TAG IT PACIFIC INC
8-K, 1998-11-04
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                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                -----------------

                                    Form 8-K

                                 CURRENT REPORT
                       PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


       Date of Report (Date of earliest event reported): OCTOBER 15, 1998


                              TAG-IT PACIFIC, INC.
               (Exact Name of Registrant as Specified in Charter)


          DELAWARE                    1-13669                   95-4654481
  (State or Other Jurisdiction      (Commission               (IRS Employer
    of Incorporation)               File Number)             Identification No.)


              3820 SOUTH HILL STREET
             LOS ANGELES, CALIFORNIA                   90037
     (Address of Principal Executive Offices)        (Zip Code)

                                 (213) 234-9606
              (Registrant's Telephone Number, Including Area Code)


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ITEM 5.  OTHER EVENTS

         On October 15,  1998,  the Board of Directors  (the  "Board") of Tag-It
Pacific, Inc., a Delaware corporation (the "Company") declared a dividend of one
preferred stock purchase right (a "Right") for each issued and outstanding share
of common stock, par value $0.001 per share (the "Common Stock") of the Company.
The dividend is payable to the stockholders of record on November 6, 1998.

         All Rights are issued pursuant to, and will be subject to the terms and
conditions of, the Rights  Agreement  dated as of November 4, 1998,  between the
Company and its Rights  Agent  (currently,  American  Stock  Transfer  and Trust
Company). The following is a brief summary of the terms of the Rights.

         Each  Right,  when  exercisable,  will  entitle the  registered  holder
thereof to purchase from the Company one one-thousandth (1/1000th) of a share of
the Series A Preferred  Stock,  par value $0.001 per share,  of the Company (the
"Preferred  Stock")  at a  Purchase  Price  of  $10.00  per  one  one-thousandth
(1/1000th)  of a share of Preferred  Stock (the  "Purchase  Price"),  subject to
certain adjustments.

         The Rights will initially be represented by the certificates evidencing
the Common Stock and will not be  exercisable,  or  transferable  apart from the
Common  Stock,  until  the  earliest  to occur of (i) the  tenth  day  after the
acquisition by a person or group of affiliated or associated persons (other than
an Exempt  Person or, in  certain  cases,  a  Permitted  Holder)  of  beneficial
ownership of 15% or more of the  outstanding  Common  Stock;  PROVIDED,  that if
within said ten-day period the Acquiring Person reduces his beneficial ownership
to less than 15%, then he shall be deemed not to be an Acquiring  Person and the
Stock  Acquisition Date (as defined below) shall be deemed not to have occurred;
(ii) the  tenth day after the  commencement  of a tender or  exchange  offer the
consummation  of which would result in the  beneficial  ownership by a person or
group of  affiliated  or  associated  persons of 15% or more of the  outstanding
Common Stock; PROVIDED,  that if within said ten day period the person withdraws
the tender or exchange  offer,  then such offer shall be deemed not to have been
made;  (iii) the tenth day after the date of filing of a registration  statement
for any such exchange offer under the  Securities  Act of 1933, as amended,  and
(iv) the tenth day after  the date on which  the Board  declares  any  person or
group of affiliated or associated persons which beneficially owns 10% or more of
the outstanding Common Stock to be an "Adverse Person" (as described below) (the
earliest of these dates is referred to as the  "Distribution  Date").  Under the
Rights  Agreement,  any person or group  described in items (i) or (iv) above is
referred to as an "Acquiring  Person," and the date upon which a person or group
first  becomes an  Acquiring  Person is  referred  to as the "Stock  Acquisition
Date."

         An "Adverse  Person" is any person or group of affiliated or associated
persons  (other than an Exempt  Person)  beneficially  owning 10% or more of the
outstanding  Common Stock, if the Board  determines (i) that the person or group
is  holding  the  shares  of  Common  Stock in order to  cause  the  Company  to
repurchase  their Common Stock or to take any other actions  intended to provide
them with short-term financial gain, in circumstances where the Board determines
that the  actions  to be taken are not in the best  long-term  interests  of the
Company or its  stockholders,  or (ii) that  beneficial  ownership of the Common
Stock by the person or group is causing or reasonably likely to cause a material
adverse impact on the business or prospects of the Company.

         An  "Exempt  Person" is defined as the  Company,  a  subsidiary  of the
Company,  an employee benefit plan of the Company,  or any of its  subsidiaries,
and, subject to certain  conditions,  Harold Dyne, Colin Dyne, Mark Dyne, Gerard
Guez, Todd Kay and Tarrant Apparel Group.

         A  "Permitted  Holder"  shall  mean a Person  who  acquires  beneficial
ownership  of  the  Common  Stock  of  the  Company   pursuant  to  a  Permitted
Acquisition;  PROVIDED,  HOWEVER,  a Permitted  Holder  shall remain a Permitted
Holder so long as the  aggregate  beneficial  ownership  of Common Stock held by
such Person does


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<PAGE>



not exceed that number of shares of Common Stock held by such Person immediately
following  the  Permitted  Acquisition  pursuant to which such  Person  became a
Permitted  Holder  (reduced by the number of shares of Common Stock from time to
time  disposed of by such Person) plus a number of  additional  shares of Common
Stock equal to 1% of the then outstanding shares of Common Stock of the Company;
PROVIDED,  HOWEVER, any shares of Common Stock issued or issuable to a Permitted
Holder  pursuant to employee  benefit  plans  maintained  by the Company for the
benefit of its employees, directors and consultants shall be disregarded and not
counted for purposes of calculating the  limitations  imposed by the immediately
preceding sentence.

         "Permitted  Acquisition"  shall mean an acquisition of shares of Common
Stock by a Person in a  transaction  or series  of  transactions  which has been
previously  approved  by a  majority  of the  Board  with the  concurrence  of a
majority of the Continuing Directors.

         The Rights  (unless sooner  redeemed) will first become  exercisable on
the Distribution Date, at which time the Company will distribute  separate Right
Certificates representing the Rights to its then current stockholders, and it is
expected  that the Rights could then begin  trading  separately  from the Common
Stock. The Rights will expire on November 6, 2008 (the "Final Expiration Date"),
unless the Final  Expiration  Date is  extended or unless the Rights are earlier
redeemed or exchanged by the Company.

         Following  the Stock  Acquisition  Date,  the Rights would give holders
(other than the Acquiring  Person,  its affiliates and transferees) the right to
purchase  from  the  Company,  for  the  Purchase  Price,  that  number  of  one
one-thousandth  (1/1000th)  of a  share  of  Preferred  Stock  (or,  in  certain
circumstances,  Common Stock, cash, property or other securities of the Company)
having a market value of twice the Purchase Price of the Right.  Notwithstanding
any of the foregoing, following the Stock Acquisition Date, all Rights that are,
or  (under  certain  circumstances  specified  in the  Rights  Agreement)  were,
beneficially owned by any Acquiring Person will be null and void.

         Further, in a merger,  consolidation or sale or transfer of 50% or more
of the consolidated assets or earning power of the Company occurring, each Right
will be converted  into the right to  purchase,  for the  Purchase  Price,  that
number  of  shares  of  common  stock of the  surviving  entity  or (in  certain
circumstances)  its parent  corporation,  which at the time of such  transaction
will have a market value of two times the Purchase Price of the Right.

         Following the Distribution  Date,  exercisable Rights may be exercised,
at the option of the holder  thereof,  without the payment of the Purchase Price
in cash.  In any such case,  the number of  securities  which such person  would
otherwise  be  entitled  to receive  upon the  exercise  of such  Rights will be
reduced by the amount of the Purchase Price.

         Preferred  Stock  purchasable  upon  exercise of the Rights will not be
redeemable.  Each one  one-thousandth  (1/1000th) of a share of Preferred  Stock
will be entitled to participating dividends per one one-thousandth (1/1000th) of
a share equal to dividends which may from time to time be declared on a share of
Common Stock. In the event of  liquidation,  the Preferred Stock holders will be
entitled to a preferential  liquidation  payment.  These rights are protected by
customary anti-dilution provisions.

         At any time  prior to that date which is ten days  following  the Stock
Acquisition  Date,  the Board may  redeem the  outstanding  Rights at a price of
$.001 per Right,  and may amend the Rights Agreement in any and all respects and
particulars.  If during said ten-day  period the  Acquiring  Person  reduces his
beneficial  ownership  to less than 15%,  the Rights  will again be  redeemable.
Subsequent to ten days following the Stock  Acquisition Date, the Rights are not
redeemable  and the  Board  may amend the  Rights  Agreement  only to  eliminate
ambiguities  or to  provide  additional  benefits  to the  holders of the Rights
(other than any Acquiring Person).


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<PAGE>



         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.

