has employed, retained or compensated, or currently intends to employ, retain or compensate, any person to make solicitations or recommendations to the shareholders of the Company on its behalf with respect to the Offer or the Merger. Item 6. Interest in Securities of the Subject Company. Steven P. Merrefield and Jonathan M. Hinebauch, executive officers of the Company, purchased 64 and 1,058 shares, respectively, on June 30, 2000, pursuant to the Company's Employee Stock Purchase Plan. The following six of the Company's directors received options for 4,500 shares each of the Company's common 8 stock on June 30, 2000, exercisable at $5.375 per share: William, E. Coleman, Beverly J. Haddon, Jeremy N. Kendall, Perry M. Johnson, Barry J. Nidorf and Byam K. Stevens, Jr. Other than the foregoing, no transactions in Shares have been effected during the past 60 days by the Company, or, to the best of the Company's knowledge, after reasonable inquiry, by any executive officer, director, affiliate, or subsidiary of the Company. Item 7. Purposes of the Transactions and Plans or Proposals. (a) Except as described in Items 3 and 4 of this Schedule 14D-9, the Company is not now engaged in any discussions or negotiations in response to the Offer which relate to, or would result in, (i) an extraordinary transaction such as a merger, reorganization or liquidation involving the Company, (ii) any purchase, sale or transfer of a material amount of assets of the Company, (iii) a tender offer for or other acquisition of securities by, or of, the Company, or (iv) any material change in the present indebtedness, capitalization, dividend rate or dividend policy of the Company. (b) Except as described in Items 3 and 4 of this Schedule 14D-9, there are no transactions, board resolutions, agreements in principle or signed contracts entered into in response to the Offer which relate to or would otherwise result in one or more of the matters referred to in paragraph (a) of this Item 7. Item 8. Additional Information. Rights Plan. The Company adopted a Rights Plan in December of 1999. The Rights Plan allows shareholders of the Company to purchase shares of common stock at certain prices upon the happening of certain events, including acquisition of certain predetermined percentages of shares of the Company by an individual or group, a merger or acquisition of assets. In connection with the Company's entering into the Merger Agreement, the Board of Directors of the Company determined that, pursuant to the conditions set forth in the Rights Plan, as amended, the Rights would not be distributed as a result of the execution, delivery or performance of the Merger Agreement, the announcement, making or consummation of the Offer, the acquisition of the Shares pursuant to the Offer or the Merger, the consummation of the Merger or any other transaction contemplated by the Merger Agreement. If the Board had not so acted, a distribution of Rights, separate from the Common Stock, might have resulted from the Offer, the Merger Agreement or any of the respective transactions contemplated thereby. A copy of the Amended and Restated Rights Plan has been filed as Exhibit (e)(7) to this Schedule 14D-9. Indemnification of Officers and Directors. The Company's directors and officers are entitled to indemnification pursuant to the provisions governing indemnification contained in the CBCA. Colorado law generally permits indemnification of director liability, including expenses actually and reasonably incurred in the defense or settlement of a derivative or third-party action, provided there is a determination by a majority vote of a disinterested quorum of the directors, by independent legal counsel or by a majority vote of a quorum of the shareholders that the person seeking indemnification acted in good faith and in the case of conduct in an official capacity, in a manner he or she reasonably believed was in the best interests of the corporation or a benefit plan (if acting in a capacity with respect to such a plan). In other cases, the director is entitled to indemnification if his or her conduct was at least not opposed to the corporation's best interests. In a criminal proceeding, the director is entitled to indemnification if he or she had no reasonable cause to believe the conduct was unlawful. Without court approval, however, no indemnification is available in any action by or on behalf of the corporation (i.e., a derivative action) in which such person is adjudged liable to the corporation or in any other 9 proceeding where the director is adjudged liable on the basis that he or she received an improper personal benefit. Colorado law requires indemnification of director expenses when the individual being indemnified has successfully defended any action, claim, issue, or matter therein, on the merits or otherwise. A director may also apply for and obtain indemnification as ordered by a court under circumstances where the court deems the director is entitled to mandatory indemnification under Colorado law or when, under all the facts and circumstances, it deems it fair and reasonable to award indemnification even though the director has not strictly met the statutory standards. An officer is also entitled to apply for and receive court awarded indemnification to the same extent as a director. A corporation cannot indemnify its directors by any means (other than under a third party insurance contract) if to do so would be inconsistent with the limitations on indemnification set forth in the CBCA. A Colorado corporation may indemnify officers, employees, fiduciaries and agents to the same extent as directors, and may indemnify those persons to a greater extent than is available to directors if to do so does not violate public policy and is provided for in a bylaw, a general or specific action of the board of directors or shareholders or in a contract. The Company's bylaws provide that "[t]he board of directors shall have the authority to indemnify any director, officer, employee, fiduciary or agent of the corporation for expenses incurred in any threatened, pending or completed action suit or investigation" and that "[t]he directors are authorized to purchase liability insurance for the officers, directors and other individuals it wishes to protect." Offeror and Parent have agreed that the present officers and directors of the Company will continue to be indemnified and insured following the Merger. Section 14(f) Information Statement. The Information Statement attached as Annex B hereto is being furnished in connection with the possible designation by Offeror, pursuant to the Merger Agreement, of certain persons to be appointed to the Board other than at a meeting of the Company's shareholders. Shareholder Dissenters' Rights. In a merger presented to shareholders of the Company, the shareholders will be entitled to certain dissenters' rights under Colorado law. A summary of Colorado's shareholder dissenters' rights is attached as Annex C hereto. Offer to Purchase, Letter of Transmittal and Related Documents. Reference is hereby made to the Offer to Purchase and the related Letter of Transmittal, form of letter to brokers, dealers, commercial banks, trust companies and other nominees and form of letter to clients which are filed as Exhibits (a)(1), (a)(2), (a)(5) and (a)(6) hereto, respectively, and incorporated herein by reference, all of which were prepared by Parent and Offeror. Item 9. Material to be Filed as Exhibits.
Exhibit No. Description ------- ----------- (a)(1) Offer to Purchase dated August 18, 2000 (incorporated by reference to Exhibit (a)(1)(A) to the Schedule TO filed by Parent and Offeror on August 18, 2000).* (a)(2) Form of Letter of Transmittal (incorporated by reference to Exhibit (a)(1)(B) to the Schedule TO filed by Parent and Offeror on August 18, 2000).* (a)(3) Letter from the Chairman of the Company to the Company's shareholders dated August 18, 2000 (filed herewith).**
10
Exhibit No. Description ------- ----------- (a)(4) Press Release issued by the Company on August 11, 2000 (incorporated by reference to Exhibit 99.1 to the Schedule 14D-9-C filed by the Company on August 11, 2000). (a)(5) Form of Letter to Clients from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to Exhibit (a)(1)(E) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (a)(6) Opinion of SunTrust Equitable Securities dated August 9, 2000 (included as Annex A to this Schedule 14D-9).** (e)(1) Agreement and Plan of Merger dated as of August 10, 2000 among Parent, Offeror and the Company (incorporated by reference to Exhibit (d)(1) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(2) Pages 1-16 of the Company's Annual Meeting Proxy Statement filed on September 27, 1999 (incorporated by reference from the filing made as of such date; SEC File No. 000-12410). (e)(3) Pages 7-8 of the Company's Annual Report of Form 10-K filed on September 27, 1999 (incorporated by reference from the filing made as of such date; SEC File No. 000-12410). (e)(4) Form of side letter, to be entered into in substantially same form at or prior to the consummation among Offeror, Parent and certain shareholders of the Company (incorporated by reference to Exhibit (d)(2) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(5) Stock Voting and Tender Agreement dated as of August 10, 2000, among Offeror, Parent and certain shareholders of the Company (incorporated by reference to Exhibit (d)(3) Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(6) Form of Separation Policy, to be entered into in substantially same form at or prior to the consummation of the Merger (incorporated by reference to Exhibit (d)(4) Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(7) Confidentiality Agreement between Kohlberg & Co., L.L.C. and the Company, dated as of January 21, 2000 (incorporated by reference to Exhibit (d)(5) Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(8) Amended and Restated Rights Plan dated December 1, 1999, as amended August 9, 2000 (filed herewith). (e)(9) Form of Stockholders' Agreement for KBII Holdings, Inc., to be entered into in substantially same form at or prior to the consummation of the Merger (incorporated by reference to Exhibit (d)(6) Schedule TO filed by Parent and Offeror on August 18, 2000).
- -------- * Included in materials being delivered to shareholders by the Offeror. ** Included in materials being delivered to shareholders by the Company. Materials not being delivered by the Offeror or the Company, but which is listed as "filed" with this Schedule 14D-9, may be obtained by accessing the Commission's website on the Internet at http://www.sec.gov. 11 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: August 18, 2000 BI INCORPORATED /s/ David J. Hunter By: ______________________________ David J. Hunter, President 12 ANNEX A SunTrust Equitable Securities Corporation 800 Nashville City Center Nashville, Tennessee 37219-1743 Member New York Stock Exchange, Inc. - ------------------------------------------------------------------------------- [SUNTRUST EQUITABLE SECURITIES LOGO] August 9, 2000 Board of Directors BI Incorporated 6400 Lookout Road Boulder, CO 80301 Members of the Board: We understand that BI Incorporated ("Company") has entered into an Agreement and Plan of Merger (the "Agreement") with KBII Holdings, Inc. ("Acquiror") and KBII Acquisition Company, Inc. ("Sub"). The Agreement provides that the Acquiror shall cause Sub to commence an offer (the "Offer") to purchase all of the shares of issued and outstanding stock (the "Common Stock") of the Company at a purchase price of $8.25 per share (the "Offer Price"). Under the Agreement, the Company has approved and consented to the Offer. The Agreement also provides that, subject to the terms and conditions of the Agreement and applicable law, the Company and Sub shall consummate a merger (the "Merger") pursuant to which (a) the Sub shall be merged with and into the Company and the separate corporate existence of the Sub shall thereupon cease, and (b) the Company shall be the successor or surviving corporation in the Merger (the "Surviving Corporation") under the name BI Incorporated and shall continue to be governed by the laws of the State of Colorado. In the Merger, each outstanding share of Company Common Stock, other than Dissenting Shares (as defined by the Agreement), will be converted into the right to receive the Offer Price. The terms and conditions of the Offer and the Merger are more fully set forth in the Agreement. You have requested our opinion as investment bankers as to the fairness, from a financial point of view, to the holders of Company Common Stock of the Offer Price to be received in the Offer or the Merger by shareholders of the Company. SunTrust Equitable Securities Corporation ("SunTrust Equitable Securities"), as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. In consideration for rendering the opinion set forth in this letter, SunTrust Equitable Securities will receive a fee and reimbursement of its expenses. In addition, the Company has agreed to indemnify SunTrust Equitable Securities for certain liabilities arising out of its engagement, including the rendering of this opinion. In the ordinary course of business, we trade the equity securities of the Company for our own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in these securities. In connection with our opinion, we have reviewed, among other things, the Agreement and terms of related documents, certain publicly-available information and certain other financial information, reports, forecasts and other internal information that was provided to us by or on behalf of the Company. We held discussions with the management and representatives of the Company concerning the historical and current operations of the Company, its financial condition and its prospects. In addition, we conducted such other financial studies, analyses and investigations and reviewed such other information and factors as we deemed appropriate for purposes of this opinion. Board of Directors August 9, 2000 Page 2 In rendering this opinion, we have relied, without assuming any responsibility for independent verification, on the accuracy and completeness of all financial and other information reviewed by us that was publicly available or furnished to us by or on behalf of the Company. We have assumed with your consent that the financial forecasts that we examined were reasonably prepared on a basis reflecting the best currently available estimates and good faith judgments of the management of the Company. We express no opinion with respect to such forecasts or the assumptions on which they were based. We have not made an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company, nor were we furnished with any such evaluations or appraisals. Our opinion is based upon economic, market and other conditions as they exist and can be evaluated on the date hereof. Our opinion does not address the merits of the underlying decision by the Company to engage in the Merger and does not constitute a recommendation to any shareholder of the Company as to whether or not that shareholder should tender their shares pursuant to the Offer or should vote to approve the Merger. The financial markets in general, and the markets for the securities of the Company, in particular, are subject to volatility, and this opinion does not purport to address potential developments in the financial markets or the markets for the securities of the Company after the date hereof. It is understood that this letter is for the benefit and use of the Board of Directors of the Company in its consideration of the Merger. This letter may not be reproduced, disseminated, quoted or referred to at any time without our prior written consent; however, the opinion rendered hereby may be included in its entirety in the Schedule 14D-9 to be distributed by the Company to its shareholders and filed with the Securities and Exchange Commission. Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Offer Price to be paid in the Offer and the Merger to the holders of the Company Common Stock is fair, from a financial point of view, to such holders of the Company Common Stock. Very truly yours, SunTrust Equitable Securities Corporation A-2 ANNEX B BI INCORPORATED ---------------- Information Statement Pursuant to Section 14(f) of the Securities Exchange Act of 1934 and Rule 14F-1 Thereunder ---------------- We are providing this Information Statement with respect to a proposed tender offer for all of the outstanding shares of common stock of BI Incorporated (the "Company" or "BI") and a proposed merger of BI with and into KBII Acquisition Company, Inc. ("KBII"), as described in the Schedule 14D-9 which accompanies this Information Statement. BI has agreed that at the earlier of the purchase of at least 90% of the outstanding shares pursuant to the tender offer and in connection with the consummation of the merger, all members of the current Board of Directors of BI will be replaced with two new directors who are the designees of KBII. This Information Statement is being distributed to provide BI shareholders with certain information concerning current and proposed directors, as well as certain other information relating thereto. The outstanding voting securities of the Company as of August 10, 2000, consisted of 7,968,818 shares of common stock. The holders of common stock are entitled to one vote for each share held of record by them on matters submitted to a vote of shareholders. However, no vote or other action by BI shareholders is being called in connection with this Information Statement. No proxies are being solicited and you are requested not to send a proxy to BI. The Date of this Information Statement is August 18, 2000. INFORMATION CONCERNING CURRENT DIRECTORS, OFFICERS AND DIRECTOR DESIGNEES The following sets forth the name, age as of August 10, 2000, the year each became a director, current principal occupation or employment and five year employment history for the eight members currently serving on the Board.
