<PAGE>
-------------------------
FORM 8-A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
SCHLOTZSKY'S, INC.
(Exact name of registrant as specified in its charter)
Texas 74-2654208
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
203 Colorado Street, Austin, Texas 78701
(Address of Principal Executive Offices) (Zip Code)
-------------------------
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
to be registered on which each class is
to be registered
------------------- ----------------------
None None
Securities to be registered pursuant to Section 12(g) of the Act: Preferred
Stock Purchase Rights.
<PAGE>
ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
On December 18, 1998, the Board of Directors of Schlotzsky's, Inc. (the
"COMPANY") adopted a Stockholder Rights Plan, providing that one right (a
"RIGHT") will be attached to each share of common stock, no par value, of the
Company (the "COMMON STOCK") as of December 30, 1998 (the "RECORD DATE"). Each
Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Class C Series A Junior Participating Preferred
Stock, no par value (the "PREFERRED STOCK"), at a Purchase Price of $75.00
per one one-hundredth of a share (the "PURCHASE PRICE"), subject to
adjustment. The description and terms of the Rights are set forth in the
Rights Agreement (the "RIGHTS AGREEMENT"), dated as of December 18, 1998,
between the Company and Harris Trust and Savings Bank, as Rights Agent (the
"RIGHTS AGENT").
Initially, the Rights will be attached to all Common Stock certificates
representing shares outstanding as of the Record Date, and no separate Rights
Certificate will be distributed. The Rights will separate from the Common Stock
and a distribution date ("Distribution Date") will occur upon the earlier of (i)
10 days following a public announcement that a person or group of affiliated or
associated persons (an "ACQUIRING PERSON") has acquired, or obtained the right
to acquire, beneficial ownership of 20% or more of the outstanding shares of
Common Stock (the "STOCK ACQUISITION DATE"), or (ii) 10 business days following
the commencement of a tender offer or exchange offer that would result in a
person or group beneficially owning 20% or more of such outstanding shares of
Common Stock. 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 will contain a
notation incorporating the Rights Agreement by reference; and (iii) the
surrender for transfer of any certificates for Common Stock outstanding will
also constitute the transfer of the Rights associated with the Common Stock
represented by such certificate.
The Rights Agreement provides that John C. Wooley, Jeffrey J. Wooley and
certain of their successors and affiliates, who together will be beneficial
owners of approximately 12.5% of the Common Stock of the Company outstanding on
December 18, 1998, are excluded from the definition of "Acquiring Person."
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on December 18, 2008, 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 alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock outstanding 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 combination with any Acquiring Person, or any Associate or Affiliate of any
Acquiring Person, and its
<PAGE>
Common Stock remains outstanding, (ii) any Acquiring Person, or any Associate
or Affiliate of any Acquiring Person, engages in one or more "self-dealing"
transactions as set forth in the Rights Agreement, (iii) an Acquiring Person
becomes the beneficial owner of 20% or more of the then outstanding shares of
Common Stock or 20%, or (iv) during such time as there is an Acquiring
Person, an event occurs that results in such Acquiring Person's ownership
interest being increased by more than 1% (E.G., a reverse stock split or
recapitalization), each holder of a Right will thereafter have the right to
receive, upon exercise, Common Stock (or, in certain circumstances, cash,
property, or other securities of the Company), having a value equal to two
times the Exercise Price of the Right. The Exercise Price is the Purchase
Price times the number of shares of Common Stock associated with each Right
(initially, one). Notwithstanding any of the foregoing, following the
occurrence of any of the events set forth in this paragraph (the "Flip-In
Events"), all Rights that are, or (under certain circumstances specified in
the Rights Agreement) were, beneficially owned by any Acquiring Person, or an
Associate or Affiliate of any Acquiring Person, will be null and void.
However, Rights are not exercisable following the occurrence of any of the
Flip-In Events set forth above until such time as the Rights are no longer
redeemable by the Company as set forth below.
For example, at an exercise price of $75 per Right, each Right not owned by
an Acquiring Person (or by certain related parties) following an event set forth
in the preceding paragraph would entitle its holder to purchase Common Stock
with a value of $150 (or other consideration, as noted above) for $75. Assuming
that the Common Stock had a per share value of $75 at such time, the holder of
each valid Right would be entitled to purchase 2.0 shares of Common Stock for
$75. Alternatively, the Company could permit the holder to surrender each Right
in exchange for stock, cash, or other property equivalent to one share of Common
Stock (with a value of $75) without the payment of any consideration other than
the surrender of the Right.
In the event that following the Stock Acquisition Date, (i) the Company is
acquired in a merger or consolidation in which the Company is not the surviving
corporation or (ii) 50% or more of the Company's assets or earning power is sold
or transferred, each holder of a Right (except Rights which have previously been
voided as set forth above) will thereafter have the right (a flip-over right) to
receive, upon exercise of the Right, Common Stock of the acquiring company
having a value equal to two times the Exercise Price of the Right.
The Purchase Price payable, and the number of shares of Preferred Stock or
other securities or property issuable, upon exercise of the Rights 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 Preferred
Stock, (ii) if holders of the Preferred Stock are granted certain rights or
warrants to subscribe for Preferred Stock or convertible securities at less than
the current market price of the Preferred Stock, or (iii) upon the distribution
to holders of the Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional shares will be
<PAGE>
issued and, in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Stock on the last trading date prior to the
date of exercise.
At any time until 10 days following the Stock Acquisition Date, the Company
may redeem the Rights in whole, but not in part, at a price of $.001 per Right.
The ten day redemption period may be extended by the Board of Directors so long
as the Rights are still redeemable. 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 $.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 as set
forth above.
Any of the provisions of the Rights Agreement may be amended by the Board
of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Rights (excluding the interest of any
Acquiring Person, or to shorten or lengthen any time period under the Rights
Agreement; provided that no amendment to adjust the time period governing
redemption will be made at such time as the Rights are not redeemable.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in certain circumstances. Accordingly, the existence of the Rights may deter
certain acquirors from making takeover proposals or tender offers.
The Rights Agreement between the Company and the Rights Agent specifying
the terms of the Rights, which includes as Exhibit B the Form of Rights
Certificate, is attached as an exhibit and incorporated by reference. The
foregoing description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereto duly authorized.
SCHLOTZSKY'S, INC.
By: /s/ John C. Wooley
---------------------------------------
Name: John C. Wooley
-------------------------------------
Title: Chairman of the Board and President
------------------------------------
Date: December 18, 1998
<PAGE>
INDEX TO EXHIBITS
Sequentially
Description of Exhibit Numbered Page
---------------------- -------------
1. Articles of Incorporation of the Registrant, as --
amended (incorporated by reference to Exhibit to
the Registrant's Registration Statement on Form
S-1 (Registration No. 33-98004) filed with the
Securities and Exchange Commission on October 12,
1995)
2. Statement of Resolutions Regarding the Designation --
Rights, Preferences, and Rights of Class C Series A
Junior Participating Preferred Stock of the Registrant
(included as Exhibit A in Exhibit 3 filed herewith).
3. Rights Agreement dated as of December 18, 1998
between the Registrant and Harris Trust and
Savings Bank, as the Rights Agent (filed
herewith).
<PAGE>
EXHIBIT 3 TO FORM 8-A
SCHLOTZSKY'S, INC.
and
HARRIS TRUST AND SAVINGS BANK
as Rights Agent
Rights Agreement
December 18, 1998
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C>
Section
1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Appointment of Rights Agent . . . . . . . . . . . . . . . . . . . . . .
3. Issue of Rights Certificates. . . . . . . . . . . . . . . . . . . . . .
4. Form of Rights Certificates . . . . . . . . . . . . . . . . . . . . . .
5. Countersignature and Registration . . . . . . . . . . . . . . . . . . .
6. Transfer, Split Up, Combination, and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost, or
Stolen Rights Certificates. . . . . . . . . . . . . . . . . . . . . . .
7. Exercise of Rights; Purchase Price;
Expiration Date of Rights . . . . . . . . . . . . . . . . . . . . . . . .
8. Cancellation and Destruction of Rights Certificates . . . . . . . . . . .
9. Reservation and Availability of
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10. Preferred Stock Record Date . . . . . . . . . . . . . . . . . . . . . . .
11. Adjustment of Purchase Price, Number, and Kind of Shares or
Number of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12. Certificate of Adjusted Purchase Price or Number of Shares. . . . . . . .
13. Consolidation, Merger, or Sale or Transfer of Assets or Earning Power . .
14. Fractional Rights and Fractional Shares . . . . . . . . . . . . . . . . .
15. Rights of Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16. Agreement of Rights Holders . . . . . . . . . . . . . . . . . . . . . . .
17. Rights Certificate Holder Not Deemed a Stockholder. . . . . . . . . . . .
18. Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
19. Merger or Consolidation or Change of Name of Rights Agent . . . . . . . .
20. Duties of Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . . .
21. Change of Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . . .
22. Issuance of New Rights Certificates . . . . . . . . . . . . . . . . . . .
23. Redemption and Termination. . . . . . . . . . . . . . . . . . . . . . . .
24. Notice of Certain Events. . . . . . . . . . . . . . . . . . . . . . . . .
25. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26. Supplement and Amendments . . . . . . . . . . . . . . . . . . . . . . . .
27. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28. Determinations and Actions by the Board of Directors, Etc.. . . . . . . .
29. Benefits of this Agreement. . . . . . . . . . . . . . . . . . . . . . . .
30 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33. Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34. Establishment of Fund for Directors . . . . . . . . . . . . . . . . . . .
35. Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
Exhibit A -- Form of Certificate of Designation, Preferences, and Rights
Exhibit B -- Form of Rights Certificate
Exhibit C -- Form of Summary of Rights
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of December 18, 1998 (the "AGREEMENT"), between
Schlotzsky's, Inc., a Texas corporation (the "COMPANY"), and Harris Trust and
Savings Bank, an Illinois banking corporation (the "RIGHTS AGENT").
BACKGROUND
On December 18, 1998 (the "RIGHTS DIVIDEND DECLARATION DATE"), the Board of
Directors of the Company authorized and declared a dividend distribution of one
Right ("RIGHT") for each share of common stock, no par value, of the Company
(the "COMMON STOCK") outstanding at the Close of Business on December 30, 1998
(the "RECORD DATE"), and has authorized the issuance of one Right (as such
number may be adjusted pursuant to the provisions of SECTION 11(p)) for each
share of Common Stock of the Company issued between the Record Date (whether
originally issued or delivered from the Company's treasury) and the Distribution
Date (as defined in Section 3(a) hereof). Each Right initially will represent
the right to purchase one one-hundredth of a share of Class C Series A Junior
Participating Preferred Stock of the Company having the rights, powers, and
preferences set forth in the form of Certificate of Designation, Preferences,
and Rights attached to this Agreement as EXHIBIT A, upon the terms and subject
to the conditions set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth in this Agreement, 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" means any Person that, together with all
Affiliates and Associates of such Person, is the Beneficial Owner of 20% or
more of the shares of Common Stock then outstanding, but does 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; (iv) any
Person organized, appointed, or established by the Company for or pursuant
to the terms of any such plan; (v) John C. Wooley or Jeffrey J. Wooley;
(vi) any Person that has reported or is required to report such beneficial
ownership on Schedule 13G (or any comparable or successor report) or on
Schedule 13D under the Exchange Act (or any comparable or successor report)
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"),
which Schedule 13D does not state any intention to, or reserve the right
to, control or influence the management or policies of the Company or
engage in any of the actions specified in Item 4 of such Schedule 13D
(other than the disposition of the Common Stock) and, within
1
<PAGE>
five (5) Business Days (as defined below) of being requested by the
Company to advise it regarding the same, certifies to the Company that
such Person acquired beneficial ownership of shares of Common Stock in
excess of 19.9% inadvertently or without knowledge of the terms of the
Rights and such certification is accepted as true by the Board of
Directors acting in good faith, such Person divests as promptly as
practicable a sufficient number of shares of Common Stock so that such
Person no longer holds in excess of 20% of the Common Stock then
outstanding, and that, together with all of such Person's Affiliates and
Associates, thereafter does not acquire additional shares of Common
Stock to become the Beneficial Owner of 20% or more of the shares of
Common Stock then outstanding; provided, however, that if the Person
requested to so certify fails to do so within five Business Days, then
such Person will become an Acquiring Person immediately after such five
Business-Day Period; (vii) any Person that becomes an Acquiring Person
solely as a result of a reduction in the number of outstanding shares of
Common Stock in a transaction that is approved by the Board of
Directors, provided that such Person will immediately be an Acquiring
Person in the event such Person thereafter acquires any additional
shares of Common Stock (other than as a result of a stock split or stock
dividend) while the Beneficial Owner of 20% or more of the shares of
Common Stock then outstanding; and (viii) any Person that is the
Beneficial Owner as of the date of this Agreement of in excess of 20% of
the outstanding Common Stock that has publicly disclosed such Beneficial
Ownership.
(b) "AFFILIATE" and "ASSOCIATE" and "CONTROL" have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act as in effect on the date of this
Agreement.