         The Rights have  certain  anti-takeover  effects.  The Rights may cause
substantial  dilution to a person or group that  attempts to acquire the Company
on terms not approved by the Board.  The Rights  should not  interfere  with any
merger or other  business  combination  approved  by the Board prior to the time
that holders of the Rights become  entitled to exercise  their Rights for Common
Stock (or common stock of the  surviving  entity in a merger with the  Company),
since  until  that time the  Rights  may be  redeemed  by the Board at $.001 per
Right.

         Other than those provisions relating to the principal economic terms of
the Rights,  any of the provisions of the Rights Agreement may be amended by the
Board  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 or to shorten or  lengthen  any time  period  under the Rights
Agreement;  PROVIDED,  HOWEVER,  that no  amendment  to adjust  the time  period
governing  redemption  shall  be  made  at  such  time  as the  Rights  are  not
redeemable.

ITEM 7.  FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.

         (c)      Exhibits.

         4.1      Rights  Agreement,  dated as of November 4, 1998,  between the
                  Company  and  American  Stock  Transfer  and Trust  Company as
                  Rights Agent.

         4.2      Certificate  of  Designation   of  Rights,   Preferences   and
                  Privileges  of  Preferred  Stock  (Exhibit  A  to  the  Rights
                  Agreement filed as Exhibit 4.1 hereto).

         4.3      Form of Rights Certificate (Exhibit B to the Rights Agreement 
                  filed as Exhibit 4.1 hereto).

         4.4      Summary of Rights to Purchase  Preferred  Stock  (Exhibit C to
                  the Rights Agreement filed as Exhibit 4.1 hereto).




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<PAGE>



                                   SIGNATURES


         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.


                                                 TAG-IT PACIFIC, INC.
                                                 (REGISTRANT)



Dated: November 4, 1998                        By:  /S/ FRANCIS SHINSATO
                                                    ---------------------
                                                    Francis Shinsato
                                                    Its: Chief Financial Officer









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<PAGE>



                                  EXHIBIT INDEX


EXHIBIT NO.                             DESCRIPTION


4.1                  Rights Agreement, dated as of November 4, 1998, between the
                     Company and American Stock  Transfer and Trust Company,  as
                     Rights Agent.

4.2                  Form of Certificate  of Designation of Rights,  Preferences
                     and Privileges of Preferred Stock. (Exhibit A to the Rights
                     Agreement files as Exhibit 4.1 hereto).

4.3                  Form of Rights Certificate (Exhibit B to the Rights 
                     Agreement filed as Exhibit 4.1 hereto).

4.4                  Summary of Rights to Purchase Preferred Stock (Exhibit C to
                     the Rights Agreement filed as Exhibit 4.1 hereto)



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                                RIGHTS AGREEMENT


         THIS RIGHTS  AGREEMENT,  dated as of  November 4, 1998,  is made by and
between  Tag-It  Pacific,  Inc., a Delaware  corporation  (the  "Company"),  and
American Stock Transfer and Trust Company as Rights Agent (the "Rights Agent").

                               W I T N E S S E T H

         WHEREAS,  effective October 15, 1998 (the "Declaration Date") the Board
of Directors of the Company  authorized and declared a dividend  distribution of
one right (a "Right") for each share of the Common  Stock,  par value $0.001 per
share, of the Company (the "Common Stock")  outstanding at the close of business
on November 6, 1998 (the "Record Date") and has further  authorized the issuance
of one  Right  (as  such  number  may  hereafter  be  adjusted  pursuant  to the
provisions of this Rights  Agreement) with respect to each share of Common Stock
issued between the Record Date and the earliest of the Distribution Date and the
Expiration  Date (as such  terms are  hereinafter  defined).  Each  Right  shall
represent  the right to purchase,  upon the terms and subject to the  conditions
hereinafter  set forth,  one  one-thousandth  (1/1000th) of a share  (subject to
adjustment) of the Series A Preferred  Stock, par value $0.001 per share, of the
Company (the  "Preferred  Stock") having the rights and preferences set forth in
the form of Certificate of Designation of Rights,  Preferences and Privileges of
Series A Preferred Stock attached hereto as EXHIBIT A;

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
agreements herein set forth, the parties hereby agree as follows:

         SECTION 1.  CERTAIN DEFINITIONS.  For purposes of this Agreement, the 
following terms have the meanings indicated;

                  "Acquiring  Person" shall mean (i) any Person (as  hereinafter
defined) who is an Adverse Person (as hereinafter  defined),  or (ii) any Person
who or  which,  together  with  all  Affiliates  (as  hereinafter  defined)  and
Associates (as  hereinafter  defined) of such Person,  shall,  subsequent to the
Declaration Date, become the Beneficial Owner (as hereinafter defined) of 15% or
more of the shares of Common Stock then  outstanding,  but shall not include (x)
any Exempt Person (as hereinafter defined), (y) any Permitted Holder, or (z) any
Person  who  becomes a  Beneficial  Owner of 15% or more of the shares of Common
Stock then outstanding solely because (1) of a change in the aggregate number of
shares of Common  Stock  outstanding  since the last date on which  such  Person
acquired Beneficial  Ownership of any shares of Common Stock, or (2) it acquired
such Beneficial  Ownership in the good faith belief that such acquisition  would
not (A) cause such Beneficial  Ownership to equal or exceed 15% of the shares of
Common  Stock  then  outstanding  (or in the  case of a  Permitted  Holder,  the
percentage  the  Permitted  Holder may hold  without  ceasing to be a  Permitted
Holder) and such Person relied in good faith in computing the  percentage of its
Beneficial Ownership on publicly filed reports or documents of the Company which
are inaccurate or out-of-date, or (B) otherwise cause a Distribution Date or the
adjustment  provided for in Section 14 to occur.  Notwithstanding  clause (z) of
the prior sentence, if any Person that is not an Acquiring Person because of the
operation of such clause (z) does not reduce its Beneficial  Ownership of shares
of Common  Stock to less  than 15% (or in the case of a  Permitted  Holder,  the
percentage  the  Permitted  Holder may hold  without  ceasing to be a  Permitted
Holder) by the close of business on the fifth Business Day after notice from the
Company (the date of notice being the first day) that such  Person's  Beneficial
Ownership  of Common  Stock equals or exceeds 15% (or in the case of a Permitted
Holder,  the  percentage the Permitted  Holder may hold without  ceasing to be a
Permitted  Holder),  such Person  shall,  at the end of such five  Business  Day
period, become an Acquiring Person (and clause (z) shall no longer apply to such
Person). For purposes of this definition,  the determination  whether any Person
acted in "good faith" shall be conclusively determined by the Board


                                        7

<PAGE>



of Directors,  acting by a vote of those directors of the Company whose approval
would be required to redeem the Rights under Section 25.

                   "Adverse  Person"  shall mean any Person other than an Exempt
Person who is declared to be an Adverse  Person by the Board of Directors of the
Company  upon a  determination  that such  Person,  alone or  together  with its
Affiliates and Associates,  has, at any time after the Declaration  Date, become
the  Beneficial  Owner of a number of shares of Common  Stock  that the Board of
Directors  determines to be substantial  (which amount shall in no event be less
than 10% of the shares of Common Stock then  outstanding) and a determination by
a majority of the Board of Directors after reasonable inquiry and investigation,
including  consultation  with such Persons as the Board of Directors  shall deem
appropriate,  that (i) such  Beneficial  Ownership by such Person is intended to
cause the Company to repurchase the shares of Common Stock beneficially owned by
such  Person or to cause  pressure on the Company to take action or enter into a
transaction  or series of  transactions  intended  to provide  such  Person with
short-term  financial  gain  under  circumstances  where the Board of  Directors
determines that the best long-term  interest of the Company and its stockholders
would not be served by taking such action or entering into such  transaction  or
series of  transactions  at that  time,  or (ii) such  Beneficial  Ownership  is
causing or reasonably  likely to cause a material adverse impact on the business
or prospects of the Company.

                  "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations  under
the  Securities  Exchange Act of 1934, as amended (the  "Exchange  Act"),  as in
effect on the date hereof.