Director Age Since --- -------- William E. Coleman is Chairman of Colorado Venture Management, a venture capital firm, and Chairman of Colorado Energy Management, developers of cogeneration projects. Dr. Coleman has been Vice Chairman of the Board since November 1992............. 66 1984 Mckinley C. Edwards, Jr. has been Executive Vice President and Chief Operating Officer since November 1996. He joined the Company in November 1983 as Manufacturing Manager, was elected Vice President of Manufacturing in November 1984, promoted to Executive Vice President of Operations in April 1985 and was elected as Treasurer and Secretary in June 1986................. 58 1990 Beverly J. Haddon is currently President of The Haddon Firm, which is engaged in business consulting and government lobbying. Prior to forming The Haddon Firm, Ms. Haddon was a Partner at CRL Associates, a business consulting and government lobbying firm, since April 1993. Prior to this date, she held various positions over 28 years with Norwest Bank, her latest being Executive Vice President from June 1991 through May 1992........ 58 1994 David J. Hunter joined the Company in June 1981 and served as Operations Manager and Vice President of Operations from January 1982 to July 1982, Vice President and Chief Operating Officer from July 1982 to April 1985, and as President and Chief Executive Officer from April 1985 to the present................ 55 1982 Jeremy N. Kendall has been Chairman and Chief Executive Officer of Stake Technology, Ltd., a company which has developed a process for converting biomass into chemicals and pulp, since June 1983. Mr. Kendall is also Chairman of JEMTEC, Inc., an independent distributor of certain of the Company's products. He is Director of Environmental Reclamation Inc., Chairman of Easton Minerals, and Chairman of Logicsys, Inc. Mr. Kendall has been Chairman of the Board since November 1992.................. 60 1981 Perry M. Johnson has served as a Corrections Consultant since April 1988. He consults in the areas of prison overcrowding, implementation of house arrest and halfway house programs and development of offender classification systems. Since January 1982 he has been Adjunct Professor for the School of Criminal Justice at Michigan State University. Prior to April 1988, Mr. Johnson was Deputy Director, Bureau of Field Services; Director, Michigan Department of Corrections; Warden, State Prison of Southern Michigan and Deputy Director, Bureau of Correctional Facilities...................................................... 69 1994 Barry J. Nidorf has served as a Corrections Consultant since March 1997. Prior to this date, he held various positions, over 32 years with the Los Angeles County Probation Department, his latest being Chief Probation Officer from June 1984 to March 1997............................................................ 59 1997 Byam K. Stevens, Jr. has served as a security analyst and portfolio manager for the stock brokerage firm of H.G. Wellington & Co., Inc. since March 1986. From January 1973 to that time, he served in the same capacities for Stillman, Maynard & Co. until the two firms merged........................ 69 1989
B-2 Information Concerning Director Designees The following sets forth the name, age as of August 10, 2000, current principal occupation or employment and five year employment history for the two persons who have been designated by KBII to assume directorships upon the purchase of at least 90% of the outstanding shares of BI Common Stock in the tender offer and the consummation of a merger between BI and KBII. This information was provided by KBII. James A. Kohlberg is President of KBII Acquisition Company, Inc. and KBII Holdings, Inc., Managing Member of KBII Management, LLC (General Partner of KBII Acquisition Company, L.P., the controlling shareholder of KBII Holdings, Inc.). Mr. Kohlberg has been a principal of Kohlberg & Co., L.L.C. for more than the past five years. Christopher Lacovara is Secretary of KBII Acquisition Company, Inc. and KBII Holdings, Inc., and Secretary of KBII Management, LLC. Mr. Lacovara has been an associate with and/or principal of Kohlberg & Co., L.L.C. for more than the past five years. Current Director Compensation Each non-employee director was granted, on July 1, 2000, an option pursuant to the 1999 Stock Option Plan to purchase 4,500 shares of the Company's common stock at the closing price on the date prior to the grant date for service in fiscal 2000. Non-employee directors received $2,500 for each Board of Directors meeting attended during the fiscal year. Non-employee directors who are members of the Audit, Nomination and Compensation Committees received $250 for each meeting attended during the fiscal year as stated below. On November 16, 1999, each re-elected non-employee director received $7,500. In the event of retirement, directors, other than those who have been found in a legal proceeding to have violated their duties to the Company, are entitled to a one-time payment of $1,000 per year for service on the Board upon their retirement. Service of more than one fiscal quarter of a year is deemed service for that year. Any compensation shall be paid with the final check delivered to the retiring Director for accrued Director's fees. Committees, Attendance, Nominations for Fiscal 2000 The Company has standing Audit, Nomination and Compensation Committees. The Company's Audit Committee during fiscal 2000 was comprised of Messrs. Coleman, Hunter, Johnson, Nidorf and Stevens. This Committee recommends engagement of the Company's independent accountants, approves services performed by such accountants, and reviews and evaluates the Company's accounting system of internal controls. The Audit Committee met 3 times during fiscal year 2000. During fiscal 2000, the Compensation Committee consisted of Messrs. Edwards, and Hunter (non-voting members), Kendall, Stevens, and Ms. Haddon. This Committee approves salaries and other compensation arrangements for the executive officers of the Company. This Committee also approves option grants to eligible employees under the Company's stock option plans. The Compensation Committee met seven times during fiscal 2000. The Nomination Committee consisting of Messrs. Hunter, Coleman, Kendall and Johnson did not meet in fiscal 2000. This committee was formed to develop the composition and participation guidelines of the Board of Directors. The Company's Board of Directors met eight times during fiscal 2000. Each Director participated by personally attending during fiscal 2000 over 75% of both the Board of Directors meetings and meetings of committees of which he or she was a member. B-3 Information Concerning Current Officers The following table sets forth certain information with respect to the current executive officers of the Company. At August 15, 2000 the executive officers of the Company were as follows:
Name Age Position ---- --- -------- David J. Hunter 55 President and Chief Executive Officer Mckinley C. Edwards, Jr. 58 Executive Vice President and Chief Operating Officer, Secretary and Treasurer Jacqueline A. Chamberlin Vice President of Finance and Chief Financial 45 Officer Steven P. Merrefield 51 Executive Vice President Jonathan M. Hinebauch 59 Vice President, Business Development
All executive officers serve at the discretion of the Board of Directors. David J. Hunter joined the Company in June 1981 and served as Operations Manager and Vice President of Operations from January 1982, Vice President and Chief Operating Officer since July 1982, and was elected to the Board of Directors in December 1982. In April 1985, he was elected President and Chief Executive Officer. Mckinley C. Edwards, Jr. has been Executive Vice President and Chief Operating Officer since November 1996. He joined the Company in November 1983 as Manufacturing Manager, was elected Vice President of Manufacturing in November 1984. In April 1985 he was promoted to Executive Vice President of Operations was elected as Treasurer and Secretary in June 1986 and was elected to the Board of Directors in 1990. Jacqueline A. Chamberlin has been Vice President of Finance and Chief Financial Officer since November 1993. She joined the Company in January 1983 and served as Accounting Manager through November 1985, Controller until May 1992 and Vice President of Accounting up to November 1993. Steven P. Merrefield has been with the Company since April 1990. He has served as Vice President of Monitoring, Vice President of Major Accounts, Vice President of Customer Services, Vice President and General Manager of the Electronic Monitoring Division and Vice President and General Manager of the Community Correctional Services Division. Currently, he is Executive Vice President overseeing Marketing and Sales. In February 1999 he was appointed a Corporate Officer. He has been in the corrections industry for over twenty- five years. Before joining the Company, he held numerous positions in public and private corrections. He has worked for the Florida Department of Corrections, Georgia Department of Corrections and Harris County, TX. Jonathan M. Hinebauch has been Vice President of Business Development since 1996 and elected a corporate officer in February 1999. He joined the Company in 1986 and has held numerous positions ranging from VP Sales and Marketing from 1986 to 1988 and Major Account Management from 1988 to 1993. Prior to BI, Mr. Hinebauch was President of Alpine Designs from 1971 to 1973, VP of Camp 7 from 1973 to 1975 and Founder of Altra Inc. in 1975. B-4 BENEFICIAL OWNERSHIP OF COMMON STOCK AND POSSIBLE CHANGE IN CONTROL Beneficial Ownership of Common Stock The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock, as of August 10, 2000 (except as specifically noted with respect to certain persons) by (i) persons known to the Company to own beneficially more than five percent (5%) of the outstanding Common Stock of the Company, (ii) by each director, (iii) by each Named Executive Officer (as defined in the section of this proxy statement entitled "Executive Compensation--Summary Compensation Table"), and (iv) by all executive officers and directors as a group. A person is deemed to be a beneficial owner of Common Stock that can be acquired by such person within 60 days from August 10, 2000 upon the exercise of warrants or options. The address of each person for whom an address is not shown is care of the Company.
Amount and nature Name of beneficial ownership Percent of Class ---- ----------------------- ---------------- Merrill Lynch Asset Management 800 Scudders Mill Road Plainsboro, NJ 08536 722,200(1) 9.1% Neil J. Weisman c/o Home Port Holdings, Inc. 139 West Saddle River Road Saddle River, NJ 07458 684,300(1) 8.6% Dimensional Fund Advisors, Inc. 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 591,300(2) 7.4% Jackie A. Chamberlin 113,372(3) 1.4% William E. Coleman 28,500(4) * Mckinley C. Edwards, Jr. 180,063(5) 2.2% Beverly J. Haddon 56,000(6) * Jonathan M. Hinebauch 74,290(7) * David J. Hunter 323,373(8) 4.0% Perry M. Johnson 58,000(9) * Jeremy N. Kendall 72,150(10) * Steven P. Merrefield 58,751(11) * Barry J. Nidorf 18,000(12) * Byam K. Stevens, Jr. 81,950(13) 1.0% All Officers and Directors as a Group (11 persons) 1,064,449(14) 12.2%
- -------- * Represents less than 1% (1) As of June 30, 2000. (2) As of March 31, 2000. (3) Includes options to purchase 82,500 shares, exercisable within sixty days. Upon completion of a merger between the Company, KBII and KBII Holdings, Inc., all options will vest on the effective date of the merger, including 10,000 additional options, which are not included in the table. (4) Includes options to purchase 28,500 shares which are presently exercisable. B-5 (5) Includes options to purchase 122,500 shares, exercisable within sixty days. Upon completion of a merger between the Company, KBII and KBII Holdings, Inc., all options will vest on the effective date of the merger, including options to purchase an additional 10,000 shares, which are not included in the table. (6) Includes options to purchase 55,000 shares which are presently exercisable. (7) Includes options to purchase 65,618 shares, exercisable within sixty days. Upon completion of a merger between the Company, KBII and KBII Holdings, Inc., all options will vest on the effective date of the merger, including options to purchase an additional 18,500 shares, which are not included in the table. (8) Includes options to purchase 185,000 shares, exercisable within sixty days. Upon completion of a merger between the Company, KBII and KBII Holdings, Inc., all options will vest on the effective date of the merger, including options to purchase an additional 10,000 shares, which are not included in the table. (9) Includes options to purchase 55,000 shares which are currently exercisable. (10) Includes options to purchase 61,000 shares which are currently exercisable. (11) Includes options to purchase 38,475 shares, exercisable within sixty days. Upon completion of a merger between the Company, KBII and KBII Holdings, Inc., all options will vest on the effective date of the merger, including options to purchase an additional 20,000 shares, which are not included in the table. (12) Includes options to purchase 18,000 shares which are currently exercisable. (13) Includes 4,000 shares owned by Mr. Stevens' relatives, as to which shares he disclaims beneficial ownership. Also includes options to purchase 61,000 shares which are currently exercisable. (14) Includes options to purchase 278,500 shares which are presently exercisable and 494,093 shares issuable on exercise of options which will become exercisable within sixty days. Upon completion of a merger between the Company, KBII and KBII Holdings, Inc., all options will vest on the effective date of the merger. Possible Change in Control On August 10, 2000, the Company entered into an Agreement and Plan of Merger with KBII Acquisition Company, Inc. and KBII Holdings, Inc., pursuant to which the Board of Directors agreed to support a tender offer by KBII Acquisition Company, Inc. for all of the outstanding shares of BI common stock, to be followed by a merger between BI and KBII Acquisition Company, Inc. to acquire control of all shares not acquired through the tender offer. Pursuant to this agreement, a change in control of the Company would occur, as described in the Schedule 14D-9 which is being delivered concurrently with this Information Statement. CURRENT EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS; CERTAIN AGREEMENTS WITH RESPECT TO THE MERGER The Named Executive Officers, (Messrs. Hunter, Edwards, Hinebauch, Merrefield and Ms. Chamberlin) have employment agreements with the Company. These agreements assure continuity of management in the event of any actual change in control, as defined in these agreements. The Company agrees to continue the employ of the executive for two years from the effective date of the change in control. The executive will receive annual salary and benefits of not less than his or her current rate, and will be eligible to participate in bonus and other incentive compensation plans on the same basis he or she was participating before the change in control. Any unvested portion of stock options held by the executive will become fully vested upon the change of control. If the executive is terminated as a result of the change in control (as defined in the agreement) he or she will receive salary and benefits as if he or she were an employee through the end of his or her employment contract period. Upon completion of a merger between the Company, and KBII Acquisitions Company, Inc., each of these persons has agreed to forego the entitlement to severance payments under their employment agreements in return for continuing employment with the Company following the merger. B-6 The Named Executive Officers have also agreed with KBII Holdings, Inc., that they will reinvest a portion of their current equity and/or exchange all of their vested BI stock options (Ms. Chamberlin and Messrs. Hinebauch and Merrefield) or a portion of their vested options (Messrs. Hunter and Edwards) for equity and options in KBII Holdings, Inc. which will amount to approximately 1.78% of the outstanding equity capital of KBII Holdings, Inc., on a fully diluted basis. The Named Executive Officers have been offered proposed employment relationships by KBII Holdings, Inc. as described in Item 3 of the Solicitation/Recommendation Statement on Schedule 14D-9 to which this Information Statement is attached, under the caption "Proposed Employment and Similar Arrangements." EXECUTIVE COMPENSATION PAID DURING FISCAL 2000 Report of the Compensation Committee With respect to fiscal 2000 executive compensation, the Compensation Committee (the "Committee") administered the compensation for the corporate officers and grants to the officers under the 1996 and 1999 Stock Option Plans. The Committee also annually establishes and reviews the bonus program for corporate officers. The Committee's policy in administering these plans and programs is to provide a strong and direct link among shareholder value, company performance and executive compensation as well as to structure sound compensation programs that will attract and retain high quality people. Officer Compensation Policy. The Committee periodically utilizes the services of a professional executive compensation consultant to assist the Company in establishing the corporate officer compensation policy. It remains the Committee's policy to assure that the officers are compensated with a base salary, an annual bonus plan, and long-term incentive stock based compensation. The Company's compensation objective is to provide compensation which is designed to be competitive for base salaries with the companies BI competes with for executive talent, and which is variable with the performance of the organization. Incentive compensation will vary with performance. Above- average performance results in above-average total compensation, and below- average performance for the Company results in below-average total compensation. The focus is placed on company performance and individual contributions toward that performance. The Board of Directors have chosen to use the Committee's policy as a guideline when considering future corporate officer compensation matters. Both the Committee and the Board regularly review national executive compensation surveys to assure the parity and appropriateness of BI's officer compensation policy. The Committee's corporate officer compensation policy is founded on principles that guide the Company in establishing compensation programs at all levels of the organization. All programs, including those for corporate officers, have the following characteristics: Compensation is based on the level of job responsibility, the individual's level of performance, and Company performance. Corporate officers have a greater portion of their pay based on Company performance than do other management employees. Compensation also takes into consideration the value of the job in the marketplace. To retain its highly skilled work force, the Company strives to remain competitive with the pay of employers of a similar stature who compete with the Company for talent. Through its stock option and stock purchase plans, the Company offers the opportunity for equity ownership to all of its employees. In addition, the Company provides corporate officers and other key employees the opportunity to build equity ownership through its Option Plans. Corporate officer reviews are typically conducted at the first Compensation Committee meeting after the end of each fiscal year. At these reviews both short- and long-term compensation matters are considered based upon previous year-end results and the new plan for the future. Fiscal 2000 revenue was at a record level of $72.1 million, up 5.4% over fiscal 1999 revenue of $68.4 million. Net income from continuing operations in its Electronic Monitoring (EM) and Community Correctional Services (CCS) business units decreased to $1.4 million, from $4.2 million in fiscal 1999. During the period, the Company invested in activities related to new product development and market expansion in EM and CCS. It is management's view that such investments are essential to the progress of the Company over the long term. B-7 No officer bonuses were paid for fiscal 2000. Long-term incentive compensation in the form of stock options is an important element of the performance-based compensation of executive officers as well as other managers and employees within the Company. The grant of stock options continues the Company's long-standing practice of increasing management's equity ownership in order to ensure that their interests remain closely aligned with those of the Company's shareholders. Stock options and equity ownership in the Company provide a direct link between executive compensation and shareholder value and serve as an incentive because the exercise price is equal to the fair market value on grant date; thus, executive officers will receive future gains from these options only to the extent the price of the Company's stock increases. Stock options, in addition to providing the Company's key employees an opportunity for increased equity ownership also create an incentive to remain with the Company for the long term. Pursuant to the Company's Compensation Policy and in accordance with the Company's long-term compensation plan, at the November 1999 Board of Directors meeting, the Committee recommended and the Board approved stock option grants of 20,000 shares for each of the Company's five executive officers, each priced at market value on the date of the grant. Pursuant to an officer salary plan based on a national executive survey and consultant recommendation, the officers were paid the following salaries effective July 1, 1999: Mr. Hunter $295,000 annually, an increase of 24.6%; Mr. Edwards $220,000 annually, an increase of 18.9%; Ms. Chamberlin $145,000 annually, an increase of 11.5%; Mr. Merrefield $150,000 annually, an increase of 2.4%; and Mr. Hinebauch $145,000 annually, an increase of 16%. These salaries are now at the parity levels recommended in 1998 by the compensation consultant as a result of his analysis of national compensation surveys. Chief Executive Officer Compensation. The Committee reviews all compensation matters relative to the CEO after the close of each fiscal year at June 30. At the first Compensation Committee meeting of fiscal 2000, the Committee recommended and the Board approved an annual salary increase from $222,500 to $295,000 for Mr. Hunter effective July 1, 1999. A three-step salary adjustment plan was developed to bring Mr. Hunter's salary in line with national survey data and the executive consultant's findings relative to similar positions in comparable companies. The Committee believes Mr. Hunter's salary is now in line with these findings. No bonus was paid to Mr. Hunter pursuant to the fiscal 2000 incentive plan. Pursuant to the Company's Compensation Policy and in accordance with the Company's long-term compensation plan, at the November 1999 meeting of the Board of Directors, the Committee recommended and the Board approved a stock option grant of 20,000 shares. This grant was priced at market value on the date of the grant. The Committee will continue to review all aspects of Mr. Hunter's compensation annually in July to establish goals for the ensuing fiscal year against which his performance and adjustments in compensation will be evaluated. Compensation Committee: Beverly J. Haddon, Chairwoman; Jeremy N. Kendall; Byam K. Stevens, Jr.; David J. Hunter (non-voting member); and Mckinley C. Edwards, Jr. (non-voting member). B-8 Summary Compensation Table The following table sets forth the compensation paid each of the last three fiscal years ended June 30, 2000, 1999 and 1998 to the Company's Chief Executive Officer and each Executive Officer who received compensation in excess of $100,000 (collectively, the "Named Executive Officers").