(c) A Person will be deemed the "BENEFICIAL OWNER" of, and will be
deemed to "BENEFICIALLY OWN," any securities that:
(i) 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 will not be deemed the "Beneficial Owner" of,
or to "beneficially own," (A) securities tendered pursuant to a tender
or exchange offer made by such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted
for purchase or exchange, (B) securities issuable upon exercise of
Rights at any time prior to the occurrence of a Triggering Event, 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
2
<PAGE>
prior to the Distribution Date or pursuant to SECTION 3(a) or
SECTION 22 (the ORIGINAL RIGHTS") or pursuant to SECTION 11(i) in
connection with an adjustment made with respect to any Original
Rights;
(ii) 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 will not
be deemed the "Beneficial Owner" of, or to "beneficially own," any
security under this SECTION 1(d)(ii) as a result of an agreement,
arrangement, or understanding to vote such security if such agreement,
arrangement, or understanding: (1) 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 (2) is not
also then reportable by such Person on Schedule 13D under the Exchange
Act (or any comparable or successor report); or
(iii) are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate of such Person) 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 in SECTION 1(d)(ii)), or
disposing of any voting securities of the Company;
provided, however, that nothing in this SECTION 1(d) will 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 bona fide firm commitment
underwriting until the expiration of forty days after the date of such
acquisition.
(d) "BUSINESS DAY" means any day other than a Saturday, Sunday, or a
day on which banking institutions in the States of Texas or Illinois are
authorized or obligated by law or executive order to close.
(e) "CLOSE OF BUSINESS" on any given date will mean 5:00 p.m., Texas
time, on such date; provided, however, that if such date is not a Business
Day it will mean 5:00 p.m., Texas time, on the next succeeding Business
Day.
(f) "COMMON STOCK" shall have the meaning set forth in the recital to
this Agreement, except that "COMMON STOCK" when used with reference to any
Person other than the Company will mean the capital stock of such Person
with
3
<PAGE>
the greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such Person.
(g) "DISTRIBUTION DATE" has the meaning given it in SECTION 3(a).
(h) "EXCLUDED PERSON" means each of (i) John C. Wooley, Jeffrey J.
Wooley and their respective spouses; (ii) John C. Wooley's and Jeffrey J.
Wooley's lineal descendants and their spouses with respect to Beneficial
Ownership of Common Stock received from John C. Wooley, Jeffrey J. Wooley,
their respective spouses, and their lineal descendants or their spouses;
(iii) any Person established by one or more of the Persons referred to in
CLAUSES (i) or (ii) for charitable or estate planning purposes; and (iv)
any other Person controlled by one or more persons referred to in CLAUSES
(i), (ii), or (iii) or in which the Persons referred to in CLAUSES (i),
(ii), or (iii) beneficially own in excess of 51% of the beneficial
interest.
(i) "PERSON" means any individual, firm, corporation, partnership, or
other public or private entity.
(j) "PREFERRED STOCK" means (i) shares of Class C Series A Junior
Participating Preferred Stock, no par value, of the Company, and, to the
extent that there are not a sufficient number of shares of Class C Series A
Junior Participating Preferred Stock authorized to permit the full exercise
of the Rights, any other series of Preferred Stock, no par value, of the
Company designated for such purpose containing terms substantially similar
to the terms of the Class C Series A Junior Participating Preferred Stock.
(k) "SECTION 11(a)(ii) EVENT" means any event described in SECTION
11(a)(ii).
(l) "SECTION 13 EVENT" means any event described in clauses (x), (y),
or (z) of SECTION 13(a).
(m) "STOCK ACQUISITION DATE" means the first date of public
announcement (which, for purposes of this definition, will include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has
become an Acquiring Person.
(n) "SUBSIDIARY" means, with reference to any Person, any entity of
which an amount of voting securities sufficient to elect at least a
majority of the directors or similar Persons of such entity is beneficially
owned, directly or indirectly, by such Person, or otherwise controlled by
such Person.
4
<PAGE>
(o) "TRIGGERING EVENT" means any Section 11(a)(ii) Event or any
Section 13 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 of this Agreement, 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. ISSUE OF RIGHTS CERTIFICATES.
(a) Until the earlier of (i) the Close of Business on the tenth day
after the Stock Acquisition Date (or, if the tenth day after the Stock
Acquisition Date occurs before the Record Date, the Close of Business on
the Record Date); or (ii) the Close of Business on the tenth Business Day
(or such later date as the Board determines) after the date that a tender
offer 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
20% or more of the shares of Common Stock then outstanding (the earlier of
the times referred to in CLAUSES (i), and (ii) being referred to as the
"DISTRIBUTION DATE"), (x) the Rights will be evidenced (subject to the
provisions of this SECTION 3(a)) by the certificates for the Common Stock
registered in the names of the holders of the Common Stock (which
certificates for Common Stock will be deemed also to be certificates for
Rights), and not by separate certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying shares
of Common Stock (including a transfer to the Company). As soon as
practicable after the Distribution Date, the Rights Agent will, at the
expense of the Company, send by first-class, insured, postage prepaid mail,
to each record holder of the Common Stock as of the Distribution Date, at
the address of such holder shown on the records of the Company, one or more
rights certificates, in substantially the form of EXHIBIT B (the "RIGHTS
CERTIFICATES"), evidencing one Right for each share of Common Stock so
held, subject to adjustment as provided in this Agreement. In the event
that an adjustment in the number of Rights per share of Common Stock has
been made pursuant to SECTION 11(p), at the time of distribution of the
Rights Certificates, the Company will make the necessary and appropriate
rounding adjustments (in accordance with SECTION 14(a)) 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.
5
<PAGE>
(b) As promptly as practicable following the Record Date, the Company
will send a copy of a Summary of Rights, in substantially the form of
EXHIBIT C, by first-class, postage prepaid mail, to each record holder of
the Common Stock as of the Close of Business on the Record Date, at the
address of such holder shown on the records of the Company. With respect
to certificates for the Common Stock outstanding as of the Record Date,
until the Distribution Date, the Rights will be evidenced by such
certificates for the Common Stock and the registered holders of the Common
Stock will also be the registered holders of the associated Rights. Until
the earlier of the Distribution Date or the Expiration Date (as defined in
SECTION 7), the transfer of any certificates representing shares of Common
Stock in respect of which Rights have been issued will also constitute the
transfer of the Rights associated with such shares of Common Stock.
(c) Rights will be issued in respect of all shares of Common Stock
that are issued (whether originally issued or from the Company's treasury)
after the Record Date but prior to the earlier of the Distribution Date or
the Expiration Date. Certificates representing such shares of Common Stock
will also be deemed to be certificates for Rights, and will bear the
following legend:
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER TO
CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT BETWEEN
SCHLOTZSKY'S, INC. (THE "COMPANY") AND HARRIS TRUST AND SAVINGS
BANK (THE "RIGHTS AGENT") DATED AS OF DECEMBER 18, 1998 (AS
AMENDED FROM TIME TO TIME, THE "RIGHTS AGREEMENT"), THE TERMS OF
WHICH ARE HEREBY INCORPORATED IN THIS CERTIFICATE 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. UNDER CERTAIN
CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
BENEFICIALLY OWNED BY ANY PERSON WHO IS, WAS, OR BECOMES AN
ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE OF AN ACQUIRING
PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT),
WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY
SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.
With respect to such certificates containing the foregoing legend,
until the earlier of (i) the Distribution Date or (ii) the Expiration Date,
the Rights associated with the Common Stock represented by such
certificates will be evidenced by such certificates alone and registered
holders of Common Stock
6
<PAGE>
will also be the registered holders of the associated Rights, and the
transfer of any of such certificates will also constitute the transfer
of the Rights associated with the Common Stock represented by such
certificates.
Section 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to purchase
and of assignment to be printed on the reverse of the rights certificates)
will each be substantially in the form set forth in EXHIBIT B and may have
such marks of identification or designation and such legends, summaries, or
endorsements 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 or
quotation system on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of SECTION 11 and SECTION 22,
the Rights Certificates, whenever distributed, will be dated as of the
Record Date and on their face will entitle the holders of such Rights
Certificates to purchase such number of one one-hundredths of a share of
Preferred Stock as is set forth in such Rights Certificates at the price
set forth in such Rights Certificates (such exercise price per one
one-hundredth of a share, the "PURCHASE PRICE"), but the amount and type
of securities purchasable upon the exercise of each Right and the Purchase
Price will be subject to adjustment as provided in this Agreement.
(b) Any Rights Certificate issued pursuant to SECTION 3(a) or SECTION
22 that represents Rights beneficially owned by (i) an Acquiring Person or
any Associate or Affiliate of an Acquiring Person, (ii) a transferee from
an Acquiring Person (or from any Associate or Affiliate of an Acquiring
Person) that becomes a transferee after the Acquiring Person becomes an
Acquiring Person, or (iii) a transferee from an Acquiring Person (or of any
Associate or Affiliate of an Acquiring Person) that becomes a transferee
prior to or concurrently with the Acquiring Person becoming an Acquiring
Person 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 that the
Board of Directors of the Company has determined is part of an agreement,
plan, arrangement, or understanding that has as a substantial purpose or
effect avoidance of SECTION 7(e), and any Rights Certificate issued
pursuant to SECTION 6 or SECTION 11 upon transfer, exchange, replacement,
or adjustment of any other Rights Certificate referred to in this SECTION
4(b), will contain (to the extent feasible) the following legend:
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO IS, WAS, OR BECAME AN
7
<PAGE>
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
SUCH AGREEMENT.
Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates will be executed on behalf of the Company
by its Chairman of the Board, its Chief Executive Officer, its Chief
Operating Officer, its President, or any Vice President, either manually or
by facsimile signature; will have affixed thereto the Company's seal or a
facsimile thereof; and will be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The
Rights Certificates will be countersigned by the Rights Agent, either
manually or by facsimile signature and will not be valid for any purpose
unless so countersigned. In case any officer of the Company who has signed
any of the Rights Certificates ceases 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
Certificate may be signed on behalf of the Company by any Person who, at
the actual date of the execution of such Rights Certificate, is a proper
officer of the Company to sign such Rights Certificate, although at the
date of the execution of such Rights Certificate any such Person was not
such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates
issued under this Agreement. Such books will show the names and addresses
of the respective holders of the Rights Certificates, the number of Rights
evidenced on the face of the Rights Certificates, and the date of each of
the Rights Certificates.
Section 6. TRANSFER, SPLIT UP, COMBINATION, AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST, OR STOLEN RIGHTS CERTIFICATES.
(a) Subject to the provisions of SECTION 4(b), SECTION 7(e), and
SECTION 14, at any time after the Distribution Date, and at or prior to the
Expiration Date, any Rights Certificate or Certificates may be transferred,
split up, combined, or exchanged for another Rights Certificate or Rights
Certificates, entitling the registered holder to purchase a like number of
one one-hundredths of a share of Preferred Stock (or, following a
Triggering Event, Common Stock, other securities, cash, or other property,
as the case may be) as the Rights
8
<PAGE>
Certificate or Rights Certificates surrendered then entitled 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 Rights Certificates will make such request in writing
delivered to the Rights Agent, and will surrender the Rights Certificate
or Rights 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
will be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered
holder has completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and has
provided such additional evidence of the identity of the Beneficial
Owner (or former Beneficial Owner) or Affiliates or Associates thereof
as the Company requests in good faith. Thereupon, the Rights Agent will,
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 any Rights Certificate.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction, or
mutilation of a Rights Certificate, and, in case of loss, theft, or
destruction, of indemnity or security 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) Subject to SECTION 7(e), the registered holder of any Rights
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided in this Agreement including, without limitation, the restrictions
on exercisability set forth in SECTION 9(c), SECTION 11(a)(iii), and
SECTION 23(a)) 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 of the Rights Certificate
duly executed, to the Rights Agent at the principal office or offices of
the Rights Agent designated for such purpose, together with payment of the
aggregate Purchase Price with respect to the total number of one
one-hundredths of a share of Preferred Stock (or other securities, cash, or
other property, as the case may be) as to which such surrendered Rights are
then exercisable, at or prior to the earlier of (i) the Close of Business
on December 18, 2008, (the "FINAL EXPIRATION DATE"), or (ii) the time at
which the
9
<PAGE>
Rights are redeemed as provided in SECTION 23 (the earlier of the times
referred to in CLAUSES (i) and (ii) being referred to as the "EXPIRATION
DATE")).
(b) The Purchase Price for each one one-hundredth of a share of
Preferred Stock pursuant to the exercise of a Right will initially be
$75.00 will be subject to adjustment from time to time as provided in
SECTION 11, and SECTION 13(a); and will be payable in accordance with
SECTION 7(c).