                  A Person shall be deemed the "Beneficial  Owner" of, and shall
be deemed  to  "beneficially  own,"  and  shall be  deemed  to have  "Beneficial
Ownership" of, any securities:

                             (i)    which such Person or any of such Person's 
Affiliates or Associates, directly or indirectly,  is deemed to  beneficially  
own (as determined  pursuant to Rule 13d-3 of the General Rules and  Regulations
under the Exchange Act as in effect on the date of this Agreement) or has the 
right to dispose of;

                            (ii)  which  such  Person  or any of  such  Person's
Affiliates or Associates has, directly  or  indirectly,  (A) the  right  to  
acquire  (whether  such  right is exercisable  immediately  or only  after the  
passage of time)  pursuant  to any agreement  (other than customary  agreements 
with and between  underwriters  and selling  group  members  with  respect  to  
a  bona  fide  public   offering  of securities),  arrangement or understanding 
(whether or not in writing), or upon the exercise of  conversion  rights,  
exchange  rights,  rights  (other than the Rights),  warrants or options, or 
otherwise;  PROVIDED,  HOWEVER,  that a Person shall not be deemed the 
"Beneficial  Owner" of or to  "beneficially  own," or to have the "Beneficial 
Ownership" of, (1) securities tendered pursuant to a tender or exchange  offer 
made by or on behalf of such  Person or any of such  Person's Affiliates or 
Associates until such tendered securities are accepted for payment or exchange; 
or (2)  securities  issuable  upon  exercise of Rights at any time prior  to the
occurrence  of the  Distribution  Date,  (B) the  right  to vote, including 
 pursuant to any agreement,  arrangement or understanding  (whether or not in  
writing);  PROVIDED,  HOWEVER,  that a Person  shall not be  deemed  the 
"Beneficial  Owner"  of or to  "beneficially  own," or to have  the  "Beneficial
Ownership"  of,  any  security  under  this  clause  (ii)(B)  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 or consent
given to such Person in response to a public proxy or consent  solicitation made
pursuant to, and in accordance with, the applicable rules and regulations  under
the Exchange Act, and (2) is not also then reportable by such Person on Schedule
13D under the Exchange Act (or any comparable or successor report); or


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                           (iii)  which  are  beneficially  owned,  directly  or
indirectly, by any other Person (or any  Affiliate  or  Associate  thereof) with
which  such  Person or any of such Person's  Affiliates  or  Associates  has any
agreement  (other than  customary agreements with and between  underwriters and 
selling group members with respect to a bona fide public offering of securities)
, arrangement  or  understanding (whether or not in  writing)  for the  purpose 
of  acquiring,  holding,  voting (except pursuant to a revocable proxy as 
described in clause (B) of subparagraph (ii) of this definition) or disposing of
any voting securities of the Company.

                  "Board of Directors"  shall mean the Board of Directors of the
Company or any duly authorized committee thereof.

                  "Business  Day"  shall  mean any day  other  than a  Saturday,
Sunday or a day on which banking  institutions  in the State of  California  are
authorized or obligated by law or executive order to close.

                  "Certificate  of  Designation"  shall mean the  Certificate of
Designation of Rights, Preferences and Privileges of Series A Preferred Stock, a
copy of which is attached hereto as EXHIBIT A.

                  "Close of  business"  on any given  date shall mean 5:00 P.M.,
Los Angeles time, on such date;  PROVIDED,  HOWEVER,  that if such date is not a
Business Day, "Close of business" shall mean 5:00 P.M., Los Angeles time, on the
next succeeding Business Day.

                  "Common  Stock" when used with  reference to the Company shall
mean the shares of Common Stock,  presently  par value $0.001 per share,  of the
Company,  or any other  shares of capital  stock of the  Company  into which the
Common Stock shall be  reclassified  or changed.  "Common  Stock" when used with
reference to any Person other than the Company  shall mean the Common Stock (or,
in the  case  of a  trust,  partnership  or  other  unincorporated  entity,  the
equivalent  equity  interest) with the greatest voting power of such Person (or,
(i) if  such  Person  is a  Subsidiary  of  another  Person,  the  Person  which
ultimately  controls  such  first-mentioned  Person,  or (ii) if such  Person is
ultimately  controlled by two or more  Persons,  the  controlling  Person having
Common Stock or equivalent equity interests with the greatest  aggregate current
market value (determined by reference to the Current Market Price of such Common
Stock or  equivalent  equity  interests),  together with all rights and benefits
(however  denominated or constituted)  relating to such Common Stock (including,
without limitation,  any rights or warrants to acquire additional shares of such
Common Stock or other  securities or assets,  or to participate in any trust for
the  benefit of  holders  of such  shares,  or to share in the  benefits  of any
agreements or other  arrangements  for the benefit of such holders),  whether or
not such rights are yet  exercisable,  and  together  with any other  securities
which are represented by the  certificates for such shares or are transferred in
connection with transfers of such shares.

                  "Continuing  Director"  shall  mean any member of the Board of
Directors  of the  Company  (while  such  Person  is a member  of such  Board of
Directors)  who is not an  Acquiring  Person or an  Affiliate or Associate of an
Acquiring Person or a representative or nominee of an Acquiring Person or of any
such  Affiliate or  Associate,  and who either (i) was a member of such Board of
Directors  prior to the  Stock  Acquisition  Date (as such  term is  hereinafter
defined) or (ii)  subsequently  became a member of such Board of Directors,  and
whose nomination for election or reelection  thereto was recommended or approved
by a majority of the Continuing Directors then on such Board of Directors.

                  "Current  Market Price" per share of Common Stock or Preferred
Stock  ("Stock")  on any date  shall be  deemed to be the  average  of the daily
closing  price per share of Stock for the 30  consecutive  Trading Days (as such
term is hereinafter defined) immediately prior to such date; PROVIDED,  HOWEVER,
that in the event that the Current Market Price per share of Stock is determined
during a period  following the announcement by the issuer of such Stock of (A) a
dividend or distribution on such Stock, or (B) any

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<PAGE>



subdivision,  combination or  reclassification  of such Stock,  and prior to the
expiration  of 30 Trading Days after the  ex-dividend  date for such dividend or
distribution,   or  the  record  date  for  such  subdivision,   combination  or
reclassification  of such Stock,  then,  and in such case,  the "Current  Market
Price" shall be  proportionately  adjusted to take into account  ex-dividend  or
ex-distribution  trading.  The closing price for each day shall be the last sale
price,  regular  way,  or, in case no such  sale  takes  place on such day,  the
average of the  closing  bid and asked  prices,  regular  way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities  listed or admitted to trading on the New York Stock  Exchange or,
if the  Stock is 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 or the principal national  securities exchange
on which  the Stock is listed or  admitted  to  trading  or, if the Stock is not
listed or  admitted to trading on any  national  securities  exchange,  the last
price or, if not so quoted,  the average of the closing bid and asked prices per
share for the  securities  in the  over-the-counter  market,  as reported by the
National  Association of Securities  Dealers,  Inc.  Automated  Quotation System
("NASDAQ")  or such  other  system  then in use,  or,  if on any  such  date the
security is not quoted by such organization,  the average of the closing bid and
asked prices as furnished by a professional  market maker making a market in the
Stock selected by the Board of Directors. If on any such date no market maker is
making a market  in the  Stock  the fair  value of such  shares  on such date as
determined  in good  faith by the  Board of  Directors  shall be used.  The term
"Trading  Day"  shall  mean a day on which  the  principal  national  securities
exchange  on which the shares of the Stock are listed or  admitted to trading or
traded is open for the transaction of business or, if the Stock is not listed or
admitted to trading on any national securities  exchange, a Business Day. If the
Common Stock is not publicly  held or not so listed or traded,  "Current  Market
Price"  per  share  shall  mean the fair  value  per  share of  Common  Stock as
determined in good faith by the Board of Directors.

                  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 traded, the "Current Market Price" per share of the Preferred Stock
shall be  conclusively  deemed to be an amount equal to the Current Market Price
per  share  of the  Common  Stock  as  determined  pursuant  to the  immediately
preceding  paragraph,  multiplied by the Formula  Number.  If neither the Common
Stock nor the  Preferred  Stock are  publicly  held or so listed or traded,  the
"Current  Market  Price" per share of the  Preferred  Stock  shall mean the fair
value per share as  determined  in good faith by the Board of  Directors,  whose
determination  shall be described in a statement filed with the Rights Agent and
shall be  conclusive  and binding  for all  purposes.  For all  purposes of this
Rights Agreement,  the Current Market Price of one  one-thousandth of a share of
Preferred  Stock  shall be equal to the  Current  Market  Price of one  share of
Preferred Stock divided by 1,000.

                  "Distribution Date" shall have the meaning set forth in 
Section 3 hereof.

                  "Exchange Act" shall mean the Securities Exchange Act of 1934,
as in effect on the date in question, unless otherwise specifically provided.