Long-term Compensation ---------------------------- Awards Payouts -------------------- ------- Number of Restricted Option Stock Shares LTIP* All Other Name and title Annual Compensation Awards Granted Payouts Compensation (a) - -------------- --------------------- ---------- --------- ------- --------------- Year Salary Bonus ---- -------- ------- David J. Hunter 2000 $280,267 $ 0 0 20,000 0 $30,208 President, 1999 237,546 0 0 0 0 23,156 Chief Executive Officer 1998 207,821 16,064 0 0 0 13,947 Mckinley C. Edwards, Jr. 2000 $213,631 $ 0 0 20,000 0 $25,507 Executive Vice President 1999 193,539 0 0 0 0 20,851 Chief Operating Officer 1998 171,452 10,604 0 0 0 15,382 Jackie A. Chamberlin 2000 $143,054 $ 0 0 20,000 0 $16,545 Vice President, Finance, 1999 133,246 0 0 0 0 18,905 Chief Financial Officer 1998 113,968 5,282 0 0 0 12,021 Jonathan M. Hinebauch (b) 2000 $137,002 $ 0 0 20,000 0 $24,718 Vice President, 1999 118,548 13,416 0 12,000 0 9,426 Business Development Steven P. Merrefield (b) 2000 $151,040 $ 0 0 20,000 0 $18,216 Executive Vice President 1999 142,925 13,655 0 15,000 0 9,529
- -------- * Long-term Incentive Plan (a) Other compensation includes: 1. matching contribution made pursuant to the Company's 401k retirement savings plan as follows: Mr. Hunter $2,450; Mr. Edwards $1,936; Ms. Chamberlin $1,460; Mr. Hinebauch $1,400; and Mr. Merrefield $1,677; 2. payment of unused vacation hours up to 40 hours: $5,673 for Mr. Hunter; $4,231 for Mr. Edwards; and $2,885 for Mr. Merrefield; 3. annual car allowance of $10,200 each to Mr. Hunter, Mr. Edwards, Ms. Chamberlin, Mr. Hinebauch and Mr. Merrefield; 4. effective July 1, 1998 the Board of Directors approved an annual allowance of up to $10,000 for financial and tax advisory services. Fiscal 2000 payments for these services: Mr. Hunter $5,983, Mr. Edwards $4,035; Ms. Chamberlin $555, Mr. Hinebauch $9,700 and Mr. Merrefield $1,725; 5. the Company paid life insurance premiums in connection with a policy purchased as part of a deferred compensation arrangement, as follows: $5,902 for Mr. Hunter; $5,105 for Mr. Edwards; $4,330 for Ms. Chamberlin; $3,418 for Mr. Hinebauch and $1,729 for Mr. Merrefield. (b) On February 4, 1999 Jonathan M. Hinebauch and Steven P. Merrefield became Corporate Officers of BI Incorporated. The table reports total fiscal 1999 and 2000 compensation. Stock Option Grants The following table shows the stock options granted to the Named Executive Officers during fiscal 2000 and the potential realizable value of those grants (on a pre-tax basis) determined in accordance with SEC rules. The information in this table shows how much the Named Executive Officers may eventually realize in future dollars if the stock gains 5% or 10% in value per year, compounded over the life of the options. These amounts represent assumed rates of appreciation of the Company's Common Stock. B-9 The options described in this table have exercise prices equal to the fair market value of a share of Common Stock on the date they were granted.
Potential Realizable Value at Assumed Options Shares Granted in Fiscal 2000 Annual Rate of Stock Individual Grants Price Appreciation (b) ---------------------------------------------- ---------------------- % of Total Number of Option Shares Option Granted to Exercise Shares Employees in Price Per Expiration Name Granted (a) Fiscal Year Share Date 5% 10% ---- ----------- ------------- --------- ---------- ---------- ----------- David J. Hunter......... 20,000 5.2% $7.25 11/16/06 $ 59,000 $ 137,800 Mckinley C. Edwards, Jr..................... 20,000 5.2% $7.25 11/16/06 $ 59,000 $ 137,800 Jackie A. Chamberlin.... 20,000 5.2% $7.25 11/16/06 $ 59,000 $ 137,800 Jonathan M. Hinebauch... 20,000 5.2% $7.25 11/16/06 $ 59,000 $ 137,800 Steven P. Merrefield.... 20,000 5.2% $7.25 11/16/06 $ 59,000 $ 137,800
- -------- (a) 10,000 shares vest immediately. The remaining options vest over a two year period, with 25% vesting each year following the grant date. In the event of termination on account of death or disability, the options which would have vested during the vesting period in which death or disability occurs will, vest. In the event of a change in control the options vest immediately. (b) Calculated over a seven-year period, representing the life of the option. (c) Granted November 16, 1999 pursuant to the Company's 1996 Stock Option Plan. Stock Option Exercises and Option Values The following table shows information concerning the exercise of stock options by each of the Named Executive Officers during fiscal 2000, and the value of all remaining unexercised options at June 30, 2000, on a pre-tax basis. Aggregate Option Exercises in Fiscal 2000 and June 30, 2000 Option Values
Value of Unexercised, Number of Unexercised In-the-Money Options at Shares Options at 6/30/00 6/30/00 (b) Acquired on Net Value ------------------------- ------------------------- Name Exercise Realized (a) Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ----------- ----------- ------------- ----------- ------------- David J. Hunter......... 80,735 $272,077 165,000 30,000 $29,688 $ 0 Mckinley C. Edwards, Jr..................... 7,424 $ 23,627 107,500 25,000 $14,844 $ 0 Jackie A. Chamberlin.... 0 $ 0 72,500 20,000 $ 5,938 $ 0 Jonathan M. Hinebauch... 0 $ 0 59,694 24,424 $ 0 $ 0 Steven P. Merrefield.... 0 $ 0 33,930 23,545 $ 2,376 $ 0
- -------- (a) The net value realized on exercise of stock options is calculated by subtracting the exercise price from the market value of the Company's common stock as of the exercise date. (b) The value of unexercised in-the-money options is equal to the market value of the common stock at June 30, 2000 ($5.375 per share) less the per share option price, multiplied by the number of exercisable or unexercisable options. B-10 Stock Option Repricing The following table shows information concerning the repricing of options for each executive officer of the Company for the ten year period July 1, 1990 to June 30, 2000. TEN-YEAR OPTION/SAR REPRICINGS
(g) Length of Original (c) Option Term Number of (d) (e) Remaining Securities Market Price Exercise at Date of underlying of Stock at Price at Time Repricing Options/SARs Time of of (f) or (a) (b) Repriced or Repricing or Repricing or New Exercise Amendment Name Date Amended (#) Amendment ($) Amendment ($) Price ($) (in months) ---- ------- ------------ ------------- ------------- ------------ ----------- David J. Hunter 1/21/97 100,000 $7.13 $12.38 $7.00 115 Chief Executive Officer 4/18/94 40,000 4.88 5.875 5.13 9(1) 4/18/94 10,000 4.88 7.50 5.13 20 4/18/94 20,000 4.88 7.375 5.13 57 4/18/94 52,455 4.88 7.625 5.13 63 4/18/94 28,280 4.88 7.625 5.13 63 1/28/92 10,000 7.50 10.75 7.50 47 Mckinley C. Edwards, Jr. 1/21/97 75,000 7.13 12.38 7.00 115 Executive Vice President, 4/18/94 35,000 4.88 5.875 5.13 9(1) Chief Operating Officer 4/18/94 10,000 4.88 7.50 5.13 20 4/18/94 15,000 4.88 7.375 5.13 57 4/18/94 23,424 4.88 7.625 5.13 63 1/28/92 10,000 7.50 10.75 7.50 47 Jackie A. Chamberlin 1/21/97 50,000 7.13 12.38 7.00 115 Chief Financial Officer, 4/18/94 10,000 4.88 7.50 5.13 12 Vice President Finance 4/18/94 2,500 4.88 7.00 5.13 27 4/18/94 7,000 4.88 8.25 5.13 55 4/18/94 11,255 4.88 7.625 5.13 63 1/28/92 10,000 7.50 9.9375 7.50 39 Jonathan M. Hinebauch 1/27/97 15,000 7.13 9.19 7.00 72 Vice President, Business 1/27/97 27,188 7.13 11.9375 7.00 115 Development Steven P. Merrefield 1/27/97 16,475 7.13 11.9375 7.00 115 Vice President and General 4/18/94 5,000 4.88 8.25 5.13 55 Manager, CCS 4/18/94 5,000 4.88 7.50 5.13 20 Business Unit 4/18/94 15,143 4.88 7.625 5.13 63 4/18/94 2,500 4.88 7.50 5.13 12 4/18/94 1,000 4.88 7.50 5.13 12
- -------- (1) While this reflects the length of the original option term remaining at the date of repricing, the actual length of the option term remaining was 33 months, because the termination date for these options was extended from January 1995 to January 1997 at the time they were repriced. (2) Compensation Committee: Frank L. Randall, Jr., Chairman, Beverly J. Haddon, Byam K. Stevens, Jr., Jeremy Kendall, David J. Hunter (non-voting member). B-11 RELATED PARTY TRANSACTIONS; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. Hunter, the Company's CEO and Mr. Edwards, the Company's COO, served as non-voting members of the Company's compensation committee during fiscal 2000, but did not participate in discussions involving their compensation. During fiscal 2000 the Company sold home arrest equipment and services to JEMTEC, Inc. in the amount of $19,100. Mr. Kendall, the Chairman of the Company, is Chairman of JEMTEC, Inc. CERTAIN OTHER TRANSACTIONS On June 27, 1999 the Compensation committee approved a loan policy for the officers and directors of the Company to exercise company stock options and pay applicable taxes. The Board of Directors ratified this policy at a regularly scheduled meeting on August 4, 1999. Amounts up to 80% of the exercise price may be borrowed. The terms of the loan include a five year balloon payment, interest at prime rate and adequate security other than the stock being acquired. On July 26, 1999 Mr. Hunter borrowed $437,552 pursuant to the above terms to exercise two company stock options expiring July 28, 1999 for 80,735 shares at $5.13 each. REPORTING COMPLIANCE CONCERNING SECTION 16(a) BENEFICIAL OWNERSHIP Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than ten-percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended June 30, 1999, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with. CORPORATE PERFORMANCE GRAPH The following performance graph compares the yearly percentage change in the cumulative total shareholder return on the Company's Common Stock with the S&P (S&P Compustat) Total Return Index for the Nasdaq Stock Market (U. S. companies), Total Return Index for the Russell 2000 and the S&P Total Return Index for Nasdaq Stocks for a selected peer group of six companies whose information and identification products include radio frequency identification technology and personal response services for the preceding five year period. This graph includes the same peer group reported in the Company's fiscal 1999 proxy statement. PERFORMANCE GRAPH The following indexed graph indicates the Company's total return to its stockholders from June 30, 1995 to June 30, 2000 as compared to total return for the Nasdaq Stock Market (U.S. companies) Index, Russell 2000 Index and a self-determined Peer Group Index selected by the Company, assuming a common starting point of $100 and that all dividends were reinvested. The information contained in this graph is not necessarily indicative of future Company performance. B-12 COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG BI INCORPORATED, THE NASDAQ STOCK MARKET (U.S. COMPANIES) INDEX, RUSSELL 2000 INDEX AND A PEER GROUP** TOTAL RETURN INDEX-BASE 100 SOURCE-S&P COMPUSTAT BASE YEAR - 100: 6/30/95 COMPANY NAME JUN-95 JUN-96 JUN-97 JUN-98 JUN-99 JUN-00 - ---------------- ------ ------ ------ ------ ------ ------ BI INC. 100.0 200.00 113.21 141.51 128.30 81.13 RUSSELL 2000 100.0 123.89 144.11 167.91 170.43 195.07 PEER GROUP INDEX 100.0 231.36 123.12 109.03 75.54 68.57 PERFORMANCE GRAPH APPEARS HERE Description of the Graph: The Performance Graph depicts, in straight-line fashion, the performance figures in the foregoing table for BI Incorporated, the Russell 2000 Index and the self-determined peer group. The x-axis of the graph depicts time from June 1995 through June 2000. The y-axis covers the scale from -0- through 250. The separation of each point is linear. Each point (representing the number in the table above) has been connected to the preceding and following point by a straight line. ** Self-determined peer group consists of six companies which are as follows: American Medical Alert Corp, Checkpoint Systems, Inc., Response USA, Inc., Amtech Corp, Destron Fearing Corp and Lifeline Systems, Inc. Four of these companies have a standard industrial classification code of 366 to 369. Two companies provide personal emergency response monitoring. B-13 ANNEX C Colorado Dissenter's Rights THE FOLLOWING PARAGRAPHS SUMMARIZE THE PROCEDURES FOR DISSENTING SHAREHOLDERS PRESCRIBED BY ARTICLE 113 OF THE COLORADO BUSINESS CORPORATION ACT ("CBCA"). YOU ARE ENCOURAGED YOU TO READ THIS STATUTE AND/OR CONTACT YOUR LEGAL COUNSEL FOR A MORE COMPLETE UNDERSTANDING OF YOUR RIGHTS AND DUTIES. Colorado law provides that each record or beneficial holder of the Company's common stock is entitled to dissent from the Merger and obtain payment of the fair value of his or her shares of common stock. A shareholder wishing to exercise dissenters' rights must (1) prior to any required shareholder vote on the Merger, deliver to the Company written notice of his or her intention to demand payment for shares if the shareholders approve the Merger, and (2) either abstain from voting on or vote against the Merger, if a shareholder vote is required. A shareholder who votes in favor of the Merger may not exercise dissenters' rights. If a shareholder vote is not required for the Merger, then the dissenting shareholder must the provide a written payment demand and certificates for certificated shares by the date set forth in the dissenters' notice provided by the Company. A beneficial shareholder as defined by Section 7-113-101(1) of the CBCA must cause the record shareholder to notify the Company of his or her intent to dissent and demand payment. A beneficial shareholder should contact the record shareholder who owns the beneficial shareholder's shares for instructions on how to dissent. Within ten days after the Merger becomes effective, the Company must deliver a written dissenters' notice to all shareholders who properly deliver written notice of their intent to demand payment and who also either abstain from voting on or vote against the Merger, if required. If shareholder approval for the Merger is not required, the Company shall deliver a written dissenters' notice to all shareholders. In the notice, the Company must (1) state that the Merger was authorized, (2) state the effective date of the Merger, (3) include the address where the Company will receive payment demands and the stock certificates, (4) supply a form which the dissenting shareholder may use to demand payment, (5) set the date by which the Company must receive the payment demand and the stock certificates, which cannot be less than 30 days after the delivery of the notice, and (6) include a copy of Article 113 of the CBCA. Furthermore, the notice may require that all beneficial shareholders of the dissenting shares, if any, certify that they have asserted or will assert their dissenters' rights. After receiving the notice a dissenting shareholder must demand payment in writing and deposit any stock certificates according to the instructions in the notice. Any shareholders who fail to demand payment in writing or properly deposit stock certificates will not be entitled to the fair value of their shares. A shareholder's demand for payment and the deposit of any stock certificates is irrevocable except as provided in Section 7-113-204(3) of the CBCA. Once a shareholder demands payment and deposits the certificates with the Company, he or she may not transfer his or her shares. However, if the effective time of the Merger does not occur within 60 days after the date the Company sets as the day by which a shareholder must demand payment, the Company must return the deposited shares and lift the transfer restrictions, and send a new notice to the dissenting shareholders. Upon the later of the effective date of the Merger, or upon receipt of a demand for payment by a dissenting shareholder, the Company must pay each dissenting shareholder who properly demands payment and deposits his or her stock certificates the amount the Company estimates to be the fair value of such shares, plus accrued interest. The payment must be accompanied by (1) the Company's balance sheet for the fiscal year ending not more than sixteen months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statement; (2) a statement of the Company's estimate of the fair value of the shares; (3) an explanation of how the interest was calculated; (4) a statement of the dissenting shareholder's right to demand payment if he or she rejects the Company's estimate of the fair value of the shares; and (5) a copy of Article 113 of the CBCA. A dissenting shareholder may reject the Company's valuation of the fair value of the shares if: (1) the dissenting shareholder believes that the amount paid or offered is less than the fair value of the shares or that the interest due is incorrectly calculated; (2) the Company fails to make payment within 60 days after the date set for demanding payment; or (3) the Company does not return the deposited stock certificates within the time specified by Section 7-113-207 of the CBCA. In order to reject the Company's estimation of fair value, the shareholder must notify the Company of his or her rejection in writing within 30 days after the Company makes or offers payment to such dissenting shareholder. This notification must include either the shareholder's own estimate of the fair value of his or her shares and the amount of interest due, and demand payment of their estimate, less any payment already made by the Company, or a demand for payment of the fair value of the shares and interest due. In the event a demand for payment remains unresolved, the Company may commence a court proceeding to determine the fair value of the shares and accrued interest within 60 days after receiving the payment demand from a dissenting shareholder. C-2 EXHIBIT INDEX
Exhibit No. Description ------- ----------- (a)(1) Offer to Purchase dated August 18, 2000 (incorporated by reference to Exhibit (a)(1)(A) to the Schedule TO filed by Parent and Offeror on August 18, 2000).* (a)(2) Form of Letter of Transmittal (incorporated by reference to Exhibit (a)(1)(B) to the Schedule TO filed by Parent and Offeror on August 18, 2000).* (a)(3) Letter from the Chairman of the Company to the Company's shareholders dated August 18, 2000 (filed herewith).** (a)(4) Press Release issued by the Company on August 11, 2000 (incorporated by reference to Exhibit 99.1 to the Schedule 14D-9-C filed by the Company on August 11, 2000). (a)(5) Form of Letter to Clients from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to Exhibit (a)(1)(E) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (a)(6) Opinion of SunTrust Equitable Securities dated August 9, 2000 (included as Annex A to this Schedule 14D-9).** (e)(1) Agreement and Plan of Merger dated as of August 10, 2000 among Parent, Offeror and the Company (incorporated by reference to Exhibit (d)(1) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(2) Pages 1-16 of the Company's Annual Meeting Proxy Statement filed on September 27, 1999 (incorporated by reference from the filing made as of such date; SEC File No. 000-12410). (e)(3) Pages 7-8 of the Company's Annual Report of Form 10-K filed on September 27, 1999 (incorporated by reference from the filing made as of such date; SEC File No. 000-12410). (e)(4) Form of side letter, to be entered into in substantially same form at or prior to the consummation among Offeror, Parent and certain shareholders of the Company (incorporated by reference to Exhibit (d)(2) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(5) Stock Voting and Tender Agreement dated as of August 10, 2000, among Offeror, Parent and certain shareholders of the Company (incorporated by reference to Exhibit (d)(3) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(6) Form of Separation Policy, to be entered into in substantially same form at or prior to the consummation of the Merger (incorporated by reference to Exhibit (d)(4) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(7) Confidentiality Agreement between Kohlberg & Co., L.L.C. and the Company, dated as of January 21, 2000 (incorporated by reference to Exhibit (d)(5) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(8) Amended and Restated Rights Plan dated December 1, 1999, as amended August 9, 2000 (filed herewith). (e)(9) Form of Stockholders' Agreement for KBII Holdings, Inc., to be entered into in substantially same form at or prior to the consummation of the Merger (incorporated by reference to Exhibit (d)(6) to the Schedule TO filed by Parent and Offeror on August 18, 2000).