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly
executed, accompanied by payment, with respect to each Right so exercised,
of the Purchase Price per one one-hundredth of a share of Preferred Stock
(or other shares, securities, cash, or other property, as the case may be)
to be purchased as set forth below and an amount equal to any applicable
transfer tax, the Rights Agent will, subject to SECTION 20(k), promptly (i)
(A) requisition from any transfer agent of the shares of Preferred Stock
(or make available, if the Rights Agent is the transfer agent for such
shares) certificates for the total number of one one-hundredths of a share
of Preferred Stock to be purchased, (the Company hereby irrevocably
authorizing its transfer agent to comply with all such requests), or (B) if
the Company has elected to deposit the total number of shares of Preferred
Stock issuable upon exercise of the Rights with a depository agent,
requisition from the depository agent depository receipts representing such
number of one one-hundredths of a share of Preferred Stock as are to be
purchased (in which case certificates for the shares of Preferred Stock
represented by such receipts will be deposited by the transfer agent with
the depository agent) and the Company will direct the depository 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; (iii) after receipt of such certificates or depository
receipts, cause such certificates or depository receipts to be 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; and
(iv) after receipt thereof, deliver such cash, if any, to or upon the order
of the registered holder of such Rights Certificate. The payment of the
Purchase Price (as such amount may be reduced pursuant to SECTION
11(a)(iii)) will be made in cash or by certified bank check or bank draft
payable to the order of the Company. In the event that the Company is
obligated to issue other securities (including Common Stock) of the
Company, pay cash, or distribute other property pursuant to SECTION 11(a),
the Company will make all arrangements necessary so that such other
securities, cash, or other property are available for distribution by the
Rights Agent, if and when appropriate. The Company reserves the right to
require prior to the occurrence of a Triggering Event that, upon any
exercise of Rights, a number of Rights be exercised so that only whole
shares of Preferred Stock would be issued.
10
<PAGE>
(d) In case the registered holder of any Rights Certificate exercises
less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised will 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.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by any Person referred to in CLAUSES (i) through (iii)
below will become null and void without any further action, and no holder
of such Rights will have any rights whatsoever with respect to such Rights,
whether under any provision of this Agreement or otherwise: (i) an
Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii)
a transferee from an Acquiring Person (or from any Associate or Affiliate
of an Acquiring Person) that becomes a transferee after the Acquiring
Person becomes such, or (iii) a transferee from an Acquiring Person (or of
any such Associate or Affiliate) that becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and that 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 that the Board of Directors of the Company has determined
is part of an agreement, plan, arrangement, or understanding that has as a
substantial purpose or effect the avoidance of this SECTION 7(e). The
Company will use reasonable efforts to insure that the provisions of this
SECTION 7(e) and SECTION 4(b) are complied with, but will have no liability
under this Agreement 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 their Affiliates, Associates, or transferees.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company will 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 has (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
requests in good faith.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All Rights
Certificates surrendered for the purpose of exercise, transfer, split up,
combination, or exchange will, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights
11
<PAGE>
Agent, will be cancelled by it, and no Rights Certificates will be issued in
lieu thereof except as expressly permitted by any of the provisions of this
Agreement. The Company will deliver to the Rights Agent for cancellation and
retirement, and the Rights Agent will so cancel and retire, any other Rights
Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof. The Rights Agent will deliver all cancelled Rights
Certificates to the Company, or will, at the written request of the Company,
destroy such cancelled Rights Certificates, and in such case will deliver a
certificate of destruction to the Company.
Section 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out
of its authorized and unissued shares of Common Stock or other securities
or out of its authorized and issued shares held in its treasury), the
number of shares of Preferred Stock (and, following the occurrence of a
Triggering Event, Common Stock or other securities) that (as provided in
this Agreement including, without limitation, SECTION 11(a)(iii)), will be
sufficient to permit the exercise in full of all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock or other securities)
issuable and deliverable upon the exercise of the Rights may be listed on
any national securities exchange or automated quotation system, the Company
will use its reasonable 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 automated quotation system upon official notice
of issuance upon such exercise.
(c) The Company will use its best reasonable efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence
of a Section 11(a)(ii) Event on which the consideration to be delivered by
the Company upon exercise of the Rights has been determined in accordance
with SECTION 11(a)(iii), a registration statement under the Securities Act
of 1933, as amended (the "ACT"), with respect to the securities purchasable
upon exercise of the Rights on an appropriate form, (ii) cause such
registration statement to become effective as soon as practicable after
such filing, and (iii) cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the
Act) until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities, and (B) the date of the expiration of the
Rights. The Company will also take such action as may be appropriate under,
or to ensure compliance with, the securities or "blue sky" laws of the
various states in connection with the exercisability of the Rights. The
Company may temporarily suspend, for a period of time not to exceed ninety
(90) days
12
<PAGE>
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 will 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 determines 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 will not be
exercisable in any jurisdiction if the requisite qualification in such
jurisdiction has not been obtained, the exercise of such Rights is not
permitted under applicable law, or a registration statement has not been
declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock
(and, following the occurrence of a Triggering Event, Common Stock or other
securities) delivered upon exercise of Rights will, at the time of delivery
of the certificates for such shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges
that may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for a number of one one-hundredths of
a share of Preferred Stock (or Common Stock or other securities, as the
case may be) upon the exercise of Rights. The Company will not, however, be
required to pay any transfer tax that may be payable in respect of any
transfer or delivery of Rights Certificates to a Person other than, or the
issuance or delivery of a number of one one-hundredths of a share of
Preferred Stock (or Common Stock or other securities, as the case may be)
in respect of a name other than that of, the registered holder of the
Rights Certificates evidencing Rights surrendered for exercise or to issue
or deliver any certificates for a number of one one-hundredths of a share
of Preferred Stock (or Common Stock or other securities, as the case may
be) in a name other than that of the registered holder upon the exercise of
any Rights until such tax has been paid (any such tax being payable by the
holder of such Rights Certificate at the time of surrender) or until it has
been established to the Company's satisfaction that no such tax is due.
Section 10. PREFERRED STOCK RECORD DATE. Each Person in whose name any
certificate for a number of one one-hundredths of a share of Preferred Stock (or
Common Stock or other securities, as the case may be) is issued upon the
exercise of Rights will for all purposes be deemed to have become the holder of
record of such fractional shares of Preferred Stock (or Common Stock or other
securities, as the case
13
<PAGE>
may be) represented thereby on, and such certificate will be dated, the date
upon which the Rights Certificate evidencing such Rights was duly surrendered
and payment of the Purchase Price (and all applicable transfer taxes) was
made; provided, however, that if the date of such surrender and payment is a
date upon which the Preferred Stock (or Common Stock or other securities, as
the case may be) transfer books of the Company are closed, such Person will
be deemed to have become the record holder of such shares (fractional or
otherwise) on, and such certificate will be dated, the next succeeding
Business Day on which the Preferred Stock (or 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 will not be entitled to any rights of a stockholder of the
Company with respect to shares for which the Rights are exercisable,
including, without limitation, the right to vote, to receive dividends or
other distributions, or to exercise any preemptive rights, and will not be
entitled to receive any notice of any proceedings of the Company, except as
provided in this Agreement.
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES, OR
NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this SECTION 11.
(a) (i) In the event the Company at any time after the date of
this Agreement (A) declares a dividend on the Preferred Stock payable
in shares of Preferred Stock, (B) subdivides the outstanding Preferred
Stock, (C) combines the outstanding Preferred Stock into a smaller
number of shares, or (D) issues any shares of its capital stock in a
reclassification of the Preferred Stock (including, without
limitation, any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this SECTION
11(a) and SECTION 7(e), the Purchase Price in effect at the time of
the record date for such dividend or of the effective date of such
subdivision, combination, or reclassification, and the number and kind
of shares of Preferred Stock or capital stock, as the case may be,
issuable on such date, will be proportionately adjusted so that the
holder of any Right exercised after such time will be entitled to
receive, upon payment of the Purchase Price then in effect, the
aggregate number and kind of shares of Preferred Stock or capital
stock, as the case may be, that, if such Right had been exercised
immediately prior to such date and at a time when the Preferred Stock
transfer books of the Company were open, such holder would have owned
upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination, or reclassification. If an event
occurs that 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) will be in addition to, and
14
<PAGE>
will be made prior to, any adjustment required pursuant to SECTION
11(a)(ii).
(ii) In the event that:
(A) Any Acquiring Person or any Associate or Affiliate
of any Acquiring Person, at any time after the date of this
Agreement, directly or indirectly, (1) merges from, with, or into
the Company or otherwise combines with the Company and the
Company is the continuing or surviving Person of such merger or
combination and the Common Stock of the Company or other equity
securities of the Company remain outstanding, (2) in one
transaction or a series of transactions, transfers any assets to
the Company or to any of the Company's Subsidiaries in exchange
(in whole or in part) for Common Stock, for shares of other
equity securities of the Company, or for securities exercisable
for or convertible into shares of equity securities of the
Company (Common Stock or otherwise) or otherwise obtains from the
Company, with or without consideration, any additional shares of
such equity securities or securities exercisable for or
convertible into shares of such equity securities (other than
pursuant to a pro rata distribution to all holders of Common
Shares), (3) sells, purchases, leases, exchanges, mortgages,
pledges, transfers, or otherwise acquires or disposes of assets
in one transaction or a series of transactions, to, from, or with
(as the case may be) the Company or any of the Company's
Subsidiaries, on terms or conditions less favorable in any
respect than the Company or such Subsidiary would be able to
obtain in arm's-length negotiation with an unaffiliated third
party, other than pursuant to a Section 13 Event, (4) sells,
purchases, leases, exchanges, mortgages, pledges, transfers, or
otherwise acquires or disposes of assets or earning power
aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) in one
transaction or a series of transactions to, from, or with (as the
case may be) the Company or any of the Company's Subsidiaries
(other than incidental to the lines of business, if any, engaged
in as of the date of this Agreement between the Company or such
Subsidiary, on the one hand, and such Acquiring Person or such
Associate or Affiliate, on the other), other than pursuant to a
Section 13 Event, (5) receives any compensation from the Company
or any of the Company's Subsidiaries other than compensation for
full-time employment as a regular employee at rates in accordance
with the Company's (or such Subsidiaries') past practices, or (6)
receives the benefits, directly or indirectly (except
proportionately as a stockholder and as a result of any
requirement of law or governmental regulation),
15
<PAGE>
of any loans, advances, guarantees, pledges, or other financial
assistance or any tax credits or other tax advantage provided by
the Company or any of the Company's Subsidiaries;
(B) any Person, alone or together with its Affiliates
or Associates, at any time after the Rights Dividend Declaration
Date, becomes an Acquiring Person, unless the event causing such
Person to become an Acquiring Person is a Section 13 Event; or
(C) during such time as there is an Acquiring Person,
there is any reclassification of securities (including any
reverse stock split), recapitalization of the Company, or any
merger or consolidation of the Company into, from, or with any of
its Subsidiaries or any other transaction or series of
transactions involving the Company or any of its Subsidiaries,
other than a Section 13 Event, or series of such events (whether
or not with or into or otherwise involving and Acquiring Person)
that 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 (or securities convertible into
such equity securities) of the Company or any of its Subsidiaries
that is directly or indirectly beneficially owned by an Acquiring
Person or any Associate or Affiliate of any Acquiring Person.
then, promptly following the first occurrence of a Section 11(a)(ii) Event,
proper provision will be made so that each holder of a Right (except as
provided below in this SECTION 11(a)(ii) and in SECTION 7(e)) will
thereafter have the right to receive, upon exercise of such Right at the
then current Purchase Price in accordance with the terms of this Agreement,
in lieu of a number of one one-hundredths of a share of Preferred Stock,
such number of shares of Common Stock of the Company as equals the result
obtained by (x) multiplying the then current Purchase Price by the then
number of one one-hundredths of a share of Preferred Stock for which a
Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event, and (y) dividing that product (which, following
such first occurrence, will thereafter be referred to as the "PURCHASE
PRICE" for each Right and for all purposes of this Agreement) by 50% of the
Current Market Price (determined pursuant to SECTION 11(d)) per share of
Common Stock on the date of such first occurrence (such number of shares,
the "ADJUSTMENT SHARES").