                  "Exempt  Person"  shall  include  (i) the  Company,  (ii)  any
Subsidiary (as hereinafter  defined) of the Company,  (iii) any employee benefit
plan of the Company or any of its Subsidiaries,  or any entity holding shares of
Common Stock which was organized, appointed or established by the Company or any
Subsidiary  of the Company  for or pursuant to the terms of any such plan,  (iv)
Harold Dyne,  (v) Colin Dyne,  (vi) Mark Dyne (Harold Dyne,  Colin Dyne and Mark
Dyne are collectively  referred to herein as the "Significant  Stockholders" and
each as a "Significant Stockholder"),  and (vii) the Guez Group; PROVIDED, that,
subject  to the  following  sentence,  if after the date  hereof  the  aggregate
individual  Beneficial  Ownership  of  Common  Stock  of  the  Guez  Group  or a
Significant  Stockholder  increases,  then  the Guez  Group  or the  Significant
Stockholder  shall no longer be deemed to be an Exempt  Person.  Notwithstanding
any other  provisions  hereof,  none of the following  events shall be deemed to
cause an increase in the Beneficial  Ownership of Common Stock of the Guez Group
or a Significant Stockholder or to cause the Guez Group

                                       10

<PAGE>



or a  Significant  Stockholder  to cease to be an Exempt  Person or to become an
Acquiring Person:  (w) the acquisition of additional shares of Common Stock by a
Significant Stockholder as a result of or pursuant to the exercise of options to
purchase  Common Stock  granted to the  Significant  Stockholder  by the Company
pursuant to the  Company's  existing  stock  option plan or a stock  option plan
hereafter  adopted by the Board of  Directors;  (x) a reduction in the aggregate
number  of shares of Common  Stock  outstanding  subsequent  to the later of the
Record  Date  and the  last  date on which a  Significant  Stockholder  acquired
Beneficial  Ownership  of any shares of Common  Stock;  (y) the  acquisition  of
additional  shares of Common Stock by a Significant  Stockholder  so long as the
Significant  Stockholder's  aggregate  Beneficial Ownership of Common Stock does
not  exceed  30% of the  shares of Common  Stock  then  outstanding;  or (z) the
acquisition  of additional  shares of Common Stock by the Guez Group as a result
of or pursuant to the exercise of rights  pursuant to the Guez Letter  Agreement
to purchase or acquire  Common Stock  outstanding or in existence as of the date
of this Agreement;


                  "Guez  Group"  shall mean  Gerard  Guez and/or Todd Kay and/or
Tarrant Apparel Group and each of their Affiliates and/or Associates, whether or
not acting together.

                  "Guez  Letter   Agreement"  shall  mean  that  certain  Letter
Agreement,  dated  October 14, 1998,  as amended from time to time, by and among
Harold Dyne, Colin Dyne, Mark Dyne, Larry Dyne,  Jonathan Burstein,  Gerard Guez
and Todd Kay.

                  "Permitted Acquisition" shall mean an acquisition of shares of
Common Stock by a Person in a transaction  or series of  transactions  which has
been  previously  approved  by a  majority  of the Board of  Directors  with the
concurrence of a majority of the Continuing Directors.

                  "Permitted Holder" shall mean a Person who acquires Beneficial
Ownership  of  the  Common  Stock  of  the  Company   pursuant  to  a  Permitted
Acquisition;  PROVIDED,  HOWEVER,  a Permitted  Holder  shall remain a Permitted
Holder so long as the  aggregate  Beneficial  Ownership  of Common Stock held by
such Person  does not exceed that number of shares of Common  Stock held by such
Person immediately  following the Permitted  Acquisition  pursuant to which such
Person  became a  Permitted  Holder  (reduced  by the number of shares of Common
Stock from time to time  disposed of by such Person) plus a number of additional
shares  of Common  Stock  equal to 1% of the then  outstanding  shares of Common
Stock of the Company;  PROVIDED,  HOWEVER,  any shares of Common Stock issued or
issuable to a Permitted  Holder pursuant to employee benefit plans maintained by
the Company for the benefit of its employees, directors and consultants shall be
disregarded and not counted for purposes of calculating the limitations  imposed
by the immediately preceding sentence.
                  "Person" shall mean any individual, firm, corporation,  trust,
partnership or other entity, whether similar or dissimilar to the foregoing.

                  "Preferred Stock" shall mean the Series A Preferred Stock, par
value $0.001 per share,  of the Company  having the rights and  preferences  set
forth in the form of Certificate of Designation.

                  "Purchase Price" with respect to each Right shall mean $10.00,
as such amount may from time to time be adjusted as provided  herein,  and shall
be  payable in lawful  money of the United  States of  America.  All  references
herein to the Purchase  Price shall mean the Purchase  Price as in effect at the
time in question.

                  "Record Date" shall mean November 6, 1998.

                  "Redemption Date" shall have the meaning set forth in Section 
25.

                                       11

<PAGE>



                  "Redemption  Price"  with  respect  to each  Right  shall mean
$0.001,  as such  amount may from time to time be adjusted  in  accordance  with
Section  25.  All  references  herein to the  Redemption  Price  shall  mean the
Redemption Price in effect at the time in question.

                  "Right  Certificate"  shall mean a certificate  representing a
Right in substantially the form attached hereto as EXHIBIT B.

                  "Rights" shall mean the rights to purchase shares of Preferred
Stock, Common Stock and/or other securities,  as the case may be, as provided in
this Rights Agreement.

                  "Securities  Act" shall mean the Securities Act of 1933, as in
effect on the date in question, unless otherwise specifically provided.

                  "Stock  Acquisition  Date"  shall mean 5:00 P.M.,  Los Angeles
time,  on the first date of public  announcement  by the Company or an Acquiring
Person that an Acquiring Person has become such.

                  "Subsidiary" shall mean, with respect to any Person, any other
Person of which  securities or other ownership  interests having ordinary voting
power,  in the  absence of  contingencies,  to elect a majority  of the board of
directors of such Person (if such Person is a corporation)  or to participate in
the management and control of such Person (if such Person is not a corporation),
are at the time directly or indirectly owned by such first Person.

                  The  terms  set  forth  below  are  defined  in  the  Sections
indicated below:

                  TERM                                                SECTION
         Declaration Date                                             RECITAL
         Distribution Date                                              3(a)
         Exchange Consideration                                           16
         Expiration Date                                                7(a)
         Final Expiration Date                                          7(a)
         Formula Number                                            Exhibit A
         Principal Party                                               14(b)
         Summary of Rights                                              3(b)

         SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights  Agent to act as agent for the Company in  accordance  with the terms and
conditions  hereof,  and the Rights Agent hereby accepts such  appointment.  The
Company  may from  time to time  appoint  such  co-Rights  Agents as it may deem
necessary or desirable.  In the event the Company appoints one or more co-Rights
Agents, the respective duties of the Rights Agent and any co-Rights Agents shall
be as the Company shall determine.

         SECTION 3.        ISSUANCE OF RIGHT CERTIFICATES.

                  (a) Until the  earlier  of (i) the  close of  business  on the
tenth day after the Stock  Acquisition  Date  (including  any such date which is
after the  Declaration  Date and prior to the issuance of the Rights),  (ii) the
close of  business on the tenth day (or such later day as may be  determined  by
action of the Board of Directors) after the date of the commencement of a tender
or exchange  offer by any Person (other than an Exempt  Person) to acquire (when
added to any equity  securities as to which such Person is the Beneficial  Owner
immediately prior to such commencement)  Beneficial  Ownership of that number of
shares of the issued and outstanding  Common Stock which would cause such Person
to become an Acquiring Person

                                       12

<PAGE>



pursuant to the terms of this Agreement  (including any such date which is after
the  Declaration  Date and prior to the issuance of the  Rights),  and (iii) the
close of  business on the tenth day (or such later day as may be  determined  by
action of the Board of Directors)  after the filing by any Person (other than an
Exempt  Person) of a  registration  statement  under the  Securities  Act,  with
respect to a  contemplated  exchange  offer to acquire (when added to any equity
securities as to which such Person is the Beneficial Owner  immediately prior to
such  filing)  Beneficial  Ownership  of that number of shares of the issued and
outstanding  Common  Stock which would cause such Person to become an  Acquiring
Person pursuant to the terms of this Agreement (including any such date which is
after  the  Declaration  Date and  prior to the  issuance  of the  Rights)  (the
earliest  of such  dates  referred  to in  clauses  (i),  (ii) and (iii) of this
Section  3(a) being  herein  referred to as the  "Distribution  Date"),  (A) the
Rights will be evidenced  (subject to the  provisions of Section 3(b) hereof) by
the  certificates for the Common Stock registered in the names of the holders of
the Common  Stock (which  certificates  for shares of Common Stock shall also be
deemed to be Right  Certificates (as such term is hereinafter  defined)) and not
by  separate  Right  Certificates,  and (B) the Rights (and the right to receive
Right Certificates) will be transferable only in connection with the transfer of
the underlying  Common Stock;  PROVIDED,  that if the Distribution Date would be
prior to the Record Date,  the Record Date shall be the  Distribution  Date, and
PROVIDED,   FURTHER,  that  (x)  if,  following  the  occurrence  of  the  Stock
Acquisition  Date and prior to the  Distribution  Date,  (1) a Person  who is an
Acquiring  Person shall have  transferred  or otherwise  disposed of a number of
shares  of  Common  Stock of the  Company  in one  transaction  or a  series  of
transactions  (not  directly or  indirectly  involving the Company or any of its
Subsidiaries)  such that such Person is thereafter the Beneficial  Owner of less
than 15% (or (a) in the case of a Permitted Holder, the percentage the Permitted
Holder may hold without ceasing to be a Permitted Holder, and (b) in the case of
an Adverse  Person,  the  percentage  such Person may hold as  determined by the
Board of Directors,  which in no event may the Board of Directors  require to be
less than 10% of the shares of Common Stock then outstanding,  so that the Board
of  Directors  no longer  declares  such Person to be an Adverse  Person) of the
outstanding  Common  Stock of the  Company,  (2)  there  are no  other  Persons,
immediately  following the occurrence of the event  described in clause (1), who
are Acquiring  Persons,  and (3) the Board of Directors of the Company (with the
concurrence of a majority of the Continuing  Directors) shall so approve,  then,
for purposes of this Agreement, the Stock Acquisition Date shall be deemed never
to have  occurred,  and (y) if a tender or exchange offer referred to in clauses
(ii) or (iii) above is canceled or  withdrawn  prior to the  Distribution  Date,
such offer shall be deemed,  for purposes of this Agreement,  never to have been
made. As soon as practicable  after the Company has notified the Rights Agent of
the  occurrence  of the  Distribution  Date,  the Rights  Agent  will  send,  by
first-class,  insured, postage prepaid mail, to each record holder of the Common
Stock as of the close of business on the  Distribution  Date,  at the address of
such holder shown on the records of the Company, one or more Right Certificates,
evidencing  one  Right  for each  share of  Common  Stock  so held,  subject  to
adjustment as herein provided. As of and after the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.