- -------- * Included in materials being delivered to shareholders by the Offeror. ** Included in materials being delivered to shareholders by the Company. Materials not being delivered by the Offeror or the Company, but which is listed as "filed" with this Schedule 14D-9, may be obtained by accessing the Commission's website on the Internet at http://www.sec.gov. EX-99.(A)(3) 2 0002.txt LETTER FROM THE CHAIRMAN OF THE COMPANY Exhibit (a)(3) August 18, 2000 To the Shareholders of BI Incorporated: We are pleased to report that on August 10, 2000, BI Incorporated (the "Company") entered into an Agreement and Plan of Merger (the "Merger Agreement") with KBII Acquisition Company, Inc., a Colorado corporation (the "Offeror") and KBII Holdings, Inc., a Delaware corporation (the "Parent"). The Merger Agreement provides for the acquisition of all outstanding shares of Common Stock of the Company by the Offeror at a price of $8.25 per share, net to the seller in cash, without interest. Under the terms of the proposed transaction, the Offeror has on this date commenced a tender offer (the "Offer") for all of the outstanding shares of Common Stock at $8.25 per share, net to the seller in cash, without interest. The Offer is scheduled to expire at 12:00 Midnight, New York City time, September 15, 2000, unless otherwise extended. Following the successful completion of the Offer and upon approval by a shareholder vote, if required, the Company will be merged with and into the Offeror (the "Merger") and all shares of Common Stock not purchased in the Offer will be converted into the right to receive, without interest, an amount in cash equal to the amount paid pursuant to the Offer. UPON THE RECOMMENDATION OF A SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE OFFER AND THE MERGER AND HAVE DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES OF COMMON STOCK. THE BOARD RECOMMENDS THAT ALL HOLDERS OF SHARES OF COMMON STOCK TENDER THEIR SHARES OF COMMON STOCK PURSUANT TO THE OFFER. Accompanying this letter is a copy of the Solicitation/Recommendation Statement on Schedule 14D-9 filed by the Company with the Securities and Exchange Commission. The Special Committee of the Board of Directors of the Company has received an opinion, dated August 9, 2000, of SunTrust Equitable Securities Corporation, that the $8.25 per share cash consideration to be paid in the Offer and the Merger to the holders of shares of Common Stock is fair, from a financial point of view, to such holders. A copy of this opinion is attached to the Schedule 14D-9. Under separate cover, you will be receiving a copy of the Offer to Purchase and related materials of the Purchaser, including a Letter of Transmittal for use in tendering your shares of Common Stock. These documents set forth the terms and conditions of the Offer and provide instructions for tendering your shares of Common Stock. WE URGE YOU TO READ EACH OF THE ENCLOSED MATERIALS CAREFULLY AS WELL AS THE MATERIALS YOU WILL RECEIVE FROM THE PURCHASER. The management and directors of the Company thank you for the support you have given the Company. Sincerely, /s/ Jeremy N. Kendall Jeremy N. Kendall, Chairman of the Board of Directors of BI Incorporated EX-99.(E)(8) 3 0003.txt RESTATED RIGHTS RIGHT PLAN EXHIBIT (e)(8) BI INCORPORATED and COMPUTERSHARE TRUST COMPANY, INC. (F/K/A) AMERICAN SECURITIES TRANSFER & TRUST, INC.) as Rights Agent Rights Agreement Dated as of December 1, 1999 As Amended Effective August 9, 2000 TABLE OF CONTENTS
Page ---- Section 1. Certain Definitions........................................................ 1 Section 2. Appointment of Rights Agent................................................ 6 Section 3. Issuance of Rights Certificates............................................ 6 Section 4. Form of Rights Certificates................................................ 8 Section 5. Countersignature and Registration.......................................... 9 Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates................... 9 Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.............. 10 Section 8. Cancellation and Destruction of Rights Certificates........................ 12 Section 9. Reservation and Availability of Capital Stock.............................. 13 Section 10. Common Stock Record Date................................................... 14 Section 11. Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights 14 Section 12. Certificate of Adjusted Purchase Price or Number of Shares................. 23 Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power....... 23 Section 14. Fractional Rights and Fractional Shares.................................... 26 Section 15. Rights of Action........................................................... 27 Section 16. Agreement of Rights Holders................................................ 27 Section 17. Rights Certificate Holder Not Deemed a Stockholder......................... 28 Section 18. Concerning the Rights Agent................................................ 28 Section 19. Merger or Consolidation or Change of Name of Rights Agent.................. 29 Section 20. Duties of Rights Agent..................................................... 29 Section 21. Change of Rights Agent..................................................... 31 Section 22. Issuance of New Rights Certificates........................................ 32 Section 23. Redemption and Termination................................................. 33 Section 24. Exchange................................................................... 33 Section 25. Notice of Certain Events................................................... 35 Section 26. Notices.................................................................... 35 Section 27. Supplements and Amendments................................................. 36 Section 28. Successors................................................................. 37 Section 29. Determinations and Actions by the Board of Directors, Etc.................. 37 Section 30. Benefits of this Agreement................................................. 37 Section 31. Severability............................................................... 37 Section 32. Governing Law.............................................................. 38 Section 33. Counterparts............................................................... 38 Section 34. Descriptive Headings....................................................... 38
i RIGHTS AGREEMENT AMENDED AND RESTATED RIGHTS AGREEMENT, dated as of December 1, 1999, as amended effective August 9, 2000 between BI INCORPORATED, a Colorado corporation (the "Company"), and COMPUTERSHARE TRUST COMPANY, INC. (f/k/a AMERICAN SECURITIES TRANSFER & TRUST, INC. (the "Rights Agent"). RECITAL On November 30, 1999, the Board of Directors of the Company authorized and declared, effective December 1, 1999 (the "Rights Dividend Declaration Date"), a dividend distribution of one Right for each share of Common Stock (as hereinafter defined) of the Company outstanding at the close of business on December 15, 1999 (the "Record Date"), and has authorized the issuance of one Right (as such number may hereafter be adjusted as provided herein) for each share of Common Stock of the Company issued between the Record Date (whether originally issued or delivered from the Company's treasury) and the Distribution Date, each Right initially representing the right to purchase one share of Common Stock of the Company upon the terms and subject to the conditions hereinafter set forth (the "Rights"); AGREEMENT In consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Agreement, the ------------------- following terms have the meanings indicated: a. "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner (as such term is hereinafter defined) of 15% or more of the shares of Common Stock then outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan, (iv) any Person who is an Acquiring Person on the first date of public announcement of the adoption of this Agreement, unless and until such Person shall purchase or otherwise become (as a result of actions taken by such Person or its Affiliates or Associates) the Beneficial Owner of any additional shares of Common Stock, or (v) any Person who becomes an Acquiring Person solely as a result of a reduction in the number of shares of Common Stock outstanding due to the repurchase of shares of Common Stock by the Company, unless and until such Person shall purchase or otherwise become (as a result of actions taken by such Person or its Affiliates or Associates) the Beneficial Owner of additional shares of Common Stock constituting 1% or more of the then outstanding shares of Common Stock; provided, however, that if a Person shall become the Beneficial Owner of 15% or more of the Common Stock of the Company then outstanding by reason of share repurchases by the Company and shall, after such share repurchases by the Company, become the Beneficial Owner of any additional Common Stock of the Company, 1 then such Person shall be deemed to be an "Acquiring Person," unless upon the consummation of the acquisition of such additional shares of Common Stock such Person does not beneficially own 15% or more of the shares of Common Stock then outstanding. Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an Acquiring Person, as defined pursuant to the foregoing provisions of this paragraph, has become such inadvertently (including, without limitation, because (i) such Person was unaware that it beneficially owned a percentage of Common Stock that would otherwise cause such Person to be an Acquiring Person, or (ii) such Person was aware of the extent of its Beneficial Ownership of Common Stock but had no actual knowledge of the consequences of such Beneficial Ownership under this Agreement) and without any intention of changing or influencing control of the Company, 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 as defined pursuant to the foregoing provisions of this paragraph, then such Person shall not be deemed to be or to have become an Acquiring Person for any purposes of this Agreement. b. "Act" shall mean the Securities Act of 1933, as amended and in effect from time to time. c. "Adjustment Shares" shall have the meaning set forth in Section 11(a)(ii) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments). d. "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. e. "Agreement" shall mean this Rights Agreement as originally executed or as it may from time to time be supplemented or amended pursuant to the applicable provisions hereof. f. A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own," any securities: i) Which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not, for purposes of this paragraph (i), be deemed the "Beneficial Owner" of or to "beneficially own," (A) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange, or (B) securities issuable upon exercise of Rights at any time prior to the occurrence of a Triggering Event, or (C) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event, which Rights were acquired by such Person or any of such Person's Affiliates or Associates prior to the Distribution Date or pursuant to Section 3(a) (Issuance of Rights Certificates -- Distribution Date; Rights Certificates) or Section 22 (Issuance 2 of New Rights Certificates) (the "Original Rights") or pursuant to Section 11(i) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Adjustment of Number of Rights) in connection with an adjustment made with respect to any Original Rights; ii) Which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any security under this subparagraph (ii) as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) is not also then reportable by such Person on a Schedule 13D under the Exchange Act (or any comparable or successor report); or iii) Which are "beneficially owned," directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subparagraph (ii) of this paragraph (f)) or disposing of any voting securities of the Company; provided, however, that nothing in this paragraph (f) shall cause a Person engaged in business as an underwriter of securities to be the "Beneficial Owner" of or to "beneficially own," any securities acquired through such Person's participation in good faith in a firm commitment underwriting until the expiration of forty (40) calendar days after the date of such acquisition. g. "Board" means the Board of Directors of the Company. h. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of Colorado are authorized or obligated by law or executive order to close. i. "Close of Business" on any given date shall mean 5:00 P.M., Boulder, Colorado time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., Boulder, Colorado time, on the next succeeding Business Day. j. "Common Stock" shall mean the common stock, no par value, of the Company, except that "Common Stock" when used with reference to any Person other than the Company shall mean the capital stock of such Person with the greatest voting power, or the equity securities or other equity interest having power to control or direct the management, of such Person. 3 k. "Common Stock Equivalents" shall have the meaning set forth in Section 11(a)(iii) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments). l. "Company" shall mean the Person named as the "Company" in the first paragraph of this Agreement until a successor corporation shall have become such, or until a Principal Party shall assume, and thereafter be liable for, all obligations and duties of the Company hereunder, pursuant to the applicable provisions of this Agreement, and thereafter "Company" shall mean such successor corporation or Principal Party. m. "Current Market Price" shall have the meaning set forth in Section 11(d) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Current Market Price). n. "Current Value" shall have the meaning set forth in Section 11(a)(iii) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments). o. "Distribution Date" shall have the meaning set forth in Section 3(a) (Issuance of Rights Certificates -- Distribution Date; Rights Certificates). p. "Equivalent Common Stock" shall have the meaning set forth in Section 11(b) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Purchase Price Adjustment -- Capital Stock). q. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended and in effect on the date of this Agreement. r. "Exchange Number" shall mean one-half of the number of shares of Common Stock, or shares or other units of other property for which a Right is exercisable immediately prior to the time of the action of the Board to exchange the Rights. s. "Expiration Date" shall have the meaning set forth in Section 7(a) (Exercise of Rights; Purchase Price; Expiration Date of Rights -- Exercise). t. "Final Expiration Date" shall mean the Close of Business on December 1, 2009. u. "Flip-in Event" shall mean any event described in Section 11(a)(ii) (A) or (B) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments). v. "Flip-in Trigger Date" shall have the meaning set forth in Section 11(a)(iii) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments). 4 w. "Flip-over Event" shall mean any event described in clauses (x), (y) or (z) of Section 13(a) (Consolidation, Merger or Sale or Transfer of Assets or Earning Power -- Flip-over Event). x. "Original Rights" shall have the meaning set forth in Section 1(f)(i) (Certain Definitions). y. "Person" shall mean any individual, firm, corporation, partnership or other entity. z. "Principal Party" shall have the meaning set forth in Section 13(b) (Consolidation, Merger or Sale or Transfer of Assets or Earning Power -- Principal Party). aa. "Purchase Price" shall have the meaning set forth in Section 4(a) (Form of Rights Certificates -- Form; Date). bb. "Record Date" shall have the meaning set forth in the Recital at the beginning of the Agreement. cc. "Redemption Date" shall have the meaning set forth in Section 23(a) (Redemption and Termination -- Redemption). dd. "Redemption Price" shall have the meaning set forth in Section 23(a) (Redemption and Termination -- Redemption). ee. "Rights" shall have the meaning set forth in the Recital at the beginning of the Agreement. ff. "Rights Agent" shall mean the Person named as the "Rights Agent" in the first paragraph of this Agreement until a successor Rights Agent shall have become such pursuant to the applicable provisions hereof and thereafter "Rights Agent" shall mean such successor Rights Agent. If at any time there is more than one Person appointed by the Company as Rights Agent pursuant to the applicable provisions of this Agreement, "Rights Agent" shall mean and include each such Person. gg. "Rights Certificates" shall have the meaning set forth in Section 3(a) (Issuance of Rights Certificates -- Distribution Date; Rights Certificates). hh. "Rights Dividend Declaration Date" shall have the meaning set forth in the Recital at the beginning of the Agreement. ii. "Spread" shall have the meaning set forth in Section 11(a)(iii) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments). jj. "Stock Acquisition Date" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed or 5 amended pursuant to Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such. kk. "Subsidiary" shall mean, with reference to any Person, any corporation or other entity of which a majority of the voting power of equity securities or majority of the equity interest is beneficially owned, directly or indirectly, by such Person, or otherwise controlled by such Person. ll. "Substitution Period" shall have the meaning set forth in Section 11(a)(iii) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments). mm. "Trading Day" shall have the meaning set forth in Section 11(d)(i) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Current Market Price). nn. "Triggering Event" shall mean any Flip-in Event or any Flip-over Event. 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. Section 3. Issuance of Rights Certificates. ------------------------------- a. Distribution Date; Rights Certificates. Until the earlier of (i) the Close of Business on the tenth Business Day after the Stock Acquisition Date (or, if the tenth Business Day after the Stock Acquisition Date occurs before the Record Date, the Close of Business on the Record Date), or (ii) the Close of Business on the tenth Business Day (or such later date as the Board shall determine prior to such time as any Person becomes an Acquiring Person) after the date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon consummation thereof such Person would be the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding (the earlier of (i) and (ii) being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for the Common Stock registered in the names of the holders of the Common Stock (which certificates for Common Stock shall be deemed also to be certificates for Rights) and not by separate certificates, and (y) the Rights will be transferable only in connection with the transfer of the underlying shares of Common Stock (including a transfer to the Company, except pursuant to the provision of Section 23 (Redemption and Termination)). As soon as practicable after the Distribution Date, the Rights Agent will send by first- class, insured, postage prepaid mail, to each record holder of the Common Stock as of the Close of Business on the Distribution Date, at the address of such holder shown on the records of 6 the Company, one or more rights certificates, in substantially the form of Exhibit 1 hereto (the "Rights Certificates"), evidencing one Right for each share of Common Stock so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section 11(p) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Common Stock Adjustments) at the time of distribution of the Rights Certificates, the Company shall make the necessary and appropriate rounding adjustments (in accordance with Section 14(a) (Fractional Rights and Fractional Shares -- Fractional Rights)) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates. b. Common Stock Certificates; Summary of Rights. With respect to certificates for the Common Stock outstanding as of the Record Date, until the Distribution Date, the Rights associated with the Common Stock represented by such certificates will be evidenced by such certificates alone and the registered holders of such Common Stock shall also be the registered holders of the associated Rights. Until the earlier of the Distribution Date or the Expiration Date, the transfer of any certificates representing shares of Common Stock in respect of which Rights have been issued shall also constitute the transfer of the Rights associated with such shares of Common Stock. On the Record Date, or as soon as practicable thereafter, the Company will send a copy of a Summary of Rights to Purchase Common Stock, in substantially the form of Exhibit 2 hereto (the "Summary of Rights"), by first-class, postage-prepaid mail, to each record holder of shares of Common Stock as of the close of business of the Record Date, at the address of such holder shown on the records of the Company. c. Legend. Rights shall be issued in respect of all