(iii) In the event that the number of shares of Common Stock
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 SECTION 11(a)(ii), the Company
will
16
<PAGE>
(A) determine the value of the Adjustment Shares issuable upon the
exercise of a Right (the "CURRENT VALUE"), and (B) with respect to
each Right (subject to SECTION 7(e)), make adequate provision to
substitute for the Adjustment Shares, upon the exercise of a Right and
payment of the applicable Purchase Price, (1) cash, (2) a reduction in
the Purchase Price, (3) Common Stock or other equity securities of the
Company (including, without limitation, shares, or units of shares, of
preferred stock, such as the Preferred Stock, that the Board of
Directors has deemed to have essentially the same value or economic
rights as shares of Common Stock (such securities being referred to as
"COMMON STOCK EQUIVALENTS")), (4) debt securities of the Company, (5)
other assets or property, 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 conclusively determined by the Board of Directors based upon
the advice of a nationally recognized investment banking firm selected
by the Board of Directors; provided, however, that if the Company has
not made adequate provision to deliver value pursuant to CLAUSE (B)
above within thirty (30) days following the later of (x) the first
occurrence of a Section 11(a)(ii) Event and (y) the date on which the
Company's right of redemption pursuant to SECTION 23(a) expires (the
later of (x) and (y) being referred to as the "SECTION 11(a)(ii)
TRIGGER DATE"), then the Company will 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 or cash have an aggregate
value equal to the Spread. For purposes of the preceding sentence, the
term "SPREAD" means the excess of (i) the Current Value over (ii) the
Purchase Price. If the Board determines in good faith that it is
likely that sufficient additional shares of Common Stock could be
authorized for issuance upon exercise in full of the Rights, the
thirty (30) day period set forth above may be extended to the extent
necessary, but not more than ninety (90) days after the Section
11(a)(ii) Trigger Date, in order that the Company may seek shareholder
approval for the authorization of such additional shares (such thirty
(30) day period, as it may be extended, being the "SUBSTITUTION
PERIOD"). To the extent that action is to be taken pursuant to the
first or third sentences of this SECTION 11(a)(iii), the Company (1)
will provide, subject to SECTION 7(e), that such action will apply
uniformly to all outstanding Rights, and (2) may suspend the
exercisability of the Rights until the expiration of the Substitution
Period in order to seek such shareholder approval for such
authorization of additional shares or to determine the appropriate
form of distribution to be made pursuant to such first sentence and to
determine the value of such distribution. In the event of any such
suspension, the Company will issue a public announcement stating that
the exercisability of the Rights has been temporarily suspended, as
well as a public
17
<PAGE>
announcement at such time as the suspension is no longer in effect.
For purposes of this SECTION 11(a)(iii), the value of each
Adjustment Share will be the Current Market Price per share of the
Common Stock, on the Section 11(a)(ii) Trigger Date and the per
share or per unit value of any Common Stock Equivalent will be
deemed to equal the Current Market Price per share of the Common
Stock, on such date.
(b) In case the Company fixes a record date for the issuance of
rights, options, or warrants to holders of any class or series of Preferred
Stock entitling them to subscribe for or purchase (for a period expiring
within forty-five (45) calendar days after such record date) Preferred
Stock (or securities having the same rights, privileges, and preferences as
the shares of Preferred Stock ("EQUIVALENT PREFERRED STOCK")) or securities
convertible into Preferred Stock or Equivalent Preferred Stock at a price
per share of Preferred Stock or per share of Equivalent Preferred Stock (or
having a conversion price per share, if a security convertible into
Preferred Stock or Equivalent Preferred Stock) less than the Current Market
Price (as determined pursuant to SECTION 11(d)) per share of Preferred
Stock on such record date, the Purchase Price to be in effect after such
record date will be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
is the number of shares of Preferred Stock outstanding on such record date,
plus the number of shares of Preferred Stock that the aggregate offering
price of the total number of shares of Preferred Stock or Equivalent
Preferred Stock so to be offered (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 is the number of shares
of Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock or Equivalent Preferred Stock to be
offered for subscription or purchase (or into the maximum number of shares
into which the convertible securities so to be offered are initially
convertible). In the event that the number of shares of Preferred Stock or
Equivalent Preferred Stock issuable under the terms of a convertible
security, or the conversion or exercise price of such convertible security,
changes after the initial issuance of such convertible security, an
adjustment will be made to the Purchase Price that conforms with the
adjustment set forth in this SECTION 11(b). 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 will be as
conclusively determined in good faith by the Board of Directors, whose
determination will be described in a statement filed with the Rights Agent
and will be binding on the Rights Agent and the holders of the Rights.
Shares of Preferred Stock owned by or held for the account of the Company
will be deemed not to be outstanding for the purpose of any such
computation. Such adjustment will be made successively whenever such a
record date is fixed, and in the event that such rights, options, or
warrants are not so issued, the Purchase Price will be adjusted to be the
Purchase Price that would then be in effect if such record date had not
been fixed.
18
<PAGE>
(c) In case the Company fixes a record date for a distribution to
holders of any class or series of Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of evidences of indebtedness, cash
(other than a regular quarterly cash dividend out of the earnings or
retained earnings of the Company), assets (other than a dividend payable in
Preferred Stock, but including any dividend payable in stock other than
Preferred Stock) or subscription rights or warrants (excluding those
referred to in SECTION 11(b)), the Purchase Price to be in effect after
such record date will be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator
of which is the Current Market Price (as determined pursuant to SECTION
11(d)) per share of Preferred Stock on such record date, less the fair
market value (as conclusively determined in good faith by the Board of
Directors, whose determination will be described in a statement filed with
the Rights Agent) of the portion of the cash, assets, or evidences of
indebtedness so to be distributed or of such subscription rights or
warrants applicable to a share of Preferred Stock and the denominator of
which is such Current Market Price (as determined pursuant to SECTION
11(d)) per share of Preferred Stock. Such adjustments will be made
successively whenever such a record date is fixed, and in the event that
such distribution is not so made, the Purchase Price will be adjusted to be
the Purchase Price that would have been in effect if such record date had
not been fixed.
(d) (i) For the purpose of any computation under this Agreement,
other than computations made pursuant to SECTION 11(a)(iii), the
"CURRENT MARKET PRICE" per share of Common Stock on any date will be
deemed to be the average of the daily closing prices per share of
Common Stock for the thirty (30) consecutive Trading Days (as defined
below) 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 will be deemed to be the
average of the daily closing prices per share of 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 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 has not 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 will be properly adjusted to take into
account ex-dividend
19
<PAGE>
trading. The closing price for each day will be the last sale
price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the
shares of Common Stock are not listed or admitted to trading on the
New York Stock Exchange, 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 NASDAQ or such other system
then in use, or, if on any such date the shares of Common Stock are
not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making
a market in the Common Stock selected by the Board of Directors. If
on any such date no market maker is making a market in the Common
Stock, the fair value of such shares on such date as determined in
good faith by the Board of Directors will be used. The term
"TRADING DAY" means 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 will mean the fair value per share as
determined in good faith by the Board of Directors, the
determination of which will be described in a statement filed with
the Rights Agent and will be conclusive for all purposes.
(ii) For the purpose of any computation under this Agreement,
the "CURRENT MARKET PRICE" per share of any class or series of
Preferred Stock will be determined in the same manner as set forth
above for the Common Stock in SECTION 11(d)(i) (other than the last
sentence thereof). If the Current Market Price per share of Preferred
Stock cannot be determined in the manner provided above or if the
Preferred Stock is not publicly held or listed or traded in a manner
described in SECTION 11(d)(i), the Current Market Price per share of
Preferred Stock will be conclusively deemed to be an amount equal to
one hundred (100) (as such number may be appropriately adjusted for
such events as stock splits, stock dividends, and recapitalizations
with respect to the Common Stock occurring after the date of this
Agreement) multiplied by the Current Market Price per share of the
Common Stock. If neither the Common Stock nor the Preferred Stock is
publicly held or so listed or traded, Current Market Price per share
of the Preferred Stock will mean the fair
20
<PAGE>
value per share as determined in good faith by the Board of
Directors, whose determination will be described in a statement
filed with the Rights Agent and will be conclusive for all
purposes. For all purposes of this Agreement, the Current Market
Price of one one-hundredth of a share of Preferred Stock will be
equal to the Current Market Price of one share of Preferred Stock
divided by one hundred (100).
(e) Anything in this Agreement to the contrary notwithstanding, no
adjustment in the Purchase Price will 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 that by reason of
this SECTION 11(e) are not required to be made will be carried forward and
taken into account in any subsequent adjustment. All calculations under
this SECTION 11 will be made to the nearest cent or to the nearest
ten-thousandth of a share of Common Stock or other share or one-millionth
of a share of Preferred Stock, as the case may be. Notwithstanding the
first sentence of this SECTION 11(e), any adjustment required by this
SECTION 11 will be made no later than the earlier of (i) three (3) years
from the date of the transaction that mandates such adjustment or (ii) the
Expiration Date.
(f) If, as a result of an adjustment made pursuant to SECTION
11(a)(ii) or SECTION 13(a), the holder of any Right thereafter exercised
becomes entitled to receive any shares of capital stock other than
Preferred Stock, then the number of such other shares so receivable upon
exercise of any Right and the Purchase Price will be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained
in SECTIONS 11(a), (b), (c), (e), (g), (h), (i), (j), (k), (m), and (q) and
the provisions of SECTIONS 7, 9, 10, 13, and 14 with respect to the
Preferred Stock will apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price under this Agreement will evidence
the right to purchase, at the adjusted Purchase Price, the number of one
one-hundredths of a share of Preferred Stock purchasable from time to time
under this Agreement upon exercise of the Rights, all subject to further
adjustment as provided in this Agreement.
(h) Unless the Company has exercised its election as provided in
SECTION 11(i), upon each adjustment of the Purchase Price as a result of
the calculations made in SECTIONS 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment will thereafter evidence
the right to purchase, at the adjusted Purchase Price, that number of one
one-hundredths of a share of Preferred Stock (calculated to the nearest
one-millionth) obtained by (i) multiplying (x) the number of one
one-hundredths of a share covered by a Right immediately prior to this
adjustment, by (y) the
21
<PAGE>
Purchase Price in effect immediately prior to such adjustment of the
Purchase Price, and (ii) dividing the product so obtained by the Purchase
rice in effect immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of one one-hundredths of a share of Preferred
Stock purchasable upon the exercise of a Right. Each of the Rights
outstanding after such an adjustment in the number of Rights will be
exercisable for the number of one one-hundredths of a share of Preferred
Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the
number of Rights will become that number of Rights (calculated to the
nearest one ten-thousandth) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company will 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, will be
at least ten (10) days later than the date of the public announcement. If
Rights Certificates have been issued, upon each adjustment of the number of
Rights pursuant to this SECTION 11(i), the Company will, 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, the additional Rights to which such holders are entitled as a
result of such adjustment, or, at the option of the Company, will 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 are
entitled after such adjustment. Rights Certificates so to be distributed
will be issued, executed, and countersigned in the manner provided for in
this Agreement (and may bear, at the option of the Company, the adjusted
Purchase Price) and will be registered in the names of the holders of
record of Rights Certificates on the record date specified in the public
announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a share of Preferred Stock issuable
upon the exercise of the Rights, the Rights Certificates theretofore and
thereafter issued may continue to express the Purchase Price per one
one-hundredth of a share and the number of one one-hundredths of a share
that were expressed in the initial Rights Certificates issued under this
Agreement.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then stated value, if any, of the number of
one
22
<PAGE>
one-hundredths of a share of Preferred Stock issuable upon exercise of
the Rights, the Company will take any corporate action that may, in the
opinion of its counsel, be necessary in order that the Company may validly
and legally issue such number of fully paid and nonassessable one
one-hundredths of a share of Preferred Stock at such adjusted Purchase
Price.
(l) In any case in which this SECTION 11 requires that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event
the issuance to the holder of any Right exercised after such record date
the number of one one-hundredths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such
exercise over and above the number of one one-hundredths of a share of
Preferred Stock and other capital stock or securities of the Company, if
any, issuable upon such exercise on the basis of the Purchase Price in
effect prior to such adjustment; provided, however, that the Company will
deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares
(fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this SECTION 11 to the contrary notwithstanding, the
Company will 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 of Directors of
the Company determines it to be advisable in order that any (i)
consolidation or subdivision of the Preferred Stock, (ii) issuance wholly
for cash of any shares of Preferred Stock at less than the current market
price, (iii) issuance wholly for cash of shares of Preferred Stock or
securities that by their terms are convertible into or exchangeable for
shares of Preferred Stock, (iv) stock dividends, or (v) issuance of rights,
options, or warrants referred to in this SECTION 11, hereafter made by the
Company to holders of its Preferred Stock will not be taxable to such
stockholders.
(n) The Company covenants and agrees that it will not, at any time
after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Company in a transaction that complies with
SECTION 11(o)), (ii) merge with, from, or into any other Person (other than
a Subsidiary of the Company in a transaction that complies with SECTION
11(o)), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a series of related transactions, assets
or earning power aggregating more than 50% of the assets or earning power
of the Company and its Subsidiaries (taken as a whole) to any other Person
or Persons (other than the Company or 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, sale, or transfer,
there are any rights, warrants, or other instruments or securities
23
<PAGE>
outstanding or agreements in effect that could reasonably be expected to
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, sale, or transfer, the stockholders of
the Person that constitutes, or would constitute, the "PRINCIPAL PARTY" for
purposes of SECTION 13(a) has received a distribution of Rights previously
owned by such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by SECTION 23 or SECTION 26, take
(or permit any Subsidiary to take) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded
by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding, in
the event that the Company at any time after the Rights Dividend
Declaration Date and prior to the Distribution Date (i) declares a dividend
on the outstanding shares of Common Stock payable in shares of Common
Stock, (ii) subdivides the outstanding shares of Common Stock, or (iii)
combines the outstanding shares of Common Stock into a smaller number of
shares, the number of Rights associated with each share of Common Stock
then outstanding, or issued or delivered thereafter but prior to the
Distribution Date, will be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any
such event will 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 is the total number of shares of
Common Stock outstanding immediately prior to the occurrence of the event
and the denominator of which is the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
(q) In the event that the Rights become exercisable following a
Section 11(a)(ii) Event, the Company, by action of the Board of Directors,
may permit the Rights, subject to SECTION 7(e), to be exercised for 50% of
the shares of Common Stock (or cash or other securities or assets to be
substituted for the Adjustment Shares pursuant to SECTION 11(a)(iii)) that
would otherwise be purchasable under SECTION 11(a) in consideration of the
surrender to the Company of the Rights so exercised and without other
payment of the Purchase Price. Rights exercised under this SECTION 11(q)
will be deemed to have been exercised in full and will be cancelled.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in SECTION 11 or SECTION 13, the
Company will (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
24
<PAGE>
Agent, and with each transfer agent for the Preferred Stock and the Common
Stock, a copy of such certificate, and (c) mail a brief summary thereof to
each holder of a Rights Certificate (or, if prior to the Distribution Date,
to each holder of a certificate representing shares of Common Stock) in
accordance with SECTION 25. The Rights Agent will be fully protected in
relying on any such certificate and on any adjustment contained in such
certificate and shall not be obligated or responsible for calculating any
adjustment nor shall it be deemed to have knowledge of such adjustment unless
and until it shall have received such certificate.