                  (b) On the Record Date or as soon as  practicable  thereafter,
the Company will send a copy of a Summary of Rights to Purchase Preferred Stock,
in  substantially  the form of EXHIBIT C hereto (the  "Summary of  Rights"),  by
first-class,  postage prepaid mail, to each record holder of the Common Stock on
the Record Date, as shown by the records of the Company,  at the address of such
holder shown on the records of the Company.  With  respect to  certificates  for
Common Stock  outstanding as of the Record Date, until the Distribution Date (or
the earlier redemption,  exchange, expiration or termination of the Rights), the
Rights will be evidenced solely by such certificates for Common Stock registered
in the names of the holders of the Common  Stock and the  registered  holders of
the Common  Stock shall also be  registered  holders of the  associated  Rights.
Until the Distribution Date (or the earlier redemption,  exchange, expiration or
termination of the Rights),  the surrender for transfer of any  certificate  for
Common Stock in respect of which  Rights have been issued shall also  constitute
the transfer of the Rights  associated with the Common Stock represented by such
certificates.


                                       13

<PAGE>



                  (c) The  Company  will  mail to any  record  holder of a Right
(including,  prior to the Distribution  Date, a record holder of Common Stock) a
copy of this Rights  Agreement,  without  charge,  within ten  Business  Days of
receipt of a written request therefor.

                  (d) Rights  shall be issued in respect of all shares of Common
Stock which are issued or sold out of  treasury  after the Record Date but prior
to the Distribution  Date (or the earlier  redemption,  exchange,  expiration or
termination  of the Rights).  All  certificates  for Common Stock issued or sold
after the Record Date but prior to the earlier of the Distribution  Date and the
Expiration  Date shall be deemed  also to be  certificates  for Rights and shall
have  impressed  on,  printed on,  written on or  otherwise  affixed to them the
following legend:

         This  certificate  also  evidences  and entitles  the holder  hereof to
         certain  Rights  as set  forth in a  Rights  Agreement  between  Tag-It
         Pacific,  Inc. (the  "Company")  and American  Stock Transfer and Trust
         Company as Rights  Agent,  dated as of November 4, 1998, as it may from
         time to time be  supplemented  or  amended  pursuant  to its terms (the
         "Rights Agreement"),  the terms of which are hereby incorporated herein
         by reference and a copy of which is on file at the principal  executive
         offices of the Company.  Under certain  circumstances,  as set forth in
         the Rights Agreement,  such Rights may be redeemed,  may expire, or may
         be  evidenced  by separate  certificates  and no longer be evidenced by
         this certificate. The Company will mail to the holder of record of this
         certificate a copy of the Rights  Agreement  without  charge within ten
         business  days  after  receipt  of a written  request  therefor.  Under
         certain  circumstances,  as set forth in the Rights  Agreement,  Rights
         issued to, or held by,  any Person who is, was or becomes an  Acquiring
         Person or an Affiliate or Associate  thereof (as such terms are defined
         in the Rights  Agreement),  whether  currently  held by or on behalf of
         such Person or by any subsequent holder, may become null and void.

With  respect  to  certificates  containing  the  foregoing  legend,  until  the
Distribution  Date  (or  the  earlier   redemption,   exchange,   expiration  or
termination  of  the  Rights)  the  Rights  associated  with  the  Common  Stock
represented by such certificates shall be evidenced by such certificates  alone,
and the surrender for transfer of any of such certificates shall also constitute
the transfer of the Rights  associated with the Common Stock represented by such
certificates.  Notwithstanding  this clause (d),  the omission of a legend shall
not affect the enforceability of any part of this Rights Agreement or the rights
of any holder of Rights.

         SECTION 4. FORM OF RIGHT CERTIFICATES.  The Right Certificates (and the
forms of  election to purchase  and of  assignment  to be printed on the reverse
thereof)  shall be  substantially  in the form of  EXHIBIT B hereto and may have
such marks of  identification  or  designation  and such  legends,  summaries or
endorsements  printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Rights Agreement, or as may be required
to  comply  with any  applicable  law,  rule or  regulation  or with any rule or
regulation  of any stock  exchange 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 7, Section 11 and Section 24 hereof, the Right Certificates, whenever
issued,  shall be dated as of the  Distribution  Date,  and on their  face shall
entitle  the  holders  thereof to  purchase  such  number of one  one-thousandth
(1/1000th) of one share of Preferred  Stock as shall be set forth therein at the
Purchase Price set forth therein, but the number and type of shares of Preferred
Stock,  Common Stock and other securities  purchasable upon the exercise of each
Right and the Purchase  Price thereof shall be subject to adjustment as provided
herein.  To  the  extent  provided  in  Section  7(f)  hereof,   certain  Rights
Certificates shall contain the legend provided for therein.

         SECTION 5.        EXECUTION, COUNTERSIGNATURE AND REGISTRATION.


                                       14

<PAGE>



                  (a) The Right  Certificates shall be executed on behalf of the
Company by its Chairman of the Board,  its Chief Executive  Officer,  President,
Chief Operating Officer,  Chief Financial Officer or any Vice President,  either
manually or by facsimile  signature.  The Right  Certificates  shall be manually
countersigned  by the Rights Agent and shall not be valid for any purpose unless
so  countersigned.  In case any officer of the Company whose manual or facsimile
signature is affixed to the Right Certificates shall cease to be such officer of
the  Company  before  countersignature  by the  Rights  Agent and  issuance  and
delivery  by  the  Company,  such  Right  Certificates,   nevertheless,  may  be
countersigned by the Rights Agent,  issued and delivered with the same force and
effect as though the Person who signed such Right Certificates had not ceased to
be such officer of the Company. Any Right Certificate may be signed on behalf of
the Company by any Person who, at the actual date of the execution of such Right
Certificate,  shall  be a proper  officer  of the  Company  to sign  such  Right
Certificate,  although at the date of the execution of this Rights Agreement any
such Person was not such an officer.

                  (b) Following  the  Distribution  Date,  the Rights Agent will
keep or cause to be kept, at its principal  office or offices  designated as the
appropriate place for surrender of Right Certificates upon exercise or transfer,
books for registration and transfer of the Right Certificates  issued hereunder.
Such books shall show the names and addresses of the  respective  holders of the
Right  Certificates,  the number of Rights  evidenced on its face by each of the
Right Certificates and the date of each of the Right Certificates.

         SECTION 6.        TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.

                  (a) Subject to the  provisions  of Section 7(f) and Section 15
hereof,  at any time after the close of business on the Distribution Date and at
or prior to the close of business on the Expiration Date, any Right  Certificate
or Right Certificates  (other than Right Certificates  representing  Rights that
have  become  null and void  pursuant  to Section  7(f) hereof or that have been
exchanged pursuant to Section 16 hereof) may be transferred,  split up, combined
or exchanged for another Right Certificate or Right Certificates,  representing,
in the  aggregate,  the same number of Rights as the Right  Certificate or Right
Certificates  surrendered then  represented.  Any registered  holder desiring to
transfer,  split up, combine or exchange any Right  Certificate or  Certificates
shall make such  request in writing  delivered  to the Rights  Agent,  and shall
surrender the Right Certificate or Right  Certificates to be transferred,  split
up, combined or exchanged at the principal office or offices of the Rights Agent
designated  for such purpose.  Neither the Rights Agent nor the Company shall be
obligated to take any action whatsoever with respect to the transfer of any such
surrendered Right Certificate or Right  Certificates until the registered holder
shall  have  completed  and  signed  the  certificate  contained  in the form of
assignment on the reverse side of such Right Certificate and shall have provided
such  additional  evidence  of the  identity  of the  Beneficial  Owner,  former
Beneficial Owner and transferee  Beneficial Owner (and Associates and Affiliates
of the foregoing) as the Company shall reasonably request.  Thereupon the Rights
Agent  shall,  subject to Section  7(f) and Section 15 hereof,  countersign  and
deliver  to  the  Person   entitled   thereto  a  Right   Certificate  or  Right
Certificates,  as the case may be, as so  requested.  The  Company  may  require
payment  by such  holder 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 Right Certificates.