certificates for shares of Common Stock which are issued (whether originally issued or from the Company's treasury) after the Record Date but prior to the earliest of the (i) Distribution Date, (ii) the Expiration Date, or (iii) the Redemption Date, or, in certain circumstances provided in Section 22 (Issuance of New Rights Certificates) after the Distribution Date. Certificates representing such shares of Common Stock shall also be deemed to be certificates for Rights, and shall bear the following legend: This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement dated as of December 1, 1999, by and between BI Incorporated (the "Company") and American Securities Transfer & Trust, Inc., as Rights Agent (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently 7 held by or on behalf of such Person or by any subsequent holder, may become null and void. With respect to such certificates containing the foregoing legend, until the earliest of (i) the Distribution Date, (ii) the Expiration Date, and (iii) the Redemption Date, (x) the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone, (y) the registered holders of such Common Stock shall also be the registered holders of the associated Rights, and (z) the transfer of any of such certificates shall also constitute the transfer of the Rights associated with such shares of Common Stock. In the event that the Company purchases, or acquires any shares of Common Stock after the Record Date but prior to the Distribution Date, any rights associated with such shares of Common Stock shall be deemed canceled and retired so that the Company shall not be entitled to exercise any Rights associated with shares of Common Stock which are no longer outstanding. Section 4. Form of Rights Certificates. --------------------------- a. Form; Date. The Rights Certificates (and the forms of election to purchase and of assignment to be printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit 1 hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed or any securities association on whose interdealer quotation system the Rights may be from time to time authorized for quotation, or to conform to usage. Subject to the provisions of Section 11 (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights) and Section 22 (Issuance of New Rights Certificates), the Rights Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such number of shares of Common Stock as shall be set forth therein at the price set forth therein (such exercise price per share is referred to herein as the "Purchase Price"), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein. b. Acquiring Person Legend. Any Rights Certificate issued pursuant to Section 3(a) (Issuance of Rights Certificates -- Distribution Date; Rights Certificates) or Section 22 (Issuance of New Rights Certificates) that represents Rights beneficially owned by (i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom such Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which is part of a plan, arrangement or understanding which has as a primary purpose or effect avoidance of Section 7(e) (Exercise of Rights; Purchase Price; Expiration Date of Rights -- Termination of 8 Acquiring Person's Rights) and any Rights Certificate issued pursuant to Section 6 (Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates), Section 11 (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights) or Section 22 (Issuance of New Rights Certificates) upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain (to the extent feasible) the following legend: The Rights represented by this Rights Certificate are or were beneficially owned by a Person who was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement dated as of December 1, 1999, by and between BI Incorporated and American Securities Transfer & Trust, Inc., as Rights Agent). Accordingly, this Rights Certificate and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) (Exercise of Rights; Purchase Price; Expiration Date of Rights -- Termination of Acquiring Person's Rights) of such Agreement. Section 5. Countersignature and Registration. --------------------------------- a. Signatures. The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, its President or any Vice President, either manually or by facsimile signature, and shall have affixed thereto the Company's seal or a facsimile thereof which shall be attested to by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Rights Certificates shall be countersigned by the Rights Agent, either manually or by facsimile signature, and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Rights Certificates had not ceased to be such officer of the Company; and any Rights Certificates may be signed on behalf of the Company by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. b. Registration and Transfer. Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office or offices designated as the appropriate place for surrender of Rights Certificates upon exercise or transfer, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates and the date of each of the Rights Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Rights ------------------------------------------------------ Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates. - ----------------------------------------------------------------------- a. Procedure. Subject to the provisions of Section 4(b) (Form of Rights Certificates -- Acquiring Person Legend), Section 7(e) (Exercise of Rights; Purchase Price; 9 Expiration Date of Rights -- Termination of Acquiring Person's Rights) and Section 14 (Fractional Rights and Fractional Shares), at any time after the Close of Business on the Distribution Date, and at or prior to the Close of Business on the Expiration Date, any Rights Certificate or Certificates may be transferred, split up, combined or exchanged for another Rights Certificate or Certificates, entitling the registered holder to purchase a like number of shares of Common Stock as the Rights Certificate or Certificates surrendered then entitle such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate or Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Certificates to be transferred, split up, combined or exchanged at the principal office or offices of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon, the Rights Agent shall, subject to Section 4(b), Section 7(e) and Section 14, countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights Certificates. b. Issuance of New Rights Certificates. Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Purchase Price; Expiration Date of ------------------------------------------------------ Rights. - ------ a. Exercise. Subject to Section 7(e) (Exercise of Rights; Purchase Price; Expiration Date of Rights -- Termination of Acquiring Person's Rights), the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein, including, without limitation, the restrictions on exercisability set forth in Section 9(c) (Reservation and Availability of Capital Stock -- Registration under the Act), Section 11(a)(iii) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments), Section 23(a) (Redemption and Termination -- Redemption), and Section 24(b) (Exchange -- Effect of Exchange; Procedure)) in whole or in part at any time after the Distribution Date upon surrender of the Rights Certificate, with the form of election to purchase and the certificate on the reverse side thereof duly executed, to the Rights Agent at the principal office or offices of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price with respect to the total number of shares of Common Stock (or other securities, cash or other assets, as the case may be) as to which such surrendered Rights are then 10 exercisable and an amount equal to any applicable transfer tax, at or prior to the earliest of (i) the Final Expiration Date, (ii) the Redemption Date, or (iii) the expiration of the Rights pursuant to Section 13(d) (Consolidation, Merger or Sale or Transfer of Assets or Earning Power -- Exceptions) (the earliest of (i), (ii) and (iii) being herein referred to as the "Expiration Date"). The payment of the Purchase Price and the applicable transfer tax, if any (as such amount may be reduced pursuant to Section 11(a)(iii) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments)), may be made (x) in cash, (y) by certified check, cashier's check or money order payable to the order of the Company, or (z) by delivery of a certificate or certificates (with appropriate stock powers executed in blank attached thereto) evidencing a number of shares of Common Stock equal to the then Purchase Price divided by the closing price (as determined pursuant to Section 11(d) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Current Market Price)) per share of Common Stock on the Trading Day immediately preceding the date of such exercise. In the event that the Company is obligated to issue other securities (including Common Stock) of the Company, pay cash and/or distribute other property pursuant to Section 11(a) the Company will make all arrangements necessary so that such other securities, cash and/or other property are available for distribution by the Rights Agent, if and when appropriate. The Company reserves the right to require prior to the occurrence of a Triggering Event that upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Common Stock would be issued. b. Purchase Price. The Purchase Price for each share of Common Stock pursuant to the exercise of a Right shall initially be $50.00, and shall be subject to adjustment from time to time as provided in Section 11 (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights) and Section 13(a) (Consolidation, Merger or Sale or Transfer of Assets or Earning Power -- Flip- over Event) and shall be payable in accordance with paragraph (a) of this Section 7. c. Rights Agent Actions. Upon receipt of a Rights Certificate representing exercisable Rights and the compliance by the holder of such Rights Certificate with paragraph (a) of this Section 7, the Rights Agent shall, subject to Section 20(k) (Duties of Rights Agent -- Exercise of Rights; Consultation with Company), thereupon promptly (i) (A) requisition from any transfer agent of the shares of Common Stock (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the total number of shares of Common Stock to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the total number of shares of Common Stock issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of shares of Common Stock as are to be purchased (in which case certificates for the shares of Common Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company will direct the depositary agent to comply with such request, (ii) requisition from the Company the amount of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14 (Fractional Rights and Fractional Shares), (iii) after receipt thereof, deliver such certificates or depositary receipts to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver such cash, if any, to or upon the order of the registered holder of such Rights Certificate. 11 d. Partial Exercise. In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, subject to the provisions of Section 14 (Fractional Rights and Fractional Shares). e. Termination of Acquiring Person's Rights. Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Flip-in Event, any Rights beneficially owned by (i) an Acquiring Person, or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after such Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e), shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to ensure that the provisions of this Section 7(e) and Section 4(b) (Form of Rights Certificates -- Acquiring Person Legend) are complied with, but shall have no liability to any holder of Rights Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or any of its respective Affiliates, Associates or transferees hereunder. f. Surrender of Rights Certificates; Identity of Beneficial Owner. Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise, and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Section 8. Cancellation and Destruction of Rights Certificates. --------------------------------------------------- All Rights Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Rights Certificates to the Company, or shall, at the 12 written request of the Company, destroy such canceled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Reservation and Availability of Capital Stock. --------------------------------------------- a. Reservation of Capital Stock. The Company will use its best efforts to reserve and keep available out of its authorized and unissued shares of Common Stock the number of shares of Common Stock that, as provided in this Agreement, including the rights of the Company under Section 11(a)(iii) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments) to otherwise fulfill its obligations, will be sufficient to permit the exercise in full of all outstanding Rights. b. Listing. So long as the shares of Common Stock issuable and deliverable upon the exercise of the Rights may be listed on any national securities exchange or authorized for quotation on any interdealer quotation system of any securities association, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed on such exchange or quoted on such system upon official notice of issuance upon such exercise. c. Registration under the Act. The Company will use its best efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a Flip-in Event on which the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with Section 11(a)(iii) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments), or as soon as is required by law following the Distribution Date, as the case may be, a registration statement on an appropriate form under the Act with respect to the securities purchasable upon exercise of the Rights, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities, and (B) the 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 ninety (90) calendar days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. In addition, if the Company shall determine that a registration statement is required following the Distribution Date, the Company may temporarily suspend the exercisability of the Rights until such time as a registration statement has been declared effective. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction if the requisite qualification in such jurisdiction shall not have been obtained, the exercise thereof shall not be permitted under applicable law or a registration statement shall not have been declared effective. 13 d. Covenant Regarding Capital Stock. The Company will take all such action as may be necessary to ensure that all shares of Common Stock delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable. e. Transfer Taxes and Charges. The Company will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Rights Certificates and of any certificates for a number of shares of Common Stock upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or the issuance or delivery of a number of shares of Common Stock in respect of a name other than, that of the registered holder of the Rights Certificates evidencing Rights surrendered for exercise or to issue or deliver any certificates for a number of shares of Common Stock in a name other than that of the registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. Section 10. Common Stock Record Date. Each Person in whose name any ------------------------ certificate for a number of shares of Common Stock is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of such shares of Common Stock represented thereby on, and such certificate shall be dated as of, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Common Stock (or other securities, as the case may be) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Common Stock (or other securities, as the case may be) transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate shall not be entitled to any rights of a stockholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section 11. Adjustment of Purchase Price; Number and Kind of Shares or ---------------------------------------------------------- Number of Rights. The Purchase Price, the number and kind of shares covered - ---------------- by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. a. Certain Adjustments. i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Common Stock payable in shares of Common Stock, (B) subdivide or split the outstanding Common Stock, (C) combine the outstanding Common Stock into a smaller number of shares, or (D) issue any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a 14 consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) and Section 7(e) (Exercise of Rights; Purchase Price; Expiration Date of Rights -- Termination of Acquiring Person's Rights), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, split, combination or reclassification, and the number and kind of shares of Common Stock or capital stock, as the case may be, issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the aggregate adjusted Purchase Price then in effect necessary to exercise a Right in full, the aggregate number and kind of shares of Common Stock or capital stock, as the case may be, which, if such Right had been exercised immediately prior to such date and at a time when the Common Stock (or other capital stock, as the case may be) transfer books of the Company were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, split, combination or reclassification. If an event occurs which would require 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) In the event: a) (1) Any Acquiring Person or any Associate or Affiliate of any Acquiring Person, at any time after the date of this Agreement, directly or indirectly, shall merge into the Company or otherwise combine with the Company and the Company shall be the continuing or surviving corporation of such merger or combination and the Common Stock of the Company shall remain outstanding and unchanged, or (2) subject to Section 23 (Redemption and Termination), any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan), alone or together with its Affiliates and Associates, shall, at any time after the Rights Dividend Declaration Date, become an Acquiring Person, unless, in the case of either clause (1) or (2) above, the event causing such Person to become an Acquiring Person is a Flip-over Event, or is an acquisition of shares of Common Stock pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock at a price and on terms determined by the Board of Directors, prior to the public announcement of such tender offer or exchange offer, after receiving advice from one or more investment banking firms selected by the Board of Directors, to be (a) at a price which is fair to the stockholders of the Company (taking into account all factors which the Board of Directors deem relevant including, without limitation, prices which could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (b) otherwise in the best interests of the Company and its stockholders, other than such Acquiring Person, its Affiliates and its Associates; or b) During such time as there is an Acquiring Person, there shall be any reclassification of securities (including any reverse stock split), or recapitalization of the Company, or any merger or consolidation of the Company with any of its Subsidiaries or any other transaction or series of transactions involving the Company or any of its Subsidiaries, other than a transaction or transactions to which the provisions of Section 13(a) (Consolidation, Merger or Sale or Transfer of Assets or Earning Power -- Flip-over Event) apply (whether or not 15 with or into or otherwise involving an Acquiring Person) which has the effect, directly or indirectly, of increasing by more than 1% the proportionate share of the outstanding shares of any class of equity securities of the Company or any of its subsidiaries which is directly or indirectly beneficially owned by any Acquiring Person or any Associate or Affiliate of any Acquiring Person, then, promptly following the occurrence of any such Flip-in Event (whether described in Section 11(a)(ii)(A) or (B)), proper provision shall be made so that each holder of a Right (except as provided below and in Section 7(e) (Exercise of Rights; Purchase Price; Expiration Date of Rights -- Termination of Acquiring Person's Rights)) shall thereafter have the right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, in lieu of the number of shares of Common Stock, such number of shares of Common Stock of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the then number of shares of Common Stock for which a Right was exercisable immediately prior to the