Section 13. CONSOLIDATION, MERGER, OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER.
(a) In the event that, following the Stock Acquisition Date, directly
or indirectly, (x) the Company consolidates with, or merges from, with, or
into, any other Person (other than a Subsidiary of the Company in a
transaction that complies with SECTION 11(o)), and the Company is not the
continuing or surviving Person of such consolidation or merger; (y) any
Person (other than a Subsidiary of the Company in a transaction that
complies with SECTION 11(o)) consolidates with, or merges from, with, or
into, the Company, and the Company is the continuing or surviving
corporation of such consolidation or merger and, in connection with such
consolidation or merger, all or part of the outstanding shares of Common
Stock of the Company is changed into or exchanged for stock or other
securities of any other Person or cash or any other property; or (z) the
Company sells or otherwise transfers (or one or more of its Subsidiaries
sells or otherwise transfers), in one transaction or a series of related
transactions, assets or earning power aggregating more than 50% of the
assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any 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, proper provision will be made
so that (i) each holder of a Right, except as provided in SECTION 7(e) or
SECTION 13(d), will thereafter have the right to receive, upon the exercise
of such Right 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 (as defined below), not subject to any liens,
encumbrances, preemptive rights, rights of first refusal, or other adverse
claims, as are equal to the result obtained by (1) multiplying the then
current Purchase Price by the number of one one-hundredths of a share of
Preferred Stock for which a Right is exercisable immediately prior to the
first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event
has occurred prior to the first occurrence of a Section 13 Event,
multiplying the number of such one one-hundredths of a share for which a
Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event by the Purchase Price in effect immediately prior
to such first occurrence), and dividing that product (which, following the
first occurrence of a Section 13 Event, will be referred to as the
25
<PAGE>
"PURCHASE PRICE" for each Right and for all purposes of this Agreement) by
(2) 50% of the Current Market Price (determined pursuant to SECTION
11(d)(i)) per share of the Common Stock of such Principal Party on the date
of consummation of such Section 13 Event; (ii) such Principal Party will
thereafter be liable for, and will assume, by virtue of such Section 13
Event, all the obligations and duties of the Company pursuant to this
Agreement; (iii) the term "COMPANY" will thereafter be deemed to refer to
such Principal Party, it being specifically intended that the provisions of
SECTION 11 will apply only to such Principal Party following the first
occurrence of a Section 13 Event; (iv) such Principal Party will 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
of this Agreement will thereafter be applicable, as nearly as 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) will be
of no effect following the first occurrence of any Section 13 Event.
(b) "PRINCIPAL PARTY" means
(i) in the case of any transaction described in CLAUSE (x) or
(y) of the first sentence of SECTION 13(a), the Person that is the
issuer of any securities into which shares of Common Stock of the
Company are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to such
merger or consolidation; and
(ii) in the case of any transaction described in CLAUSE (z) of
the first sentence of SECTION 13(a), the Person that is the party
receiving the greatest portion of the assets 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 Person the Common Stock of which is and has been so
registered, "PRINCIPAL PARTY" will 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" will refer to whichever of
such Persons is the issuer of the Common Stock having the greatest
aggregate market value.
(c) The Company will not consummate any such consolidation, merger,
sale, or transfer unless the Principal Party has a sufficient number of
26
<PAGE>
authorized shares of its Common Stock that have not been issued or reserved
for issuance to permit the exercise in full of the Rights in accordance
with this SECTION 13 and unless prior thereto the Company and such
Principal Party have executed and delivered to the Rights Agent a
supplemental agreement providing for the Principal Party to assume and
perform the terms set forth in SECTIONS 13(a) and (b) and further providing
that, as soon as practicable after the date of any consolidation, merger,
or transfer mentioned in SECTION 13(a), 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 cause such
registration statement to (A) become effective as soon as practicable
after such filing and (B) remain effective (with a prospectus at all
times meeting the requirements of the Act) until the Expiration Date;
and
(ii) will deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates that
comply in all respects with the requirements for registration on Form
10 under the Exchange Act.
The provisions of this SECTION 13 will similarly apply to successive mergers,
consolidations, and sales or other transfers. In the event that a Section 13
Event occurs at any time after the occurrence of a Section 11(a)(ii) Event, the
Rights that have not theretofore been exercised will thereafter become
exercisable in the manner described in SECTION 13(a).
(d) In the event that the Rights become exercisable under SECTION
13(a), the Company, by action of the Board of Directors, may agree with the
Principal Party that the Principal Party may permit the Rights to be
exercised for 50% of the Common Shares of the Principal Party that would
otherwise be purchasable under SECTION 13(a), in consideration of the
surrender to the Principal Party, as the successor to the Company under
SECTION 13(a)(ii), of the Rights so exercised and without other payment of
the Purchase Price. Rights exercised under this SECTION 13(d) will be
deemed to have been exercised in full and cancelled.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company will not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in SECTION 11(p), or to
distribute Rights Certificates that evidence fractional Rights. In lieu of
such fractional Rights, there will 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.
27
<PAGE>
For purposes of this SECTION 14(a), the current market value of a whole
Right will be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have
been otherwise issuable. The closing price of the Rights for any day
will be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Rights are
not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading, or if
the Rights are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use or, if on
any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the
Board of Directors. If on any such date no such market maker is making a
market in the Rights the fair value of the Rights on such date as
conclusively determined in good faith by the Board of Directors will be
used.
(b) The Company will not be required to issue fractions of shares of
Preferred Stock (other than fractions that are integral multiples of one
one-hundredth of a share of Preferred Stock) upon exercise of the Rights or
to distribute certificates that evidence fractional shares of Preferred
Stock (other than fractions that are integral multiples of one
one-hundredth of a share of Preferred Stock). In lieu of fractional
shares of Preferred Stock that are not integral multiples of one
one-hundredth of a share of Preferred Stock, the Company may pay to the
registered holders of Rights Certificates at the time such Rights are
exercised as provided in this Agreement an amount in cash equal to the
same fraction of the current market value of one one-hundredth of a
share of Preferred Stock. For purposes of this SECTION 14(b), the
current market value of one one-hundredth of a share of Preferred Stock
will be one one-hundredth of the closing price of a share of Preferred
Stock (as determined pursuant to SECTION 11(d)(ii)) for the Trading Day
immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the Company will
not be required to issue fractions of shares of Common Stock upon exercise
of the Rights or to distribute certificates that evidence fractional shares
of Common Stock. In lieu of fractional shares of Common Stock, the Company
may pay to the registered holders of Rights Certificates at the time such
Rights are exercised as provided in this Agreement an amount in cash equal
to the same fraction of the current market value of one share of Common
Stock. For
28
<PAGE>
purposes of this SECTION 14(c), the current market value of one share of
Common Stock will be the Current Market Value of one share of Common Stock
(as determined pursuant to SECTION 11(d)(i)) for the Trading Day
immediately prior to the date of such exercise.
(d) The holder of a Right, by the acceptance of the Rights, expressly
waives the right to receive any fractional Rights or any fractional shares
upon exercise of a Right, except as permitted by this SECTION 14.
Section 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in its own behalf and for its own
benefit, enforce, and may institute and maintain any suit, action, or proceeding
against the Company to enforce, or otherwise act in respect of, its 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 will be entitled to specific performance of
the obligations under this Agreement and injunctive relief against actual or
threatened violations of the obligations under this Agreement of any Person
subject to this Agreement.
Section 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by
accepting the Rights 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) and SECTION 7(f), 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 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
29
<PAGE>
Company nor the Rights Agent, subject to the last sentence of SECTION 7(e),
will be required to be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent will 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 will use its reasonable 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 will be entitled to vote or receive dividends
or be deemed for any purpose the holder of the number of one one-hundredths of a
share of Preferred Stock or any other securities of the Company that may at any
time be issuable on the exercise of the Rights represented thereby, nor will
anything contained in this Agreement 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, 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 24), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificate have been exercised in accordance with the
provisions of this Agreement.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it under this Agreement and, from
time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and disbursements and other disbursements incurred in the
administration and execution of this Agreement and the exercise and
performance of its duties under this Agreement. The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, or expense, incurred without negligence, bad faith, or willful
misconduct on the part of the Rights Agent, for anything done or omitted to
be done by the Rights Agent in connection with the acceptance and
administration of this Agreement, including, without limitation, and the
costs and expenses of defending against any claim of liability and the
costs and expenses of enforcing this right of indemnification. The
indemnification provided for hereunder shall survive the expiration of the
Rights and the termination of this Agreement. In no case will the Rights
Agent
30
<PAGE>
be liable for special, indirect, incidental, or consequential loss or
damages of any kind whatsoever, even if the Rights Agent has been advised
or is otherwise aware of the likelihood of such loss or damage.
(b) The Rights Agent may conclusively rely upon and will be
protected and will incur no liability for or in respect of any action
taken, suffered, or omitted by it in connection with its administration of
this Agreement in reliance upon any Rights Certificate or certificate for
Common Stock or for other securities of the Company, instrument of
assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed, and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any Person into or with which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
Person resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent is a party, or any corporation succeeding to
the corporate trust or shareholder services business of the Rights Agent or
any successor Rights Agent, will 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 to this Agreement; provided, however,
that such corporation would be eligible for appointment as a successor
Rights Agent under the provisions of SECTION 21. In case at the time such
successor Rights Agent succeeds to the agency created by this Agreement,
any of the Rights Certificates 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 have
not 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
will have the full force provided in the Rights Certificates and in this
Agreement.
(b) In case at any time the name of the Rights Agent is changed and
at such time any of the Rights Certificates 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 have not 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 will
have the full force provided in the Rights Certificates and in this
Agreement.
31
<PAGE>
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, and no implied duties or obligations shall be read into this
Agreement against the Rights Agent, by all of which the Company and the holders
of Rights Certificates, by their acceptance of such Rights Certificates, will be
bound:
(a) Before the Rights Agent acts or refrains from acting, the Rights
Agent may consult with legal counsel (who may be legal counsel for the
Company), and the opinion of such counsel will be full and complete
authorization and protection to the Rights Agent as to any action taken or
omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent deems 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 under this Agreement,
such fact or matter (unless other evidence in respect of such fact or
matter is specifically prescribed in this Agreement) may be deemed to be
conclusively proved and established by a certificate signed by the Chairman
of the Board, the Chief Executive Officer, the Chief Operating Officer, the
President, any Vice President, the Treasurer, any Assistant Treasurer, the
Secretary, or any Assistant Secretary of the Company and delivered to the
Rights Agent; and such certificate will be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent will be liable under this Agreement only for its
own negligence, bad faith or willful misconduct.
(d) The Rights Agent will 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 will be deemed to have been made by the Company only.
(e) The Rights Agent will not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery of this
Agreement (except the due execution of this Agreement by the Rights Agent)
or in respect of the validity or execution of any Rights Certificate
(except its countersignature); nor will it be responsible for any breach by
the Company of any covenant or condition contained in this Agreement or in
any Rights Certificate; nor will it be responsible for any adjustment
required under the provisions of SECTION 11 or SECTION 13, or responsible
for the manner, method, or amount of any such adjustment or the
ascertaining of the existence of facts that would require any
32
<PAGE>
such adjustment (except with respect to the exercise of Rights evidenced
by Rights Certificates after actual notice of any such adjustment); nor
will it by any act under this Agreement be deemed to make any
representation or warranty as to the authorization or reservation of any
shares of Common Stock or Preferred Stock to be issued pursuant to this
Agreement or any Rights Certificate or as to whether any shares of
Common Stock or Preferred Stock will, when so issued, be validly
authorized or issued, fully paid, or nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge,
and deliver or cause to be performed, executed, acknowledged, and delivered
all such further and other acts, instruments, and assurances as may
reasonably be required by the Rights Agent for the carrying out or
performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties under this
Agreement from the Chairman of the Board, the Chief Executive Officer, the
Chief Operating Officer, the President, any Vice President, the Secretary,
any Assistant Secretary, the Treasurer, or any Assistant Treasurer of the
Company, and to apply to such officers for advice or instructions in
connection with its duties, and it will not be liable for any action taken
or suffered to be taken by it in good faith in accordance with instructions
of any such officer. Any application by the Rights Agent for written
instructions from the Company may, at the option of the Rights Agent, set
forth in writing any action proposed to be taken or omitted by the Rights
Agent under this Agreement and the date on or after which such action shall
be taken or such omission shall be effective. The Rights Agent shall not
be liable for any action taken by, or omission of, the Rights Agent in
accordance with a proposal included in any such application on or after the
date specified in such application (which date shall not be less than ten
Business Days after the date any officer of the Company actually receives
such application, unless any such officer shall have consented in writing
to an earlier date) unless, prior to taking any such action (or the
effective date in case of an omission), the Rights Agent shall have
received written instructions in response to such application subject to
the proposed action or omission and/or specifying the action to be taken or
omitted.