                  (b)  Upon  receipt  by the  Company  and the  Rights  Agent of
evidence  reasonably  satisfactory  to them of the loss,  theft,  destruction or
mutilation of a Right  Certificate,  and, in case of loss, theft or destruction,
of indemnity or security  reasonably  satisfactory to them, and reimbursement to
the Company and the Rights Agent of all reasonable  expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Right Certificate
if mutilated,  the Company will execute and deliver a new Right  Certificate  of
like  tenor  to the  Rights  Agent  for  countersignature  and  delivery  to the
registered owner in lieu of the Right Certificate so lost, stolen,  destroyed or
mutilated.


                                       15

<PAGE>



                  (c)  Notwithstanding  any other provision hereof,  the Company
and  the  Rights   Agent  may  amend  this  Rights   Agreement  to  provide  for
uncertificated  Rights in addition to or in place of Rights  evidenced  by Right
Certificates.

         SECTION 7.        EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE
OF RIGHTS.

                  (a)  Subject to Section  7(f),  each Right  shall  entitle the
registered holder thereof, upon exercise thereof as provided herein, to purchase
for the Purchase Price at any time after the Distribution  Date and prior to the
earlier of (i) the close of business on November 6, 2008 (the "Final  Expiration
Date"),  (ii) the  Redemption  Date and (iii) the time at which all  exercisable
Rights are exchanged pursuant to Section 16 hereof (the earlier of (i), (ii) and
(iii) being herein referred to as the  "Expiration  Date"),  one  one-thousandth
(1/1000th) of a share of Preferred  Stock,  subject to  adjustment  from time to
time as provided in Sections 11, 12 and 14 hereof.

                  (b)  The  registered  holder  of  any  Right  Certificate  may
exercise the Rights evidenced  thereby (except as otherwise  provided herein) in
whole or in part at any time after the Distribution  Date, upon surrender of the
Right  Certificate,  with the form of election  to purchase on the reverse  side
thereof duly executed, to the Rights Agent at the principal office of the Rights
Agent,  together with payment of the Purchase Price for each one  one-thousandth
(1/1000th) of a share of Preferred  Stock as to which the Rights are  exercised,
at or prior to the Expiration Date.

                  (c) The Purchase Price for each one one-thousandth  (1/1000th)
of a share  of  Preferred  Stock  pursuant  to the  exercise  of a  Right  shall
initially  be  $10.00,  shall be  subject  to  adjustment  from  time to time as
provided  in  Sections  11,  12 and 14 hereof  and  shall,  except as  otherwise
provided in this Section  7(c),  be payable in lawful money of the United States
of America in  accordance  with Section 7(d) below.  In lieu of the cash payment
referred to in the immediately preceding sentence, following the occurrence of a
Distribution Date, the registered holder of a Right Certificate may exercise the
Rights  evidenced  thereby (except as otherwise  provided herein) in whole or in
part upon  surrender  of the Right  Certificate  together  with an  election  to
exercise  such Rights  without  payment of cash on the reverse side thereof duly
completed. With respect to any such Rights as to which such an election is made,
the holder shall receive a number of one one- thousandths (1/1000ths) of a share
of Preferred Stock,  Common Stock and/or other  securities,  as the case may be,
having a value equal to the  difference  between (i) the value of the  Preferred
Stock, Common Stock and/or other securities, as the case may be, that would have
been  issuable upon payment of the Purchase  Price and (ii) the Purchase  Price.
For  purposes of this Section  7(c),  the value of any  securities  shall be the
Current  Market  Price  thereof (or of the  security  to which such  security is
deemed for purposes of this  Agreement to be an  equivalent)  on the Trading Day
immediately preceding the Distribution Date.

                  (d)  Upon   receipt  of  a  Right   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-thousandth  (1/1000th) of a share of Preferred
Stock,  Common  Stock  and/or  other  securities,  as the  case  may  be,  to be
purchased,  and an amount equal to any  applicable  transfer  tax, in cash or by
certified  check or bank draft  payable to the order of the  Company,  or a duly
completed  election to exercise without payment of cash, the Rights Agent shall,
subject to Section 22(k) hereof,  thereupon promptly (i)(A) requisition from any
transfer agent of the Preferred Stock, Common Stock and/or other securities,  as
the case may be, (or make available,  if the Rights Agent is the transfer agent)
certificates  for the total  number of shares of Preferred  Stock,  Common Stock
and/or other securities,  as the case may be, to be purchased or acquired and/or
(B) requisition from the depositary agent depositary receipts  representing such
number of  fractional  shares of  Preferred  Stock,  Common  Stock  and/or other
securities,  as the  case  may  be,  as  are  to be  purchased,  in  which  case
certificates for the fractional  shares of Preferred Stock,  Common Stock and/or
other securities, as the case may be, so represented shall be deposited with the

                                       16

<PAGE>



depositary agent (and the Company hereby irrevocably  authorizes and directs its
transfer agent and any such depositary  agent to comply with all such requests),
(ii) when  appropriate,  requisition  from the  Company the amount of cash to be
paid in lieu of issuance of  fractional  shares in  accordance  with  Section 15
hereof,  (iii)  promptly  after  receipt  of  such  certificates  or  depositary
receipts,  cause the same to be delivered to or upon the order of the registered
holder of such  Right  Certificate,  registered  in such name or names as may be
designated by such holder,  and (iv) when  appropriate,  after receipt  thereof,
promptly deliver any such cash to or upon the order of the registered  holder of
such Right  Certificate.  In the event that the  Company is  obligated  to issue
other securities  (including Common Stock of the Company) and/or distribute cash
or other property pursuant to Sections 9, 11, 12 or 14 hereof,  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.

                  (e) In case the  registered  holder of any  Right  Certificate
shall  exercise  less  than  all  the  Rights  evidenced  thereby,  a new  Right
Certificate  evidencing  Rights  equivalent to the Rights remaining  unexercised
shall be issued by the Rights Agent and  delivered to, or upon the order of, the
registered holder of such Right Certificate, registered in such name or names as
may be  designated  by such  holder,  subject  to the  provisions  of Section 15
hereof.

                  (f)  Notwithstanding  anything in this Rights Agreement to the
contrary,  from and after the Stock  Acquisition  Date, any Rights  beneficially
owned by (i) an Acquiring Person or any Affiliate or Associate  thereof,  (ii) a
transferee of an Acquiring Person or any Affiliate or Associate thereof, (iii) a
transferee  of an  Acquiring  Person (or  Associate  or  Affiliate  thereof) who
becomes the transferee of such Rights  concurrently  with such Acquiring  Person
becoming  such or at any time  thereafter,  or (iv) a transferee of an Acquiring
Person (or Associate of Affiliate thereof) who becomes a transferee prior to the
Acquiring  Person becoming such and receives the Rights pursuant to either (A) a
transfer  (whether or not for  consideration) by the Acquiring Person to holders
of its stock or other equity securities or to any Person with whom the Acquiring
Person has any continuing agreement,  arrangement or understanding regarding the
transferred Rights or (B) a transfer which the Board of Directors has determined
is part of a plan,  arrangement or understanding  which has as a primary purpose
or effect the  avoidance of this Section 7(f),  shall be null and void,  and any
existing  or  subsequent  holder of any such  Right  shall not have any right to
exercise or transfer any such Right.  Any Right  Certificate  issued pursuant to
this Rights Agreement that represents  Rights  beneficially  owned by any Person
referred to in clause (A) or (B) above,  and any Right  Certificate  issued upon
transfer,  exchange,  replacement  or adjustment of any other Right  Certificate
referred  to in this  sentence,  shall  contain  (to the  extent  feasible)  the
following legend:

         The  Rights   represented  by  this  Right   Certificate  are  or  were
         beneficially  owned by a Person  who is,  was or  became  an  Acquiring
         Person or an Affiliate or an Associate of an Acquiring Person (as those
         terms are defined in the Rights Agreement).  This Right Certificate and
         the  Rights  represented  hereby  may  become  null  and  void  in  the
         circumstances specified in the Rights Agreement.

                  The Company  shall use all  reasonable  efforts to comply with
this Section 7(f),  but neither it nor the Rights Agent shall have any liability
to any Person as a result of the failure to make any determination  with respect
to an Acquiring Person, or its Associates,  Affiliates or any transferees of the
foregoing.