first occurrence of a Flip-in Event, and (y) dividing that product (which, following such first occurrence, shall thereafter be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by 50% of the Current Market Price per share of Common Stock on the date of such first occurrence (such number of shares being referred to as the "Adjustment Shares"). iii) In the event that the number of shares of Common Stock that are authorized by the Company's Articles of Incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights is not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) of this Section 11(a), the Company shall: (A) determine the excess of (1) the value of the Adjustment Shares issuable upon the exercise of a Right (the "Current Value") over (2) the Purchase Price (such excess, the "Spread"), and (B) with respect to each Right, subject to Section 7(e)(Exercise of Rights; Purchase Price; Expiration Date of Rights --Termination of Acquiring Person's Rights), make adequate provision to substitute for the Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or other equity securities of the Company, (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having an aggregate value equal to the Current Value (less the amount of any reduction in the Purchase Price), where such aggregate value has been determined by the Board based upon the advice of a nationally recognized investment banking firm selected by the Board; provided, however, that if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) calendar days following the first occurrence of a Flip-in Event (the date of such Flip-In Event being referred to herein as the "Flip-in Trigger Date"), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If the Board shall determine in good faith that it is likely that sufficient additional shares of Common Stock or other equity securities could be authorized for issuance upon exercise in full of the Rights, the thirty (30) calendar day period set forth above may be extended to the extent necessary, but not more than ninety (90) calendar days after the Flip-in Trigger Date, in order that the Company may seek stockholder approval for the authorization of such additional shares (such period, the "Substitution Period"). To the extent 16 that the Company determines that some action needs to be taken pursuant to the first and/or second sentences of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e), that such action shall apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Stock shall be the Current Market Price per share of the Common Stock on the Flip-in Trigger Date and the value of any Common Stock Equivalent shall be deemed to have the same value as the Common Stock on such date. iv) If the rules of the national securities exchange, registered as such pursuant to Section 6 of the Exchange Act, or of the national securities association, registered as such pursuant to Section 15A of the Exchange Act, on which the Common Stock is principally traded or quoted would prohibit such exchange or association from listing or continuing to list, or from authorizing for or continuing quotation and/or transaction reporting through an inter-dealer quotation system, the Common Stock or other equity securities of the Company if the Rights were to be exercised for shares of Common Stock in accordance with subparagraph (ii) of this Section 11(a), the Company shall: (A) determine the Spread, and (B) with respect to each Right, make adequate provision to substitute for the Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, or (3) any combination of the foregoing, having an aggregate value equal to the Current Value, where such aggregate value has been determined by the Board based upon the advice of a recognized investment banking firm selected by the Board; provided, however, if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) calendar days following the Flip-in Trigger Date, then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, cash having an aggregate value equal to the Spread. To the extent that the Company determines that some action need be taken pursuant to the first sentence of this Section 11(a)(iv), the Company (x) shall provide, subject to Section 7(e) (Exercise of Rights; Purchase Price; Expiration Date of Rights -- Termination of Acquiring Person's Rights), that such action shall apply uniformly to all outstanding Rights and (y) may suspend the exercisability of the Rights, but not longer than ninety (90) calendar days after the Flip-in Trigger Date, in order to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iv), the value of the Common Stock shall be the Current Market Price per share of the Common Stock on the Flip-in Trigger Date and the value of any Common Stock Equivalent shall be deemed to have the same value as the Common Stock on such date. b. Purchase Price Adjustment -- Capital Stock. In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Common Stock entitling them to subscribe for or purchase (for a period expiring within forty-five (45) calendar 17 days after such record date) Common Stock (or shares having the same rights, privileges and preferences as the shares of Common Stock ("Equivalent Common Stock")) or securities convertible into Common Stock or Equivalent Common Stock at a price per share of Common Stock or per share of Equivalent Common Stock (or having a conversion price per share, if a security convertible into Common Stock or Equivalent Common Stock) less than the Current Market Price per share of Common Stock on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on such record date, plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock and/or Equivalent Common Stock so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such Current Market Price, and the denominator of which shall be the number of shares of Common Stock outstanding on such record date, plus the number of additional shares of Common Stock and/or Equivalent Common Stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid by delivery of consideration part or all of which may be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Shares of Common Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. c. Purchase Price Adjustment -- Cash, Assets, etc. In case the Company shall fix a record date for a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness, cash (other than a regular quarterly cash dividend out of the earnings or retained earnings of the Company), assets (other than a dividend payable in Common Stock, but including any dividend payable in stock other than Common Stock) or subscription rights or warrants (excluding those referred to in Section 11(b) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights Purchase Price Adjustment -- Capital Stock)), 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 per share of Common Stock on such record date, less the fair market value (as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to a share of Common Stock and the denominator of which shall be such Current Market Price per share of Common Stock. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Purchase Price shall be adjusted to be the Purchase Price which would have been in effect if such record date had not been fixed. 18 d. Current Market Price. For the purpose of any computation hereunder, other than computations made pursuant to Section 11(a)(iii) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments) the Current Market Price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the thirty (30) consecutive Trading Days immediately prior to such date, and for purposes of computations made pursuant to Section 11(a)(iii) 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 (10) consecutive Trading Days immediately following such date; provided, however, that in the event that the Current Market Price per share of the Common Stock is determined during a period following the announcement by the issuer of such Common Stock of (A) a dividend or distribution on such Common Stock payable in shares of such Common Stock or securities convertible into shares of such Common Stock (other than the Rights), or (B) any subdivision, combination or reclassification of such Common Stock and the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification shall not have occurred prior to the commencement of the requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth above, then, and in each such case, the Current Market Price shall be properly adjusted to take into account ex-dividend trading. The closing price for each Trading Day shall be the last sale price, regular way, or, in case no such sale takes place on such Trading 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, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System 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. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined in good faith by the Board shall be used. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded, Current Market Price per share shall mean the fair value per share as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. e. Purchase Price Adjustment Threshold. Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Purchase Price; provided however, that any adjustments which by reason of this Section 11(e) are not required to 19 be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights) shall be made to the nearest cent or to the nearest thousandth of a share of Common Stock as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three (3) years from the date of the transaction which mandates such adjustment, or (ii) the Expiration Date. f. Equivalent Adjustments. If as a result of an adjustment made pursuant to Section 11(a)(ii) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments) or Section 13(a) (Consolidation Merger or Sale or Transfer of Assets or Earning Power -- Flip- over Event) the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock other than Common 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 Common Stock contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7, 9, 10, 13 and 14 with respect to the Common Stock shall apply on like terms to any such other shares. g. Post-Adjustment Rights Issuances. All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of shares of Common Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. h. Common Stock Anti-Dilution. Unless the Company shall have exercised its election as provided in Section 11(i) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Adjustment of Number of Rights), upon each adjustment of the Purchase Price as a result of the calculations made in Section 11(b) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Purchase Price Adjustment -- Capital Stock) and Section 11(c) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Purchase Price Adjustment -- Cash, Assets, etc.), 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 shares of Common Stock obtained by (i) multiplying (x) the number of shares covered by a Right immediately prior to this adjustment, by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price, and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. i. Adjustment of Number of Rights. 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 shares of Common Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of shares of Common Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect 20 immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least ten (10) calendar days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 14 (Fractional Rights and Fractional Shares) the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement. j. Rights Certificates. Irrespective of any adjustment or change in the Purchase Price or the number of shares of Common Stock issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per share and the number of shares which were expressed in the initial Rights Certificates issued hereunder. k. Adjustment Below Par Value. Before taking any action that would cause an adjustment reducing the Purchase Price below the then par or stated value, if any, of the number of shares of Common Stock issuable upon exercise of the Rights, the Company shall take any corporate action which is or 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 shares of Common Stock at such adjusted Purchase Price. l. Adjustment Effective as of Future Date; Exercise. In any case in which this Section 11 (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights) shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of shares of Common Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of shares of Common Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares or securities upon the occurrence of the event requiring such adjustment. m. Tax Adjustments. Anything in this Section 11 (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights) to the contrary notwithstanding, the 21 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 in its good faith judgment the Board shall determine to be advisable in order that any (i) consolidation or subdivision of the Common Stock, (ii) issuance wholly for cash of any shares of Common Stock at less than the Current Market Price, (iii) issuance wholly for cash of shares of Common Stock or securities which by their terms are convertible into or exchangeable for shares of Common Stock, (iv) stock dividends or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Common Stock shall not be taxable to such stockholders. n. Restriction on Certain Transactions. The Company shall not, at any time after the earlier of the Stock Acquisition Date or the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Restriction Against Diminishing Benefits of the Rights)), (ii) merge with or into any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o)), (iii) enter into a statutory share exchange or similar transaction with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o)), or (iv) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction, or a series of related transactions, assets, cash flow or earning power aggregating more than 50% of the assets, cash flow or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o)), if (x) at the time of or immediately after such consolidation, merger, statutory share exchange or similar transaction, or sale there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights or (y) prior to, simultaneously with or immediately after such consolidation, merger, statutory share exchange or similar transaction, or sale, the stockholders of the Person who constitutes, or would constitute, the "Principal Party" for purposes of Section 13(a) (Consolidation, Merger or Sale or Transfer of Assets or Earning Power -- Flip-over Event) shall have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates. o. Restriction Against Diminishing Benefits of the Rights. The Company covenants and agrees that, after the earlier of the Stock Acquisition Date or the Distribution Date, it will not, except as permitted by Section 23 (Redemption and Termination) or Section 27 (Supplements and Amendments) take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. p. Common Stock Adjustments. Anything in this Agreement to the contrary notwithstanding, in the event that the Company shall at any time after the Rights Dividend Declaration Date and prior to the Distribution Date (i) declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide or split the outstanding shares of Common Stock, or (iii) combine the outstanding shares of Common Stock into a smaller number of shares, the number of Rights associated with each share of Common 22 Stock then outstanding, or issued or delivered thereafter but prior to the Distribution Date, shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common Stock following any such event shall equal the result obtained by multiplying the number of Rights associated with each share of Common Stock immediately prior to such event by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Common Stock outstanding immediately following the occurrence of such event. The adjustments provided for in this Section 11(p) shall be made successively whenever such a dividend is declared or paid or such subdivision, combination or consolidation is effected. Section 12. Certificate of Adjusted Purchase Price or Number of --------------------------------------------------- Shares. Whenever an adjustment is made as provided in Section 11 (Adjustment of - ------ Purchase Price; Number and Kind of Shares or Number of Rights) and Section 13 (Consolidation, Merger or Sale or Transfer of Assets or Earning Power) the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each transfer agent for the Common Stock, a copy of such certificate, and (c) mail or cause the Rights Agent to mail a brief summary thereof to each holder of a Rights Certificate (or, if prior to the Distribution Date, to each holder of a certificate representing shares of Common Stock) in accordance with Section 26 (Notices). The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained. Section 13. Consolidation, Merger or Sale or Transfer of Assets or ------------------------------------------------------ Earning Power. - ------------- a. Flip-over Event. In the event that, following the Stock Acquisition Date, directly or indirectly, (x) the Company shall consolidate with, or merge with and into, or enter into a statutory stock exchange or similar transaction with, any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o)(Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Restriction Against Diminishing Benefits of the Rights)), and the Company shall not be the continuing or surviving corporation of such consolidation, merger or statutory share exchange or similar transaction, (y) any Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o)) shall consolidate with, or merge with or into, or enter into a statutory stock exchange or similar transaction with, the Company, and the Company shall be the continuing or surviving corporation of such consolidation, merger or statutory share exchange or similar transaction and, in connection with such consolidation, merger or statutory share exchange or similar transaction, all or part of the outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets, cash flow or earning power aggregating more than 50% of the assets, cash flow or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company or any Subsidiary of the Company in one or more transactions each of which complies with Section 11(o)), then, and in each such case (except as may be contemplated by Section 13(d) (Consolidation, Merger or Sale or Transfer of Assets or Earning Power -- Exceptions)), (i) 23 proper provision shall be made so that: each holder of a Right, except as provided in Section 7(e) (Exercise of Rights; Purchase Price; Expiration Date of Rights -- Termination of Acquiring Person's Rights) shall thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, nonassessable and freely tradable shares of Common Stock of the Principal Party, not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (A) multiplying the then current Purchase Price by the number of shares of Common Stock for which a Right is exercisable immediately prior to the first occurrence of a Flip-over Event (or, if a Flip-in Event has occurred prior to the first occurrence of a Flip-over Event, multiplying the number of such shares for which a Right was exercisable immediately prior to the first occurrence of a Flip-in Event by the Purchase Price in effect immediately prior to such first occurrence), and (B) dividing that product (which, following the first occurrence of a Flip-over Event, shall be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by 50% of the Current Market Price per share of the Common Stock of such Principal Party on the date of consummation of such Flip-over Event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Flip-over Event, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights) shall apply only to such Principal Party following the first occurrence of a Flip-over Event; (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments) hereof shall be of no effect following the first occurrence of any Flip-over Event. b. Principal Party. "Principal Party" shall mean: i) In the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a) (Consolidation, Merger or Sale or Transfer of Assets or Earning Power -- Flip-over Event), the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted in such consolidation, merger or statutory share exchange or similar transaction, and if no securities are so issued, the Person that is the other party to such consolidation, merger or statutory share exchange or similar transaction, and ii) In the case of any transaction described in clause (z) of the first