(h) The Rights Agent and any stockholder, director, officer, or
employee of the Rights Agent may buy, sell, or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, 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 in this Agreement will
preclude the Rights Agent from acting in any other capacity for the Company
or for any other Person.
33
<PAGE>
(i) The Rights Agent may execute and exercise any of the rights or
powers vested by this Agreement in it or perform any duty under this
Agreement either itself or by or through its attorneys or agents, and the
Rights Agent will 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 of such Person.
(j) No provision of this Agreement will 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 under this Agreement or in the
exercise of its rights if there are reasonable grounds for believing that
repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has
either not been completed or indicates an affirmative response to clause 1
or 2 of such certificate, the Rights Agent will not take any further action
with respect to such requested exercise of transfer without first
consulting with the Company.
(l) 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) days' notice in writing mailed to the Company, and to each
transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and at the expense of the Company, 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) days' notice in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Stock and Preferred Stock, by registered or certified mail,
and to the holders of the Rights Certificates by first-class mail. If the Rights
Agent resigns or is removed or otherwise becomes incapable of acting, the
Company will appoint a successor to the Rights Agent. If the Company fails to
make such appointment within a period of thirty (30) days after giving notice of
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who will, with such notice, submit such holder's Rights
Certificate for inspection by the Company), then any registered holder of any
Rights Certificate may apply to any court
34
<PAGE>
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,
will be a corporation organized and doing business under the laws of the
United States or a State of the United States, in good standing, that is
authorized under such laws to exercise corporate trust powers and is subject
to supervision or examination by federal or state authority and that has at
the time of its appointment as Rights Agent a combined capital and surplus of
at least $100,000,000. After appointment, the successor Rights Agent will 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, except
that the predecessor Rights Agent will deliver and transfer to the successor
Rights Agent any property at the time held by it under this Agreement 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 will file notice of such appointment in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock and the
Preferred Stock, and mail a notice of such appointment in writing to the
registered holders of the Rights Certificates. Failure to give any notice
provided for in this SECTION 21, however, or any defect in such notice, will
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,
in its discretion, issue new Rights Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares 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)
will, with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, granted or
awarded as of the Distribution Date, or upon the exercise, conversion, or
exchange of securities issued by the Company, and (b) may, in any other case, if
deemed necessary or appropriate by the Board of Directors of the Company, issue
Rights Certificates representing the appropriate number of Rights in connection
with such issuance or sale; provided, however, that (y) no such Rights
Certificate will be issued if, and to the extent that, the Company is 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 (z) no such Rights Certificate will be issued if, and to
the extent that, appropriate adjustment has otherwise been made in lieu of the
issuance of such Rights Certificate.
Section 23. REDEMPTION AND TERMINATION. The Company may, at its option, by
action of its Board of Directors at any time prior to the earlier of (i) the
Close of Business on the tenth day following the Stock Acquisition Date (or, if
the Stock
35
<PAGE>
Acquisition Date has occurred prior to the Record Date, the Close of Business
on the tenth day following the Record Date), or (ii) the Final Expiration
Date, redeem all but not less than all 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 of this Agreement (such redemption price being
referred to as the "REDEMPTION PRICE"). Notwithstanding anything contained in
this Agreement to the contrary, the Rights will not be exercisable after the
first occurrence of a Section 11(a)(ii) Event except during the period that
the Company's right of redemption under this Agreement has expired. The
Company may, at its option, pay the Redemption Price, in cash, shares of
Common Stock (based on the Current Market Price as defined in SECTION
11(d)(i), of the Common Stock at the time of redemption) or any other form of
consideration deemed appropriate by the Board of Directors. Immediately upon
the action of the Board of Directors of the Company ordering the redemption
of the Rights, evidence of which has been filed with the Rights Agent and
without any further action and without any notice, the right to exercise the
Rights will terminate and the only right thereafter of the holders of Rights
will be to receive the Redemption Price for each Right so held. Promptly
after the action of the Board of Directors ordering the redemption of the
Rights, the Company will give notice of such redemption to the Rights Agent
and the holders of the then outstanding Rights by mailing such notice to all
such holders at each holder's last address as it appears upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Stock. Any notice that is mailed
in the manner in this Agreement provided will be deemed given, whether or not
the holder receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made.
Section 24. NOTICE OF CERTAIN EVENTS.
(a) In case the Company proposes, at any time after the Distribution
Date, (i) to pay any dividend payable in stock of any class to the holders
of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of
earnings or retained earnings of the Company); (ii) to offer to the holders
of Preferred Stock rights or warrants to subscribe for or to purchase any
additional shares of Preferred Stock or shares of stock of any class or any
other securities, rights, or options; (iii) to effect any reclassification
of its Preferred Stock (other than a reclassification involving only the
subdivision of outstanding shares of Preferred Stock); (iv) to effect any
consolidation or merger from, into, or with any other Person (other than a
Subsidiary of the Company in a transaction that complies with SECTION
11(o)), or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one
transaction or a series of related transactions, of more than 50% of the
assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any other Person or Persons (other than the Company or any of its
Subsidiaries in one or more transactions each of which complies with
SECTION 11(o)); or (v) to effect the
36
<PAGE>
liquidation, dissolution or winding up of the Company, then, in each
such case, the Company will give to each holder of a Rights Certificate,
to the extent feasible and in accordance with SECTION 25, a notice of
such proposed action, which will specify the record date for the
purposes of such stock dividend, distribution of rights or warrants, or
the date on which such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution, or winding up is to take place and
the date of participation therein by the holders of the shares of
Preferred Stock, if any such date is to be fixed, and such notice will
be so given in the case of any action covered by CLAUSE (i) or (ii)
above at least twenty (20) days prior to the record date for determining
holders of the shares of Preferred Stock for purposes of such action,
and in the case of any such other action, at least twenty (20) days
prior to the date of the taking of such proposed action or the date of
participation in such proposed action by the holders of the shares of
Preferred Stock, whichever is the earlier.
(b) In case any of the events set forth in SECTION 11(a)(ii) occurs,
then, in any such case, (i) the Company will as soon as practicable give to
each holder of a Rights Certificate, to the extent feasible and in
accordance with SECTION 25, a notice of the occurrence of such event, which
will specify the event and the consequences of the event to holders of
Rights under SECTION 11(a)(ii), and (ii) all references in SECTION 24(a) to
Preferred Stock will be deemed thereafter to refer to Common Stock or, if
appropriate, other securities.
Section 25. 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 will be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Schlotzsky's, Inc.
203 Colorado Street
Austin, Texas 78701
Attention: Chief Executive Officer
with a copy to:
Schlotzsky's, Inc.
203 Colorado Street
Austin, Texas 78701
Attention: General Counsel
37
<PAGE>
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attention: Ken Hawari
Subject to the provisions of SECTION 21, any notice or demand authorized by
this Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent will be sufficiently given or made if sent
by first-class mail, postage prepaid, addressed (until another address is filed
in writing with the Company) as follows:
Harris Trust and Savings Bank
P.O. Box 755
Chicago, Illinois 60690
Attention: Bernetta Young
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) will 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 26. SUPPLEMENT AND AMENDMENTS. Prior to the Distribution Date and
subject to the penultimate sentence of this SECTION 26, the Company and the
Rights Agent will, if the Company so directs, supplement or amend any provision
of this Agreement without the approval of any holders of certificates
representing shares of Common Stock. From and after the Distribution Date and
subject to the penultimate sentence of this SECTION 26, the Company and the
Rights Agent will, if the Company so directs, supplement or amend this Agreement
without the approval of any holders of Rights Certificates in order (i) to cure
any ambiguity, (ii) to correct or supplement any provision contained in this
Agreement that may be defective or inconsistent with any other provision in this
Agreement, (iii) to shorten or lengthen any time period under this Agreement, or
(iv) to change or supplement the provisions under this Agreement in any manner
that the Company may deem necessary or desirable and that will not adversely
affect the interests of the holders of Rights Certificates (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person); provided,
however, this Agreement may not be supplemented or amended to lengthen, pursuant
to CLAUSE (iii) of this sentence, (A) a time period relating to when the Rights
may be redeemed at such time as the Rights are not then redeemable, or (B) any
other time period unless such lengthening is for the purpose of protecting,
enhancing, or clarifying the rights of, or the benefits to, the holders of
Rights. Upon the delivery of a certificate from an appropriate officer of the
Company that states that the proposed supplement or amendment is in
38
<PAGE>
compliance with the terms of this SECTION 26, the Rights Agent will execute
such supplement or amendment. Notwithstanding anything contained in this
Agreement to the contrary after the occurrence of a Distribution Date, no
supplement or amendment will be made that changes the Redemption Price, the
Final Expiration Date, the Purchase Price or the number of one one-hundredths
of a share of Preferred Stock for which a Right is exercisable. Prior to the
Distribution Date, the interests of the holders of Rights will be deemed
coincident with the interests of the holders of Common Stock. Notwithstanding
anything in this Agreement to the contrary, no supplement or amendment that
changes the rights and duties of the Rights Agent under this Agreement will
be effective against the Rights Agent without the execution of such
supplement or amendment by the Rights Agent.
Section 27. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent will bind and inure to
the benefit of their respective successors and assigns under this Agreement.
Section 28. 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, will 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 as in effect on the date of this Agreement. The Board of
Directors of the Company will 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 (a) interpret the provisions of this Agreement, and (b) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including, without limitation, 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) that are done or made by the Board
in good faith, will (x) be final, conclusive, and binding on the Company, the
Rights Agent, the holders of the Rights, and all other Persons, and (y) not
subject the Board to any liability to the holders of the Rights.
Section 29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement will 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; and this Agreement will
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).
39
<PAGE>
Section 30. 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 will remain in full
force and effect and will 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 of
Directors of the Company determines in good faith 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 will be
reinstated and will not expire until the Close of Business on the tenth day
following the date of such determination by the Board of Directors.
Section 31. GOVERNING LAW. This Agreement, each Right, and each Rights
Certificate issued under this Agreement will be deemed to be a contract made
under the laws of the State of Texas and for all purposes will 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 32. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts will for all purposes be deemed to be
an original, and all such counterparts will together constitute but one and the
same instrument.
Section 33. INTERPRETATION. Descriptive headings of the several Sections of
this Agreement are inserted for convenience only and will not control or affect
the meaning or construction of any of the provisions of this Agreement.
References in this Agreement to Sections and Exhibits are references to the
Sections of and Exhibits to this Agreement unless the context requires
otherwise. In this Agreement, the word "or" is not exclusive.
Section 34. ESTABLISHMENT OF FUND FOR DIRECTORS. The Board may, at any time
it deems appropriate, establish or set aside one or more funds, whether in
trust, escrow or otherwise (and regardless of whether such fund is combined with
any other fund established or set aside by the Company), for the purpose of
assuring that adequate resources are available to the Board of Directors in
order to enable them to carry out their prescribed functions under this
Agreement and to fulfill their fiduciary obligations to stockholders of the
Company.
Section 35. EXCHANGE.
(a) The Company may, at its option, at any time and from time to time
after the first occurrence of a Section 11(a)(ii) Event, exchange all or
part of the then outstanding and exercisable Rights (other than Rights that
have become void as provided in SECTION 7(e)) for one-half the number of
shares of Common
40
<PAGE>
Stock, one-hundredths of a share of Preferred Stock, or shares or other
units of property for which the Rights are exercisable immediately
before the time of the action of the Board of Directors to exchange the
Rights (the "EXCHANGE NUMBER") or any combination thereof as determined
by the Board. Notwithstanding the foregoing, the Company will 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, 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) Immediately upon the action of the Company ordering the exchange
of any Rights pursuant to SECTION 35(a), evidence of which has 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
of a holder of such Rights will be to receive that number of shares of
Common Stock, Preferred Stock, 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 will (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 will 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 that is mailed in the
manner provided in this SECTION 35(b) will be deemed given, whether or not
the holder receives the notice. Each such notice or exchange will state
the method by which the exchange will be effected and, in the event of any
partial exchange, the number of Rights that will be exchanged. Any partial
exchange will be effected pro rata based on the number of Rights (other
than Rights that have become void as provided in SECTION 7(e)) held by each
holder of Rights.