                  (g)   Notwithstanding   anything  in  this  Agreement  to  the
contrary,  neither  the  Rights  Agent nor the  Company  shall be  obligated  to
undertake any action  whatsoever  with respect to a registered  holder of Rights
upon the  occurrence  of any  purported  exercise as set forth in this Section 7
unless  such  registered   holder  shall  have  (i)  completed  and  signed  the
certificate contained in the form of election to purchase set

                                       17

<PAGE>



forth on the reverse side of the Right Certificate surrendered for such exercise
and (ii) provided  such  additional  evidence of the identity of the  Beneficial
Owner (or former  Beneficial  Owner) or Affiliates or Associates  thereof as the
Company shall reasonably request.

         SECTION 8.  CANCELLATION  AND  DESTRUCTION OF RIGHT  CERTIFICATES.  All
Right  Certificates  surrendered  or  presented  for the  purpose  of  exercise,
transfer,  split-up,  combination or exchange shall,  and any Right  Certificate
representing Rights that have become null and void and non-transferable pursuant
to Section 7(f)  surrendered or presented for any purpose shall,  if surrendered
to the Company or to any of its agents,  be  delivered  to the Rights  Agent for
cancellation or in canceled form, or, if surrendered to the Rights Agent,  shall
be canceled  by it, and no Right  Certificates  shall be issued in lieu  thereof
except as expressly permitted by any of the provisions of this Rights Agreement.
The Company shall deliver to the Rights Agent for  cancellation  and retirement,
and the Rights Agent shall so cancel and retire, any Right Certificate purchased
or acquired by the Company.  The Rights Agent shall  deliver all canceled  Right
Certificates  to the Company,  or shall,  at the written request of the Company,
destroy  such  canceled  Right  Certificates,  and in such case shall  deliver a
certificate of destruction thereof to the Company.

         SECTION 9.        RESERVATION AND AVAILABILITY OF SHARES.

                  (a) The  Company  covenants  and agrees  that it shall use its
best efforts to at all times cause to be reserved and kept  available out of its
authorized  and unissued  shares of Preferred  Stock,  Common Stock and/or other
securities,  as the case may be, the number of shares of Preferred Stock, Common
Stock and/or  other  securities,  as the case may be, that,  as provided in this
Agreement,  will be sufficient to permit the exercise in full of all outstanding
Rights.

                  (b) In the event that there shall not be sufficient  shares of
Preferred  Stock,  Common  Stock and/or  other  securities,  as the case may be,
issued but not  outstanding or authorized but unissued to permit the exercise or
exchange  of Rights in  accordance  with  Section 7 and  Section 16, the Company
covenants  and agrees that it will take all such action as may be  necessary  to
authorize additional  Preferred Stock, Common Stock and/or other securities,  as
the case may be, for issuance  upon the exercise or exchange of Rights  pursuant
to Section 7 and Section 16; PROVIDED, HOWEVER, that if the Company is unable to
cause the  authorization of additional  shares of Preferred Stock,  Common Stock
and/or other securities,  as the case may be, then the Company shall, or in lieu
of seeking any such authorization,  the Company may, to the extent necessary and
permitted by applicable law and any agreements or instruments in effect prior to
the Distribution Date to which it is a party, (A) upon surrender of a Right, pay
cash equal to the  Purchase  Price in lieu of issuing  Preferred  Stock,  Common
Stock  and/or  other  securities,  as the case  may be,  and  requiring  payment
therefor, (B) upon due exercise of a Right and payment of the Purchase Price due
and  payable  with  respect  to each  Right  which is  exercised,  distribute  a
combination  of  Preferred  Stock,   Common  Stock,  cash  and/or  other  equity
securities  and/or debt securities  having an aggregate value equal to the value
of the Preferred Stock,  Common Stock and/or other  securities,  as the case may
be, which  otherwise  would have been issuable  pursuant to Section 7 or Section
16.  To the  extent  that any legal or  contractual  restrictions  (pursuant  to
agreements or instruments in effect prior to the  Distribution  Date to which it
is party)  prevent the Company from paying the full amount payable in accordance
with the foregoing  sentence,  the Company shall pay to holders of the Rights as
to which such payments are being made all amounts which are not then  restricted
on a pro rata  basis as such  payments  become  permissible  under such legal or
contractual restrictions until such payments have been paid in full.

                  (c) 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/or Common Stock or other securities delivered upon exercise of Rights shall,
at the time of delivery of the  certificates  for such shares of Preferred Stock
or

                                       18

<PAGE>



Common Stock or other securities  (subject to payment of the Purchase Price), be
duly and validly authorized and issued and fully paid and nonassessable shares.

                  (d) The Company covenants and agrees that it will pay when due
and payable any and all federal and state  transfer  taxes and charges which may
be payable in respect of the issuance or delivery of the Right  Certificates  or
of any shares of Preferred Stock and/or Common Stock or other securities, as the
case may be,  upon  exercise  of Rights.  The  Company  shall not,  however,  be
required to pay any transfer tax which may be payable in respect of any transfer
involved in the  transfer or delivery of Right  Certificates  or the issuance or
delivery of  certificates  or depository  receipts for shares of Preferred Stock
and/or  Common  Stock or other  securities,  as the case may be, in a name other
than that of the registered  holder of the Right  Certificate  evidencing Rights
surrendered  for exercise or to issue or deliver any  certificates or depository
receipts for shares of Preferred Stock and/or Common Stock or other  securities,
as the case may be,  upon the  exercise  of any Rights  until any such tax shall
have  been  paid  (any  such tax  being  payable  by the  holder  of such  Right
Certificate  at the time of surrender) or until it has been  established  to the
Company's satisfaction that no such tax is due.

                  (e) So long as the shares of  Preferred  Stock,  Common  Stock
and/or other  securities,  as the case may be, issuable upon the exercise of the
Rights may be listed on any  national  securities  exchange or quoted on NASDAQ,
the Company shall use its best efforts to cause, from and after such time as the
Rights become exercisable, all shares reserved for such issuance to be listed on
such  exchange  or quoted on NASDAQ  upon  official  notice of  issuance of such
exercise.

                  (f) The Company shall,  unless an  appropriate  exemption from
the  provisions  of the Act is  available,  use its best efforts (i) to file, as
soon as practicable following the Stock Acquisition Date or at such earlier date
as may be required by law, as the case may be, a  registration  statement  under
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 and the rules and regulations promulgated by
the Securities Exchange Commission thereunder) until the earlier of (A) the date
as of which the Rights are no longer exercisable for such securities and (B) the
expiration  of the  Rights.  The  Company  will also take such  action as may be
appropriate 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 90 days after the
date set forth in clause (i) of the first  sentence of this  Section  9(f),  the
exercisability  of the  Rights in order to  prepare  and file such  registration
statement and permit it to become  effective;  provided,  however,  that no such
suspension  shall remain  effective  after,  and the Rights  without any further
action by the Company or any other Person become  exercisable  immediately upon,
the effectiveness of such Registration Statement. Upon any such suspension,  the
Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended,  as well as a public announcement at such
time as the suspension is no longer in effect.  Notwithstanding any provision of
this Agreement to the contrary,  the Rights shall not be exercisable  (x) unless
and until the registration  statement under the Act referred to above shall have
been declared  effective by the Securities and Exchange  Commission,  (y) in any
jurisdiction,  unless and until any  requisite  state  securities  or "blue sky"
qualification  in such  jurisdiction  shall  have  been  obtained,  and (z) in a
jurisdiction  in which the  exercise of such Right  shall not then be  permitted
under applicable law.

         SECTION 10. RECORD DATE.  Each Person (other than the Company) in whose
name any  certificate or depository  receipt for Preferred  Stock,  Common Stock
and/or  other  securities,  as the case may be, is issued  upon the  exercise of
Rights  shall for all  purposes be deemed to have become the holder of record of
such Preferred Stock, Common Stock and/or other securities,  as the case may be,
represented  thereby on, and such  certificate  or  depository  receipt shall be
dated the date upon which the Right Certificate evidencing such

                                       19

<PAGE>



Rights  was  duly  surrendered  and  payment  of the  Purchase  Price  (and  any
applicable transfer taxes) was made; PROVIDED, HOWEVER, that if the date of such
surrender and payment is a date upon which the transfer books of the Company for
the  Preferred  Stock,  Common Stock and/or other  securities  are closed,  such
Person  shall be deemed  to have  become  the  record  holder of such  shares of
Preferred  Stock,  Common Stock and/or other securities on, and such certificate
or depository receipt shall be dated, the next succeeding  Business Day on which
the transfer books of the Company for the Preferred  Stock,  Common Stock and/or
other  securities  are  open.  Prior to the  exercise  of the  Rights  evidenced
thereby,  the holder of a Right  Certificate shall not be entitled to any rights
of a holder of shares of Preferred  Stock,  Common Stock and/or other securities
of the Company with respect to which the Rights shall be exercisable, including,
without   limitation,   the  right  to  vote,  to  receive  dividends  or  other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.