sentence of Section 13(a) (Consolidation, Merger or Sale or Transfer of Assets or Earning Power -- Flip-over Event), the Person that is the party receiving the greatest portion of the assets, cash flow or earning power transferred pursuant to such transaction or transactions; provided, however, that in any such case, (1) if the Common Stock of such Person is not at such time and has not been continuously over the preceding twelve (12) month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another 24 Person the Common Stock of which is and has been so registered, "Principal Party" shall refer to such other Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stocks of two or more of which are and have been so registered, "Principal Party" shall refer to whichever of such Persons is the issuer of the total outstanding Common Stock having the greatest aggregate market value. c. Supplemental Agreement. The Company shall not consummate a Flip- over Event unless the Principal Party shall have a sufficient number of authorized shares of its Common Stock which have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 (Consolidation, Merger or Sale or Transfer of Assets or Earning Power) and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of such Flip-over Event, the Principal Party will: i) Prepare and file a registration statement under the Act, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Expiration Date and take all such other action as may be necessary to enable the Principal Party to issue the securities purchasable upon exercise of the Rights, including but not limited to the registration or qualification of such securities under all requisite securities laws or jurisdictions of the various states and the listing of such securities on such exchange and trading markets as may be necessary or appropriate; and ii) Will deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 under the Exchange Act. The provisions of this Section 13 (Consolidation, Merger or Sale or Transfer of Assets or Earning Power) shall similarly apply to successive consolidations, mergers or statutory share exchanges or similar transactions or sales or other transfers. In the event that a Flip-over Event shall occur at any time after the occurrence of a Flip-in Event, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a) (Consolidation, Merger or Sale or Transfer of Assets or Earning Power -- Flip-over Event). d. Exceptions. Notwithstanding anything in this Agreement to the contrary, Section 13 (Consolidation, Merger or Sale or Transfer of Assets or Earning Power) shall not be applicable to a transaction described in subparagraphs (x) and (y) of Section 13(a) (Consolidation, Merger or Sale or Transfer of Assets or Earning Power -- Flip-over Event) if (i) such transaction is consummated with a Person or Persons who acquired shares of Common Stock pursuant to a tender offer or exchange offer for all outstanding shares of Common Stock which complies with the provisions of Section 11(a)(ii)(A) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments) (or a wholly-owned subsidiary of any such Person or Persons), (ii) the price per share of Common Stock offered in such transaction is not less than the price per share of Common Stock paid to all holders of 25 shares of Common Stock whose shares were purchased pursuant to such tender or exchange offer and (iii) the form of consideration being offered in such transaction is the same as the form of consideration paid to all holders of shares of Common Stock whose shares were purchased pursuant to such tender offer or exchange offer. Upon consummation of any such transaction contemplated by this Section 13(d), all Rights hereunder shall expire. Section 14. Fractional Rights and Fractional Shares. --------------------------------------- a. Fractional Rights. The Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11(p) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Common Stock Adjustments), or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any Trading Day shall be the last sale price, regular way, or, in case no such sale takes place on such Trading Day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading, or if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market as reported by the National Association of Securities Dealers, Inc. Automated Quotation System 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. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by the Board shall be used. b. Fractional Shares of Common Stock. Following the occurrence of a Triggering Event, the Company shall not be required to issue fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates which evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one (1) share of Common Stock. For purposes of this Section 14(b), the current market value of one share of Common Stock shall be the closing price of one share of Common Stock (as determined pursuant to Section 11(d)(i) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Current Market Price) for the Trading Day immediately prior to the date of such exercise. 26 c. Waiver of Fractional Rights and Shares. The holder of a Right by the acceptance of the Right expressly waives his or her right to receive any fractional Rights or any fractional shares upon exercise of a Right, except as permitted by this Section 14 (Fractional Rights and Fractional Shares). Section 15. Rights of Action. All rights of action in respect of this ---------------- Agreement are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock), may, in his or her own behalf and for his or her 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 or her right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement. Section 16. Agreement of Rights Holders. Every holder of a Right by --------------------------- accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: a. Prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Stock; b. After the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates fully executed; c. Subject to Section 6(a) (Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates -- Procedure) and Section 7(f) (Exercise of Rights; Purchase Price; Expiration Date of Rights -- Surrender of Rights Certificates; Identity of Beneficial Owner), the Company and the Rights Agent may deem and treat the person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent, subject to the last sentence of Section 7(e) (Exercise of Rights; Purchase Price; Expiration Date of Rights -- Termination of Acquiring Person's Rights), shall be required to be affected by any notice to the contrary; and 27 d. Notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; provided, however, the Company must use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible. Section 17. Rights Certificate Holder Not Deemed a Stockholder. -------------------------------------------------- No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the number of shares of Common Stock or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 (Notice of Certain Events)), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions hereof. Section 18. Concerning the Rights Agent. --------------------------- a. Compensation. The Company shall pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability or expense, incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted to be done by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against or investigating any claim of liability in the premises. b. Reliance. The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted to be taken by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons, or otherwise upon the advice of counsel as set forth in Section 20 (Duties of Rights Agent). 28 Section 19. Merger or Consolidation or Change of Name of Rights Agent. --------------------------------------------------------- a. Successor. Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust or stock transfer 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, however, that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 (Change of Rights Agent). In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. b. Prior Countersignatures. In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the ---------------------- duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: a. Legal Counsel. The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted to be taken by it in good faith and in accordance with such opinion. b. Certification by the Company. Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of Current Market Price) be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. 29 c. Liability for Gross Negligence, Etc. The Rights Agent shall be liable hereunder only for its own gross negligence, bad faith or willful misconduct. d. Statements of Fact or Recitals. The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates or be required to verify the same (except as to its countersignature on such Rights Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only. e. Agreement; Adjustments. The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights) or Section 13 (Consolidation, Merger or Sale or Transfer of Assets or Earning Power) or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock to be issued pursuant to this Agreement or any Rights Certificate or as to whether any shares of Common Stock will, when so issued, be validly authorized and issued, fully paid and nonassessable. f. Further Assurances. The Company 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. Instructions. The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company and to apply to such persons for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with the instructions of any such person. h. Dealing in Rights. The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. 30 i. Agents; Reasonable Care. The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct; provided, however, reasonable care was exercised in the selection and continued employment thereof. j. Expenses; Repayment Assurances. No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. The Rights Agent may, in its sole discretion, before taking any action which would necessitate expending funds for expenses that are reimbursable under this Agreement, require prepayment of such expenses. k. Exercise of Rights; Consultation with Company. If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise of transfer without first consulting with the Company. l. No Notice of Facts. The Rights Agent shall not be required to take notice or be deemed to have notice of any fact, event or determination (including, without limitation, any dates or events defined in this Agreement or the designation of any Person as an Acquiring Person, Affiliate or Associate) under this Agreement unless and until the Rights Agent shall be specifically notified in writing by the Company of such fact, event or determination. Section 21. Change of Rights Agent. The Rights Agent or any ---------------------- successor Rights Agent may resign and be discharged from its duties under this Agreement upon thirty (30) calendar days' notice in writing mailed to the Company, and to each transfer agent of the Common Stock, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon thirty (30) calendar days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30) calendar days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his Rights Certificate for inspection by the Company), then the registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a corporation organized and doing business under the laws of the United States or of any State of the United States, in good standing, which is authorized under such laws to exercise stock 31 transfer or corporate trust powers, is subject to supervision or examination by federal or state authority and 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 a corporation described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock, and mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21 (Change of Rights Agent), or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Rights Certificates. Notwithstanding any ----------------------------------- of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by the Board to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock following the Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement, or upon the exercise, conversion or exchange of securities hereafter issued by the Company, in either case outstanding as of the Distribution Date, and (b) may, in any other case, if deemed necessary or appropriate by the Board, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided, however, that (i) no such Rights Certificate shall be issued if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material, adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued, and (ii) no such Rights Certificate shall be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof. Section 23. Redemption and Termination. -------------------------- a. Redemption. The Company may, at its option, at any time prior to the earlier of (i) the Stock Acquisition Date, or (ii) the Final Expiration Date, redeem (the date of such redemption being referred to herein as the "Redemption Date") 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"). The redemption of the Rights by the Company may be made effective at such time, on such basis and with such conditions as the Board in its sole discretion, may establish. The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based 32 on the Current Market Price of the Common Stock at the time of redemption) or any other form of consideration deemed appropriate by Board. b. Effect of Redemption; Procedure. Immediately upon the action of the Company ordering the redemption of the Rights and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. Promptly after the Redemption Date, the Company shall (i) give notice of such redemption to the Rights Agent, (ii) give public notice of such redemption; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such redemption, and (iii) mail notice of such redemption to the holders of the then outstanding Rights at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the Transfer Agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Amounts payable shall be rounded down to the nearest $0.01. Section 24. Exchange. -------- a. Right to Exchange. The Company may, at its option, at any time and from time to time after the first occurrence of a Flip-in Event, exchange all or part of the then outstanding and exercisable Rights (other than Rights which have become void as provided in Section 7(e) (Exercise of Rights; Purchase Price; Expiration Date of Rights -- Termination of Acquiring Person's Rights)) for the Exchange Number of shares of Common Stock. Notwithstanding the foregoing, the Company shall not be empowered to effect such exchange at any time after any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any such Subsidiary or any entity holding shares of Common Stock for or pursuant to any such plan), 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. The exchange of the Rights by the Company may be made effective at such time, on such basis and with such conditions as the Board in its sole discretion may establish. b. Effect of Exchange; Procedure. Immediately upon the action of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24, evidence of which shall have been filed with the Rights Agent and without any further action and without any notice, the right to exercise such Rights will terminate and the only right thereafter of a holder of such Rights shall be to receive that number of shares of Common Stock, Common Stock Equivalents or units of other property equal to the number of such Rights held by such holder multiplied by the Exchange Number. Promptly after the action of the Company ordering the exchange of the Rights, the Company shall (i) file evidence of such action with the Rights Agent, (ii) give public notice of such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange, and (iii) mail notice of such exchange to the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange will be effected and, in the event of any 33 partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void as provided in Section 7(e) (Exercise of Rights; Purchase Price; Expiration Date of Rights -- Termination of Acquiring Person's Rights)) held by each holder of Rights. c. Common Stock Equivalents. In any exchange pursuant to this Section 24, the Company, at its option, may substitute Common Stock Equivalents for Common Stock exchangeable for Rights, at the initial rate of one share of Common Stock Equivalent for each share of Common Stock, as appropriately adjusted to reflect adjustments in the voting rights of the Common Stock pursuant to the Company's Articles of Incorporation, so that the share of Common Stock Equivalent delivered in lieu of each share of Common Stock shall have the same voting rights as one share of Common Stock. d. Insufficient Common Stock. In the event that the number of shares of Common Stock which are authorized by the Company's Articles of Incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights is not sufficient to permit any exchange of Rights in accordance with this Section 24, the Company may, at its option, take all such action as may be necessary to authorize additional shares of Common Stock for issuance upon such exchange. e. Fractional Shares. Upon the action of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24, the Company shall not be required to issue fractions of shares or to distribute certificates which evidence fractional shares. In lieu of such fractional shares, the Company may pay to the registered holders of the Rights Certificates with regard to which such fractional shares would otherwise be issuable an amount in cash equal to the same fraction of the current market value of one share of Common Stock. For purposes of this Section 24, the current market value of one share of Common Stock shall be the closing price of one share of Common Stock (as determined pursuant to Section 11(d)(i) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Current Market Price)) for the Trading Day immediately prior to the date of exchange pursuant to this Section 24, and the value of any Common Stock Equivalent shall be deemed to have the same current market value as the Common Stock on such date. Section 25. Notice of Certain Events. ------------------------ a. Common Stock Transactions, Etc. In case the Company shall propose, at any time after the Distribution Date, (i) to declare or pay any dividend payable in stock of any class to the holders of Common Stock or to make any other distribution to the holders of Common Stock; (ii) to offer to the holders of Common Stock rights or warrants to subscribe for or to purchase any additional shares of Common Stock or shares of stock of any class or any other securities, rights or options; (iii) to effect any reclassification of its Common Stock (other than a reclassification involving only the subdivision of outstanding shares of Common Stock); (iv) to effect any consolidation with, merger into or with, or statutory share exchange or similar transaction with, any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Restriction against Diminishing Benefits of the Rights)), or to effect any 34 sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one transaction or a series of related transactions, of more than 50% of the assets, cash flow or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o)); or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 26 (Notices), a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, statutory share exchange or similar transaction, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the shares of Common Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least twenty (20) calendar days prior to the record date for determining holders of the shares of Common Stock for purposes of such action, and in the case of any such other action, at least twenty (20) calendar days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the shares of Common Stock, whichever shall be the earlier. b. Other Transactions. In case any of the events set forth in Section 11(a)(ii) (Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights -- Certain Adjustments) shall occur, then, in any such case, the Company shall as soon as practicable thereafter give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 26 (Notices), a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 11(a)(ii). Section 26. Notices. Notices or demands authorized by this Agreement ------- to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by telecopier (with receipt confirmed) or by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: BI Incorporated 6400 Lookout Road Boulder, Colorado Attention: Chief Executive Officer Telecopier: (303) 218-1250 Subject to the provisions of Section 21 (Change of Rights Agent), any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by telecopier (with receipt confirmed) or by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: 35 American Securities Transfer & Trust, Inc. 12039 W. Alameda Parkway, Suite Z-2 Lakewood, Colorado 80228 Attention: President Telecopier: (303) 986-2444 Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder of certificates representing shares of Common Stock) shall be sufficiently given or made if sent by first- class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 27. Supplements and Amendments. For so long as the Rights are -------------------------- redeemable, and subject to the penultimate sentence of this Section 27, the Company may, and the Rights Agent shall, if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holders of certificates representing shares of Common Stock or, on and after the Distribution Date, any holders of Rights Certificates. At any time when the Rights are no longer redeemable and subject to the penultimate sentence of this Section 27, the Company and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates; provided, however, that no such supplement or amendment may (i) adversely affect the interests of the holders of Rights Certificates, or, prior to the Distribution Date, the holders of the Common Stock (other than an Acquiring Person or an Affiliate or Associate of any such Person), (ii) cause this Agreement again to become amendable other than in accordance with this sentence, or (iii) cause the Rights again to become redeemable. Upon the delivery of a certificate from an appropriate officer of the Company which 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, no supplement or amendment shall be made which changes the Redemption Price, the Final Expiration Date, the Purchase Price, or the number of shares of Common Stock for which a right is exercisable; provided, however, that at any time prior to (i) a Stock Acquisition Date or (ii) the date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon consummation thereof, such Person would be the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding, the Board may amend this Agreement to increase the Purchase Price or extend the Final Expiration Date. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock. 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. 36 Section 29. Determinations and Actions by the Board of Directors, ----------------------------------------------------- Etc. For all purposes of this Agreement, any calculation of the number of - ---- shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The Board shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board, 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 to any liability to the holders of the Rights. Section 30. Benefits of this Agreement. Nothing in this Agreement -------------------------- shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock). Section 31. Severability. If any term, provision, covenant or ------------ restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided, however, that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 (Redemption and Termination) shall be reinstated and shall not expire until the Close of Business on the tenth Business Day following the date of such determination by the Board. Section 32. Governing Law. This Agreement, each Right and each Rights ------------- Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Colorado and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such state. Section 33. Counterparts. This Agreement may be executed in any ------------ number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 37 Section 34. Descriptive Headings. Descriptive headings of the several -------------------- sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Agreement to be duly executed effective as of August 9, 2000. BI INCORPORATED COMPUTERSHARE TRUST COMPANY, INC. By: /s/ Jackie Chamberlin By: /s/ Ian Yewer ------------------------------ ------------------------------- Its: CFO Its: President & CEO ------------------------------- ----------------------------- 38 Exhibit 1 [Form of Rights Certificate] Certificate No. R__________ Rights NOT EXERCISABLE AFTER THE EARLIER OF DECEMBER 1, 2009, OR SUCH DATE AS THE RIGHTS REPRESENTED HEREBY ARE REDEEMED BY BI INCORPORATED (THE "CORPORATION"). THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE CORPORATION, AT $0.001 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT DATED AS OF DECEMBER 1, 1999, BY AND BETWEEN THE CORPORATION AND AMERICAN SECURITIES TRANSFER & TRUST, INC., AS RIGHTS AGENT (THE "RIGHTS AGREEMENT"). UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) (EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS -- TERMINATION OF ACQUIRING PERSON'S RIGHTS) OF SUCH AGREEMENT.]/1/ - ------------- /1/ The portion of the legend in brackets shall be inserted only if applicable and shall replace the preceding sentence. Rights Certificate BI INCORPORATED This certifies that _________________________________________________, or its, his or her registered assigns, is the registered owner of the number of rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of December 1, 1999 (the "Rights Agreement"), between BI Incorporated, a Colorado corporation (the "Corporation"), and American Securities Transfer & Trust, Inc. (the "Rights Agent"), to purchase from the Corporation at any time prior to 5:00 P.M. (Boulder, Colorado time) on December 1, 2009 at the office or offices of the Rights Agent designated for such purpose, or its successors as Rights Agent, one fully paid, nonassessable share of Common Stock (the "Common Stock") of the Corporation, at a purchase price of $50.00 per share (the "Purchase Price"), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase and related Certificate duly executed. The number of Rights evidenced by this Rights Certificate (and the number of shares which may be purchased upon exercise thereof) 39 set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of _____________, ______, based on the Common Stock as constituted at such date. The Corporation reserves the right to require prior to the occurrence of a Triggering Event (as such term is defined in the Rights Agreement) that upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Common Stock would be issued. Upon the occurrence of a Flip-in Event (as such term is defined in the Rights Agreement), if the Rights evidenced by this Rights Certificate are beneficially owned by (i) an Acquiring Person or an Associate or Affiliate or any such Person (as such terms are defined in the Rights Agreement), (ii) a transferee of an Acquiring Person or its Associate or Affiliate who becomes a transferee after such Acquiring Person or its Associate or Affiliate becomes such, or (iii) under certain circumstances specified in the Rights Agreement, a transferee of an Acquiring Person or its 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 Flip-in Event. As provided in the Rights Agreement, the Purchase Price and the number and kind of shares of Common Stock or other securities, which may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events, including Triggering Events (as such term is defined in the Rights Agreement). This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Corporation and the holders of the Rights Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights under the specific circumstances set forth in the Rights Agreement. Copies of the Rights Agreement are on file at the above-mentioned office of the Rights Agent and are also available upon written request to the Rights Agent. This Rights Certificate, with or without other Rights Certificates, upon surrender at the principal office or offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of shares of Common Stock as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights for which this Rights Certificate is not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may be redeemed by the Corporation at its option at a redemption price of $0.001 per Right at any time prior to the earlier of (a) the Stock Acquisition Date (as such term is defined in the Rights Agreement) or (b) the Final Expiration Date (as such term is defined in the 40 Rights Agreement) and (ii) may be exchanged in whole or in part for shares of the Corporation's Common Stock, no par value, other property or any combination thereof. In addition, the Rights may be exchanged, in whole or in part, for shares of the Common Stock, or shares of common stock equivalents of the Corporation having essentially the same value or economic rights as such shares. Immediately upon the action of the Board of Directors of the Corporation authorizing any such exchange, and without any further action or any notice, the Rights (other than Rights which are not subject to such exchange) will terminate and the Rights will only enable holders to receive the shares issuable upon such exchange. No fractional shares of Common Stock will be issued upon the exercise of any Right or Rights evidenced hereby but a cash payment will be made in lieu thereof, as provided in the Rights Agreement. No holder of this Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of shares of Common Stock or of any other securities of the Corporation which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to stockholders of the Corporation 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 of the Corporation (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement. This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Corporation and its corporate seal. Dated as of _________________ ATTEST: BI INCORPORATED By:___________________________ Its:__________________________ 41 Countersigned: RIGHTS AGENT By:_________________________________ Authorized Signature Form of Reverse Side of Rights Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Rights Certificate.) FOR VALUE RECEIVED, hereby sells, assigns and transfers unto (Please print name and address of transferee) this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint __________________________ Attorney, to transfer the within Rights Certificate on the books of the within- named Corporation, with full power of substitution. Dated: ____________________________________ Signature Signature Guaranteed: 42 CERTIFICATE The undersigned hereby certifies by checking the appropriate boxes that: (1) this Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); and (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: ___________________________________ Signature Signature Guaranteed: NOTICE The signature to the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise Rights represented by the Rights Certificate.) To: BI INCORPORATED The undersigned hereby irrevocably elects to exercise _______________ Rights represented by this Rights Certificate to purchase the shares of Common Stock issuable upon the exercise of the Rights (or such other securities of the Corporation or of any other person which may be issuable upon the exercise of the Rights) and requests that certificates for such shares be issued in the name of and delivered to: Please insert social security or other identifying number (Please print name and address) 43 If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number (Please print name and address) Dated: ____________________________________ Signature Signature Guaranteed: CERTIFICATE The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being acquired or exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); and (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: ____________________________________ Signature Signature Guaranteed: NOTICE The signature to the foregoing Election to Purchase and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. 44 Exhibit 2 BI RIGHTS AGREEMENT On November 30, 1999, the Board of Directors of BI Incorporation authorized and declared, effective December 1, 1999, a dividend distribution of one Right for each outstanding share of the Company's Common Stock to stockholders of record at the close of business on December 15, 1999. Each Right entitles the registered holder to purchase from the Company one share of Common Stock at a Purchase Price of $50.00 per share, subject to adjustment. The Company has 75 million shares of Common Stock authorized and approximately 7.9 million shares outstanding. The description and terms of the Rights are set forth in a Rights Stock Agreement between the Company and American Securities Transfer & Trust, Inc., as Rights Agent. Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding, and no separate Rights Certificates will be distributed. The Rights will separate from the Common Stock upon the earlier of ten business days following a public announcement that a person (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock (the "Stock Acquisition Date"), or ten business days (or such later date as the Board of Directors shall determine) following the commencement of a tender or exchange offer that would result in a person or group beneficially owning 15% or more of such outstanding shares of Common Stock. The date the Rights separate is referred to as the "Distribution Date." Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock certificates, (ii) new Common Stock certificates issued after December 15, 1999 will contain a notation incorporating the Rights Agreement by reference, and (iii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificates. Pursuant to the Rights Agreement, the Company reserves the right to require prior to the occurrence of a Triggering Event (as defined below) that, upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Common Stock will be issued. The Rights are not exercisable until the Distribution Date and will expire at the close of business on December 1, 2009, unless earlier redeemed by the Company as described below. As soon as practicable after the Distribution Date, Rights Certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and, thereafter, the separate Rights Certificates will represent the Rights. Except in connection with shares of Common Stock issued or sold pursuant to the exercise of stock options under any employee plan or arrangements, or upon the exercise, conversion or exchange of securities hereafter issued by the Company, or as otherwise determined by the Board of Directors, only shares of Common Stock issued prior to the Distribution Date will be issued with Rights. In the event that (i) the Company is the surviving corporation in a merger or other business combination with an Acquiring Person (or any associate or affiliate thereof) and its Common 45 Stock remains outstanding and unchanged, (ii) any person shall acquire beneficial ownership of more than 15% of the outstanding shares of Common Stock (except pursuant to (A) certain consolidations or mergers involving the Company or sales or transfers of the combined assets, cash flow or earning power of the Company and its subsidiaries or (B) an offer for all outstanding shares of Common Stock at a price and upon terms and conditions which the Board of Directors determines to be in the best interests of the Company and its stockholders), or (iii) there occurs a reclassification of securities, a recapitalization of the Company or any of certain business combinations or other transactions (other than certain consolidations and mergers involving the Company and sales or transfers of the combined assets, cash flow or earning power of the Company and its subsidiaries) involving the Company or any of its subsidiaries which has the effect of increasing by more than 1% the proportionate share of any class of the outstanding equity securities of the Company or any of its subsidiaries beneficially owned by an Acquiring Person (or any associate or affiliate thereof), each holder of a Right (other than the Acquiring Person and certain related parties) will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the Purchase Price of the Right. Notwithstanding any of the foregoing, following the occurrence of any of the events described in this paragraph, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person will be null and void. The events described in this paragraph are referred to as "Flip-in Events." For example, at a Purchase Price of $50.00 per Right, each Right not owned by an Acquiring Person (or by certain related parties or transferees) following an event set forth in the preceding paragraph would entitle its holder to purchase $100.00 worth of Common Stock (or other consideration, as noted above) for $50.00. Assuming that the Common Stock had a per share market price of $10.00 at such time, the holder of each valid Right would be entitled to purchase ten shares of Common Stock for $50.00. In the event that, at any time following the Stock Acquisition Date, (i) the Company shall enter into a merger or other business combination transaction in which the Company is not the surviving corporation, (ii) the Company is the surviving corporation in a consolidation, merger or similar transaction pursuant to which all or part of the outstanding shares of Common Stock are changed into or exchanged for stock or other securities of any other person or cash or any other property or (iii) more than 50% of the combined assets, cash flow or earning power of the Company and its subsidiaries is sold or transferred (in each case other than certain consolidations with, mergers with and into, or sales of assets, cash flow or earning power by or to subsidiaries of the Company as specified in the Rights Agreement), each holder of a Right (except Rights which previously have been voided as set forth above) shall thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the Purchase Price of the Right. The events described in this paragraph are referred to as "Flip-over Events." Flip-in Events and Flip-over Events are referred to collectively as "Triggering Events." The Purchase Price payable, the number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Common Stock, (ii) if holders of the Common Stock are granted certain rights, options or 46 warrants to subscribe for Common Stock or securities convertible into Common Stock at less than the current market price of the Common Stock, or (iii) upon the distribution to holders of the Common Stock of evidences of indebtedness, cash (excluding regular quarterly cash dividends), assets (other than dividends payable in Common Stock) or subscription rights or warrants (other than those referred to in (ii) immediately above). With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional shares of Common Stock are required to be issued and, in lieu thereof, the Company may make an adjustment in cash based on the market price of the Common Stock on the trading date immediately prior to the date of exercise. At any time after any person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding shares of Common Stock, the Board of Directors of the Company may, without payment of the Purchase Price by the holder, exchange the Rights (other than Rights owned by such person or group, which will become void), in whole or in part, for shares of Common Stock at an exchange ratio of one-half (1/2) the number of shares of Common Stock for which a Right is exercisable immediately prior to the time of the Company's decision to exchange the Rights (subject to adjustment). At any time until the Stock Acquisition Date, the Company may redeem the Rights in whole, but not in part, at a price of $0.001 per Right (payable in cash, shares of Common Stock or other consideration deemed appropriate by the Board of Directors). Immediately upon the action of the Board of Directors ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $0.001 redemption price. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for Common Stock (or other consideration) of the Company or for common stock of an acquiring company as set forth above or in the event that the Rights are redeemed. Other than those provisions relating to the principal economic terms of the Rights, any of the provisions of the Rights Agreement may be amended by the Board of Directors of the Company at any time during the period in which the Rights are redeemable. At any time when the Rights are no longer redeemable, the provisions of the Rights Agreement may be amended by the Board only if such amendment does not adversely affect the interest of holders of Rights (excluding the interest of any Acquiring Person); provided, however, that no amendment may cause the Rights again to become redeemable. 47 -----END PRIVACY-ENHANCED MESSAGE-----