(c) In the event that the number of shares of Common Stock that are
authorized by the Company's Certificate of Incorporation but not
outstanding or reserved for issuance for purpose other than upon exercise
of the Rights is not sufficient to permit any exchange of Rights in
accordance with this SECTION 35, 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.
(d) Upon the action of the Company ordering the exchange of any
Rights pursuant to SECTION 35(a), the Company will 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
41
<PAGE>
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 35(a), the current market value of one share of Common
Stock will be the closing price of one share of Common Stock (as
determined consistent with SECTION 11(d)(i)) for the Trading Day
immediately prior to the date of exchange pursuant to this SECTION 35(a).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: SCHLOTZSKY'S, INC.
---------------------------
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
Attest: HARRIS TRUST AND SAVINGS BANK, as
--------------------------- Rights Agent
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
42
<PAGE>
Exhibit A
to Rights Agreement
[FORM OF]
STATEMENT OF RESOLUTIONS REGARDING THE
DESIGNATION, PREFERENCES, AND RIGHTS
OF CLASS C SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
of
SCHLOTZSKY'S, INC.
Pursuant to Section 2.12 of the Texas Business Corporation Act
The undersigned officers of Schlotzsky's, Inc. (the "CORPORATION"), a
corporation organized and existing under the Texas Business Corporation Act, in
accordance with the provisions of Section 2.12, thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Restated Articles of Incorporation of such Corporation, such Board of Directors
on December 18, 1998, adopted the resolutions set forth below creating a series
of 200,000 shares of Preferred Stock designated as "Class C Series A Junior
Participating Preferred Stock":
That no shares of Class C Series A Junior Participating Preferred Stock
have heretofore been issued.
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Restated
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences, and relative, participating, optional, and other
special rights of the shares of such series, and the qualifications,
limitations, or restrictions thereof are as follows:
(1) DESIGNATION AND AMOUNT. The shares of such series will be designated
as "Class C Series A Junior Participating Preferred Stock" and the number of
shares constituting such series will be 200,000.
(2) DIVIDENDS AND DISTRIBUTIONS.
(a) The holders of shares of Class C Series A Junior Participating
Preferred Stock will be entitled to receive, when, as, and if declared by
the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the last day of March, June,
September, and December in each year (each such date being referred to as a
"QUARTERLY
A-1
<PAGE>
DIVIDEND PAYMENT DATE"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share
of Class C Series A Junior Participating Preferred Stock, in an amount
per share (rounded to the nearest cent) equal to the greater of (i)
$0.01 or (ii) subject to the provision for adjustment set forth below,
one hundred times the aggregate per share amount of all cash dividends,
and one hundred times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock, no par value (the "COMMON STOCK") or
a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding quarterly Dividend Payment Date, or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Class C Series A Junior
Participating Preferred Stock. In the event the Corporation at any time
after December 18, 1998 (the "RIGHTS DECLARATION DATE") (i) declares any
dividend on the Common Stock payable in shares of Common Stock, (ii)
subdivides the outstanding Common Stock, or (iii) combines the
outstanding Common Stock into a smaller number of shares, then in each
such case the amount to which holders of shares of Class C Series A
Junior Participating Preferred Stock were entitled immediately prior to
such event under CLAUSE (ii) of the preceding sentence will be adjusted
by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(b) The Corporation will declare a dividend or distribution on the
Class C Series A Junior Participating Preferred Stock as provided in
SECTION 2(a) above immediately after it declares a dividend or distribution
on the Common Stock (other than a dividend payable in shares of Common
Stock); provided that, in the event no dividend or distribution has been
declared on the Common Stock during the period between any quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $0.01 per share on the Class C Series A Junior
Participating Preferred Stock will nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(c) Dividends will begin to accrue and be cumulative on outstanding
shares of Class C Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such
shares of Class C Series A Junior Participating Preferred Stock, unless the
date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares
will begin to accrue from the date of issue of such shares, or unless the
date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Class C Series A
Junior Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend
A-2
<PAGE>
Payment Date, in either of which events such dividends will begin to
accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends will not bear interest. Dividends paid on
the shares of Class C Series A Junior Participating Preferred Stock in
an amount less than the total amount of such dividends at the time
accrued and payable on such shares will be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination of
holders of shares of Class C Series A Junior Participating Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date will be no more than 30 days prior to the
date fixed for the payment thereof.
(3) VOTING RIGHTS.
(a) The holders of shares of Class C Series A Junior Participating
Preferred Stock will have the following voting rights:
Subject to the provision for adjustment set forth below, each share of
Class C Series A Junior Participating Preferred Stock will entitle the
holder to a number of votes on all matters submitted to a vote of the
stockholders of the Corporation equal to one hundred times the number of
votes per share to which shares of Common Stock are entitled. In the event
the Corporation at any time after the Rights Declaration Date (i) declares
any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivides the outstanding Common Stock, or (iii) combines the outstanding
Common Stock into a smaller number of shares, then in each such case the
number of votes per share to which holders of shares of Class C Series A
Junior Participating Preferred Stock were entitled immediately prior to
such event will be adjusted by multiplying such number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
(b) Except as otherwise provided in this Agreement or by law, the
holders of shares of Class C Series A Junior Participating Preferred Stock
and the holders of shares of Common Stock will vote together as one class
on all matters submitted to a vote of stockholders of the Corporation.
(c) (i) If at any time dividends on any Class C Series A Junior
Participating Preferred Stock are in arrears in an amount equal to six
(6) quarterly dividends thereon, the occurrence of such contingency
will mark the beginning of a period (a "DEFAULT PERIOD") that will
extend until such time when all accrued and unpaid dividends for all
previous quarterly dividend periods and for the current quarterly
dividend period on all shares of Class C Series A Junior Participating
Preferred Stock then
A-3
<PAGE>
outstanding have been declared and paid or set apart for payment.
During each default period, all holders of preferred stock of the
Corporation (the "PREFERRED STOCK") (including holders of the Class
C Series A Junior Participating Preferred Stock) with dividends in
arrears in an amount equal to six (6) quarterly dividends thereon,
voting as a class, irrespective of series, will have the right to
elect two (2) Directors.
(ii) During any default period, such voting right of the
holders of Class C Series A Junior Participating Preferred Stock may
be exercised initially at a special meeting called pursuant to SECTION
3(c)(iii) or at any annual meeting of stockholders, and thereafter at
annual meetings of stockholders, provided that such voting right will
not be exercised unless the holders of ten percent (10%) in number of
shares of Preferred Stock outstanding are present in person or by
proxy. The absence of a quorum of the holders of Common Stock will not
affect the exercise by the holders of Preferred Stock of such voting
right. At any meeting at which the holders of Preferred Stock exercise
such voting right initially during an existing default period, they
will have the right, voting as a class, to elect Directors to fill
such vacancies, if any, in the Board of Directors as may then exist up
to two (2) Directors or, if such right is exercised at an annual
meeting, to elect two (2) Directors. If the number that may be so
elected at any special meeting does not amount to the required number,
the holders of the Preferred Stock will have the right to make such
increase in the number of Directors as is necessary to permit the
election by them of the required number. After the holders of the
Preferred Stock have exercised their right to elect Directors in any
default period and during the continuance of such period, the number
of Directors will not be increased or decreased except by vote of the
holders of Preferred Stock as provided herein or pursuant to the
rights of any equity securities ranking senior to or pari passu with
the Class C Series A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock, during an existing
default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or
stockholders owning in the aggregate not less than ten percent (10%)
of the total number of shares of Preferred Stock outstanding,
irrespective of series, may request, the calling of a special meeting
of the holders of Preferred Stock, which meeting will thereupon be
called by the Chief Executive Officer, the Chief Operating Officer,
the President, a Vice-President, or the Secretary of the Corporation.
Notice of such meeting and of any annual meeting at which holders of
Preferred Stock are entitled to vote pursuant to this SECTION
3(c)(iii) will be given to each holder of record of Preferred Stock by
mailing a copy of such notice to such holder at such holder's last
address as it appears on the books of the Corporation. Such meeting
will
A-4
<PAGE>
be called for a time not earlier than 20 days and not later than
60 days after such order or request or in default of the calling of
such meeting within 60 days after such order or request, such meeting
may be called on similar notice by any stockholder or stockholders
owning in the aggregate not less than ten percent (10%) of the total
number of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this SECTION 3(c)(iii), no such special meeting will be
called during the period within 60 days immediately preceding the date
fixed for the next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, will continue
to be entitled to elect the whole number of Directors until the
holders of Preferred Stock have exercised their right to elect two (2)
Directors voting as a class, after the exercise of which right (x) the
Directors so elected by the holders of Preferred Stock will continue
in office until their successors have been elected by such holders or
until the expiration of the default period, and (y) any vacancy in the
Board of Directors may (except as provided in SECTION 3(c)(ii)) be
filled by vote of a majority of the remaining Directors theretofore
elected by the holders of the class of stock that elected the Director
whose office has become vacant. References in this SECTION 3(c) to
Directors elected by the holders of a particular class of stock will
include Directors elected by such Directors to fill vacancies as
provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Preferred Stock as a class to elect
Directors will cease, (y) the term of any Directors elected by the
holders of Preferred Stock as a class will terminate, and (z) the
number of Directors will be such number as may be provided for in the
articles of incorporation or by-laws irrespective of any increase made
pursuant to the provisions of SECTION 3(c)(ii) (such number being
subject, however, to change thereafter in any manner provided by law
or in the articles of incorporation or by-laws). Any vacancies in the
Board of Directors effected by the provisions of CLAUSES (y) and (z)
in the preceding sentence may be filled by a majority of the remaining
Directors.
Except as set forth herein, holders of Class C Series A Junior
Participating Preferred Stock will have no special voting rights and their
consent will not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
A-5
<PAGE>
(4) CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Class C Series A Junior Participating Preferred Stock as
provided in SECTION 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of
Class C Series A Junior Participating Preferred Stock outstanding have been
paid in full, the Corporation will not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution, or winding up) to the Class C Series A
Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution, or winding up) with the
Class C Series A Junior Participating Preferred Stock, except
dividends paid ratably on the Class C Series A Junior Participating
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution, or winding up) with the Class C Series
A Junior Participating Preferred Stock, provided that the Corporation
may at any time redeem, purchase, or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation, or winding up) to the Class C Series A
Junior Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Class C Series A Junior Participating Preferred Stock, or any
shares of stock ranking on a parity with the Class C Series A Junior
Participating Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective
series and classes, determines in good faith will result in fair and
equitable treatment among the respective series or classes.
(b) The Corporation will not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the
A-6
<PAGE>
Corporation unless the Corporation could, under SECTION 4(a), purchase
or otherwise acquire such shares at such time and in such manner.
(5) REACQUIRED SHARES. Any shares of Class C Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever will be retired and cancelled promptly after the
acquisition thereof. All such shares will upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein.
(6) LIQUIDATION, DISSOLUTION, OR WINDING UP.
(a) Upon any liquidation (voluntary or otherwise), dissolution, or
winding up of the Corporation, no distribution will be made to the holders
of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution, or winding up) to the Class C Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of shares
of Class C Series A Junior Participating Preferred Stock have received an
amount equal to $75.00 per one one-hundredth share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "CLASS C SERIES A LIQUIDATION
PREFERENCE"). Following the payment of the full amount of the Class C
Series A Liquidation Preference, no additional distributions will be made
to the holders of shares of Class C Series A Junior Participating Preferred
Stock unless, prior thereto, the holders of shares of Common Stock have
received an amount per share (the "COMMON ADJUSTMENT") equal to the
quotient obtained by dividing (i) the Class C Series A Liquidation
Preference by (ii) 100 (as appropriately adjusted as set forth in SECTION
6(c) to reflect such events as stock splits, stock dividends, and
recapitalizations with respect to the Common Stock) (such number in CLAUSE
(ii), the "ADJUSTMENT NUMBER"). Following the payment of the full amount of
the Class C Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Class C Series A Junior Participating
Preferred Stock and Common Stock, respectively, holders of Class C Series A
Junior Participating Preferred Stock and holders of shares of Common Stock
will receive their ratable and proportionate share of the remaining assets
to be distributed in the ratio of the Adjustment Number to 1 with respect
to such Preferred Stock and Common Stock, on a per share basis,
respectively.
(b) In the event, however, that there are not sufficient assets
available to permit payment in full of the Class C Series A Liquidation
Preference and the liquidation preferences of all other series of preferred
stock, if any, that rank on a parity with the Class C Series A Junior
Participating Preferred Stock, then such remaining assets will be
distributed ratably to the holders of such parity shares in proportion to
their respective liquidation preferences. In the event,
A-7
<PAGE>
however, that there are not sufficient assets available to permit payment
in full of the Common Adjustment, then such remaining assets will be
distributed ratably to the holders of Common Stock.
(c) In the event the Corporation at any time after December 18, 1998
(i) declares any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivides the outstanding Common Stock, or (iii) combines the
outstanding Common Stock into a smaller number of shares, then in each such
case the Adjustment Number in effect immediately prior to such event will
be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
(7) CONSOLIDATION, MERGER, ETC. In case the Corporation enters into any
consolidation, merger, combination, or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash,
and/or any other property, then in any such case the shares of Class C Series A
Junior Participating Preferred Stock will at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment set forth below) equal to one hundred times the aggregate amount of
stock, securities, cash, and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation at any time after December 18, 1998 (i)
declares any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivides the outstanding Common Stock, or (iii) combines the outstanding
Common Stock into a smaller number of shares, then in each such case the amount
set forth in the preceding sentence with respect to the exchange or change of
shares of Class C Series A Junior Participating Preferred Stock will be adjusted
by multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(8) NO REDEMPTION. The shares of Class C Series A Junior Participating
Preferred Stock will not be redeemable.
(9) AMENDMENT. The Restated Articles of Incorporation of the Corporation
will not be further amended in any manner that would materially alter or change
the powers, preferences, or special rights of the Class C Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Class C Series A Junior Participating Preferred Stock, voting separately as a
class.
(10) FRACTIONAL SHARES. Class C Series A Junior Participating Preferred
Stock may be issued in fractions of a share that entitle the holder, in
proportion to such
A-8
<PAGE>
holders fractional shares, to exercise voting rights, receive dividends,
participate in distributions, and to have the benefit of all other rights of
holders of Class C Series A Junior Participating Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury this 18th day of
December, 1998.
SCHLOTZSKY'S, INC.
By:
------------------------------------
John C. Wooley
Chairman of the Board and President
By:
------------------------------------
Jeffrey J. Wooley
Senior Vice President and Secretary
The foregoing instrument was acknowledged before me by John C. Wooley and
Jeffrey J. Wooley on the 18th day of December, 1998, in the capacities
indicated.
---------------------------------------
(Notary)
A-9
<PAGE>
Exhibit B
to Rights Agreement
Form of Rights Certificate
Certificate No. R-_______
NOT EXERCISABLE AFTER DECEMBER 18, 2008 OR EARLIER IF REDEEMED BY THE
COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT
$0.001 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE
OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE 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 IS, 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 SUCH
AGREEMENT.](1)
Rights Certificate
SCHLOTZSKY'S, INC.
This certifies that _____________, or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions, and conditions of the Rights
Agreement, dated as of December 18, 1998 (as amended from time to time, the
"RIGHTS AGREEMENT"), between Schlotzsky's, Inc., a Texas corporation (the
"COMPANY"), and Harris Trust and Savings Bank, an Illinois banking corporation
(the "RIGHTS AGENT"), to purchase from the Company at any time prior to 5:00
p.m. (Texas time) on December 18, 2008 at the office or offices of the Rights
Agent designated for such purpose, or its successors as Rights Agent, one
one-hundredth of a fully paid, nonassessable share of Class C Series A Junior
Participating Preferred Stock (the "PREFERRED STOCK") of the Company, at a
purchase price of $75.00 per one one-hundredth of a share (the "PURCHASE
PRICE"), upon presentation and surrender of this Rights Certificate with the
Form of Election to Purchase and related Certificate duly executed. The
number of Rights evidenced by this Rights Certificate (and the number of
shares that may be purchased upon exercise
- -----------------
(1) The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
B-1
<PAGE>
thereof) set forth above, and the Purchase Price per share set forth above, are
the number and Purchase Price as of December 18, 1998 based on the Preferred
Stock as constituted at such date. The Company reserves the right to require
prior to the occurrence of a Triggering Event (as such term is defined in the
Rights Agreement) that a number of Rights be exercised so that only whole shares
of Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined
in the Rights Agreement), if the Rights evidenced by this Rights Certificate are
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of
any such Acquiring Person (as such terms are defined in the Rights Agreement),
(ii) a transferee of any such Acquiring Person, Associate, or Affiliate, or
(iii) under certain circumstances specified in the Rights Agreement, a
transferee of a Person who, after such transfer, became an Acquiring Person, or
an Affiliate or Associate of an Acquiring Person, such Rights will become null
and void and no holder of this certificate will have any right with respect to
such Rights from and after the occurrence of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number and
kind of shares of Preferred Stock or other securities, that may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain events, including
Triggering Events.
This Rights Certificate is subject to all of the terms, provisions, and
conditions of the Rights Agreement, which terms, provisions, and conditions are
hereby incorporated in this Rights Certificate by reference and made a part of
this certificate and to which Rights Agreement reference is hereby made for a
full description of the rights, limitations of rights, obligations, duties, and
immunities hereunder of the Rights Agent, the Company, and the holders of the
Rights Certificates, which limitations of rights include the temporary
suspension of the exercisability of such Rights under the certain circumstances
set forth in the Rights Agreement. Copies of the Rights Agreement are on file at
the above-mentioned office of the Rights Agent and are also available upon
written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the principal office or offices of the Rights Agent designated for
such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-hundredths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered have entitled such holder to purchase. If this Rights Certificate is
exercised in part, the holder will be entitled to receive upon surrender of this
Rights Certificate another Rights Certificate or Rights Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Company at its option at a redemption
price of
B-2
<PAGE>
$0.001 per Right at any time prior to the earlier of the Close of Business on
(i) the tenth day following the Stock Acquisition Date (as such time period
may be extended pursuant to the Rights Agreement), and (ii) the Final
Expiration Date. In addition, in certain circumstances the Rights may be
exchanged, in whole or in part, for shares of the Common Stock, shares of
preferred stock of the Company or other consideration having essentially the
same value or economic rights as such shares. Immediately upon the action of
the Board of Directors of the Company authorizing any such exchange, and
without any further action or any notice, the Rights (other than Rights that
are not subject to such exchange) will terminate and the Rights will only
enable holders to receive the shares issuable upon such exchange.
No fractional shares of Preferred Stock will be issued upon the exercise of
any Right or Rights evidenced hereby (other than fractions that are integral
multiples of one one-hundredth of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depository receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate will be entitled to vote or receive
dividends or be deemed for any purpose the holder of shares of Preferred Stock
or of any other securities of the Company that may at any time be issuable on
the exercise hereof, nor will anything contained in the Rights Agreement or
herein be construed to confer upon the holder of this 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 the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate have been exercised as provided in the Rights Agreement.
This Rights Certificate will not be valid or obligatory for any purpose
until it has been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.
Dated as of
--------------------
ATTEST: SCHLOTZSKY'S, INC.
- -------------------------------- By:
------------------------------
Title:
---------------------------
B-3
<PAGE>
Countersigned:
HARRIS TRUST AND SAVINGS BANK, as Rights Agent
By
-------------------------
Authorized Signature
B-4
<PAGE>
[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 transfer unto
(Please print name and address of transferee)
This Rights Certificate, together with all right, title, and interest
therein, and does hereby irrevocably constitute and appoint _________________
attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated:__________________, ____ ---------------------------------
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned, or
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ] did
[ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was, or subsequently became an Acquiring Person or an Affiliate
or Associate of an Acquiring Person.
Dated:__________________, ____ ---------------------------------
Signature
Signature Guaranteed:
B-5
<PAGE>
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.
To: SCHLOTZSKY'S, INC.:
The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Rights Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other Person that may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of
and delivered to:
Please insert social security or other identifying number
(please print name and address)
If such number of Rights are not all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights will be
registered in the name of and delivered to:
please insert social security
or other identifying number
(please print name and address)
Dated:__________________, ____ ---------------------------------
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined in the Rights Agreement);
B-6
<PAGE>
(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:
B-7
<PAGE>
Exhibit C
to Rights Agreement
DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
On December 18, 1998, the Board of Directors of Schlotzsky's, Inc. (the
"COMPANY") adopted a Stockholder Rights Plan, providing that one right (a
"RIGHT") will be attached to each share of common stock, no par value, of the
Company (the "COMMON STOCK") as of December 30, 1998 (the "RECORD DATE"). Each
Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Class C Series A Junior Participating Preferred
Stock, no par value (the "PREFERRED STOCK"), at a Purchase Price of $75.00
per one one-hundredth of a share (the "PURCHASE PRICE"), subject to
adjustment. The description and terms of the Rights are set forth in the
Rights Agreement (the "RIGHTS AGREEMENT"), dated as of December 18, 1998,
between the Company and Harris Trust and Savings Bank, as Rights Agent (the
"RIGHTS AGENT").
Initially, the Rights will be attached to all Common Stock certificates
representing shares outstanding as of the Record Date, and no separate Rights
Certificate will be distributed. The Rights will separate from the Common Stock
and a distribution date ("Distribution Date") will occur upon the earlier of (i)
10 days following a public announcement that a person or group of affiliated or
associated persons (an "ACQUIRING PERSON") has acquired, or obtained the right
to acquire, beneficial ownership of 20% or more of the outstanding shares of
Common Stock (the "STOCK ACQUISITION DATE"), or (ii) 10 business days following
the commencement of a tender offer or exchange offer that would result in a
person or group beneficially owning 20% or more of the outstanding shares of
Common Stock. 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 will contain a
notation incorporating the Rights Agreement by reference; and (iii) the
surrender for transfer of any certificates for Common Stock outstanding will
also constitute the transfer of the Rights associated with the Common Stock
represented by such certificate.
The Rights Agreement provides that John C. Wooley, Jeffrey J. Wooley and
certain of their successors and affiliates, who together will be beneficial
owners of approximately 12.5% of the Common Stock of the Company outstanding on
December 18, 1998, are excluded from the definition of "Acquiring Person."
C-1
<PAGE>
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on December 18, 2008, 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 alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock outstanding 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 combination with any Acquiring Person, or any Associate or Affiliate of any
Acquiring Person, and its Common Stock remains outstanding, (ii) any Acquiring
Person, or any Associate or Affiliate of any Acquiring Person, engages in one or
more "self-dealing" transactions as set forth in the Rights Agreement, (iii) an
Acquiring Person becomes the beneficial owner of 20% or more of the then
outstanding shares of Common Stock, or (iv) during such time as there is an
Acquiring Person an event occurs that results in such Acquiring Person's
ownership interest being increased by more than 1% (E.G., a reverse stock split
or recapitalization), each holder of a Right will thereafter have the right to
receive, upon exercise, Common Stock (or, in certain circumstances, cash,
property, or other securities of the Company), having a value equal to two times
the Exercise Price of the Right. The Exercise Price is the Purchase Price times
the number of shares of Common Stock associated with each Right (initially,
one). Notwithstanding any of the foregoing, following the occurrence of any of
the events set forth in this paragraph (the "Flip-In Events"), all Rights that
are, or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person, or an Associate or Affiliate of any
Acquiring Person, will be null and void. However, Rights are not exercisable
following the occurrence of any of the Flip-In Events set forth above until such
time as the Rights are no longer redeemable by the Company as set forth below.
For example, at an exercise price of $75 per Right, each Right not owned by
an Acquiring Person (or by certain related parties) following an event set forth
in the preceding paragraph would entitle its holder to purchase Common Stock
with a value of $150 (or other consideration, as noted above) for $75. Assuming
that the Common Stock had a per share value of $150 at such time, the holder
of each valid Right would be entitled to purchase 2.0 shares of Common Stock for
$75. Alternatively, the Company could permit the holder to surrender each Right
in exchange for stock or cash equivalent to one share of Common Stock (with a
value of $75). without the payment of any consideration other than the surrender
of the Right.
C-2
<PAGE>
In the event that following the Stock Acquisition Date, (i) the Company is
acquired in a merger or consolidation in which the Company is not the surviving
corporation or (ii) 50% or more of the Company's assets or earning power is sold
or transferred, each holder of a Right (except Rights which have previously been
voided as set forth above) will thereafter have the right (a flip-over right) to
receive, upon exercise of the Right, Common Stock of the acquiring company
having a value equal to two times the Exercise Price of the Right.
The Purchase Price payable, and the number of shares of Preferred Stock or
other securities or property issuable, upon exercise of the Rights 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 Preferred
Stock, (ii) if holders of the Preferred Stock are granted certain rights or
warrants to subscribe for Preferred Stock or convertible securities at less than
the current market price of the Preferred Stock, or (iii) upon the distribution
to holders of the Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional shares will be issued and, in lieu thereof, an adjustment
in cash will be made based on the market price of the Preferred Stock on the
last trading date prior to the date of exercise.
At any time until 10 days following the Stock Acquisition Date, the Company
may redeem the Rights in whole, but not in part, at a price of $.001 per Right.
The ten day redemption period may be extended by the Board of Directors so long
as the Rights are still redeemable. 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 $.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 as set
forth above.
Any of the provisions of the Rights Agreement may be amended by the Board
of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, to make changes which do not
C-3
<PAGE>
adversely affect the interests of holders of Rights (excluding the interest
of any Acquiring Person), or to shorten or lengthen any time period under the
Rights Agreement; provided that no amendment to adjust the time period
governing redemption will be made at such time as the Rights are not
redeemable.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in certain circumstances. Accordingly, the existence of the Rights may deter
certain acquirors from making takeover proposals or tender offers.
The Rights Agreement between the Company and the Rights Agent specifying
the terms of the Rights, which includes as Exhibit B the Form of Rights
Certificate, is attached as an exhibit and incorporated by reference. The
foregoing description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement.
C-4