         SECTION 11. ADJUSTMENTS TO PURCHASE PRICE, NUMBER AND KIND OF SHARES OR
NUMBER OF RIGHTS.  The Purchase Price,  the number and kind of shares subject to
purchase  upon exercise of 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 that the Company  shall at any time after
the date of this Rights Agreement (A) declare or pay a dividend on the Preferred
Stock which is payable in shares of Preferred  Stock or other  securities of the
Company, (B) subdivide or split the outstanding shares of Preferred Stock into a
greater number of shares,  (C) combine or consolidate the outstanding  shares of
Preferred  Stock into a smaller number of shares of Preferred  Stock or effect a
reverse  split of the  outstanding  shares of  Preferred  Stock or (D) issue any
shares  of its  capital  stock  in a  reclassification  of the  Preferred  Stock
(including  any such  reclassification  in connection  with a  consolidation  or
merger in which the Company is the  continuing or surviving  entity),  except as
otherwise  provided in this Section 7(f) or 11, the Purchase  Price in effect at
the time of the record  date for such  dividend  or the  effective  date of such
subdivision, combination or reclassification,  and the number and kind of shares
of Preferred Stock or capital stock or interests  therein issuable upon exercise
of a Right on such date, shall be proportionately adjusted so that the holder of
any Right exercised  after such time shall be entitled to receive,  upon payment
of an amount equal to (x) the Purchase Price in effect  immediately prior to the
record date or effective  date of such  dividend,  subdivision,  combination  or
reclassification  multiplied by (y) the number of one one-thousandth  (1/1000th)
of a share of Preferred  Stock, or the number of shares of capital stock, as the
case may be, as to which a Right was exercisable immediately prior to such date,
the aggregate  number and kind of shares of Preferred  Stock or of capital stock
or interests  therein which, if such Right had been exercised  immediately prior
to such  date he would  have  owned  upon such  exercise  and been  entitled  to
receive,  or  would  be  deemed  to have  owned,  by  virtue  of such  dividend,
subdivision,  combination  or  reclassification.  If an event occurs which would
require an  adjustment  under both this Section  11(a)(i) and Section  11(a)(ii)
hereof,  the  adjustment  provided  for in this  Section  11(a)(i)  shall  be in
addition  to, and shall be made prior to, any  adjustment  required  pursuant to
Section 11(a)(ii) hereof.

                            (ii)    Subject to the second proviso of the first
sentence of Section 3(a), and Sections 14(a) and 16 of this Agreement, in the 
event that the Stock Acquisition Date occurs, then, subject to the last sentence
of Section 25(b) hereof, and in each such case,  proper  provision shall be made
so that each holder of a Right (except as  otherwise  provided in Section 7(f)  
hereof)  thereafter  (or if the Distribution Date has not occurred,  upon the 
Distribution  Date) shall have the right to receive, upon exercise thereof at a 
price equal to the current Purchase Price  in   accordance   with  this  Rights 
Agreement,   such  number  of  one one-thousandth  (1/1000th)  of a share of  
Preferred  Stock as shall  equal the result obtained by multiplying the Purchase
Price by a fraction,  the numerator of which is the number of one one-thousandth
(1/1000th) of a share of Preferred Stock for which a Right is then exercisable, 
and the denominator of which is 50% of the then Current  Market  Price of the 
Common Stock on the Stock  Acquisition
Date.

                                       20

<PAGE>



                  (b) In case  the  Company  shall  fix a  record  date  for the
issuance of rights,  options or  warrants to all holders of shares of  Preferred
Stock  entitling them (for a period  expiring within 45 calendar days after such
record date) to subscribe for or purchase  Preferred Stock (or securities having
the same rights,  privileges and preferences as the Preferred Stock ("Equivalent
Shares")) or securities convertible into Preferred Stock or Equivalent Shares at
a price per  share of  Preferred  Stock or per  Equivalent  Share  (or  having a
conversion  or  exercise  price  per share of  Preferred  Stock,  if a  security
convertible into or exercisable for Preferred Shares or Equivalent  Shares) less
than the Current Market Price per share of Preferred  Stock on such record date,
the Purchase Price to be in effect after such record date shall be determined by
multiplying  the Purchase  Price in effect  immediately  prior to such date by a
fraction, the numerator of which shall be the sum of (i) the number of shares of
Preferred Stock and Equivalent Shares outstanding on such record date, plus (ii)
the number of shares of Preferred  Stock which the aggregate  offering  price of
the total number of shares of Preferred Stock and/or  Equivalent Shares to be so
offered  (and/or  the  aggregate  initial  conversion  price of the  convertible
securities so to be offered) would purchase at such Current Market Price and the
denominator  of which shall be the sum of (A) the number of shares of  Preferred
Stock and Equivalent Shares  outstanding on such record date plus (B) the number
of additional  shares of Preferred Stock and/or  Equivalent Shares to be offered
for subscription or purchase (or into which the convertible  securities so to be
offered are initially convertible).  In case such subscription price may be paid
by delivery of consideration  part or all of which shall be in a form other than
cash,  the value of such  consideration  shall be as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement  filed with the Rights Agents and shall be conclusive and binding on
the Rights Agent and the holders of Rights.  Shares of Preferred  Stock owned by
or held for the account of the Company shall not be deemed  outstanding  for the
purpose of any such  computation.  Such  adjustment  shall be made  successively
whenever such a record date is fixed; and in the event that such rights, options
or warrants are not so issued,  the  Purchase  Price shall be adjusted to be the
Purchase  Price  which  would then be in effect if such record date had not been
fixed.

                  (c) In case the Company shall fix a record date for the making
of a  distribution  to all holders of shares of Preferred  Stock  (including any
such distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving  entity) of evidences of  indebtedness or
assets (other than a regular  periodic  cash  dividend or a dividend  payable in
shares of Preferred Stock), or convertible  securities,  subscription  rights or
warrants  (excluding  those referred to in Section 11(b)  hereof),  the Purchase
Price to be in effect after such record date shall be determined by  multiplying
the  Purchase  Price  in  effect  immediately  prior  to such  record  date by a
fraction, the numerator of which shall be the difference between (i) the Current
Market  Price per share of Preferred  Stock on such record date,  minus (ii) the
fair market value (as  determined in good faith by the Board of Directors of the
Company,  whose  determination  shall be described in a statement filed with the
Rights  Agent and shall be  conclusive  and binding on the Rights  Agent and the
holder of Rights) of the portion of the assets or evidences of  indebtedness  to
be so  distributed or of such  convertible  securities,  subscription  rights or
warrants applicable to one share of Preferred Stock and the denominator of which
shall  be  such  Current  Market  Price  per  share  of  Preferred  Stock.  Such
adjustments shall be made successively whenever such a record date is fixed; and
in the event that such  distribution  is not so made,  the Purchase  Price shall
again be  adjusted to the  Purchase  Price which would then be in effect if such
record date had not been fixed.

                  (d)  Anything  herein  to  the  contrary  notwithstanding,  no
adjustment to the Purchase Price shall be required unless such adjustment  would
require an increase or decrease of at least 1% to the Purchase Price;  PROVIDED,
HOWEVER,  that any  adjustments  which by reason of this  Section  11(d) are not
required  to be made shall be  carried  forward  and taken  into  account in any
subsequent  adjustment.  All calculations under this Section 11 shall be made to
the nearest  cent or to the nearest one  one-millionth  of a share of  Preferred
Stock,  or one  one-thousandth  interest in any other share or security,  as the
case may be, whichever is of lesser value. Notwithstanding the first sentence of
this Section 11(d), any adjustment required by this Section 11


                                       21

<PAGE>



shall be made no later than the  earlier of (i) three years from the date of the
transaction which mandates such adjustment or (ii) the Expiration Date.

                  (e)  In  the  event  that  at  any  time,  as a  result  of an
adjustment  made  pursuant  to Sections  11, 12 or 14 hereof,  the holder of any
Right  thereafter  exercised  shall be entitled to receive upon exercise of such
Right any securities other than shares of Preferred Stock or interests  therein,
thereafter  the number or amount of such other  securities  so  receivable  upon
exercise  of any  Right and the  Purchase  Price  thereof  shall be  subject  to
adjustment  from time to time in a manner and on terms as nearly  equivalent  as
practicable to the provisions  with respect to the Preferred  Stock contained in
Section  11(a),  (b),  (c),  (d),  (f),  (g),  (h),  (i),  (j) and (l),  and the
provisions  of  Sections  7, 9, 10,  12, 14 and 15 hereof  with  respect  to the
Preferred Stock shall apply on like terms to any such other securities.

                  (f) All Rights originally issued by the Company  subsequent to
any adjustment  made to the Purchase Price hereunder shall evidence the right to
purchase,  at the  adjusted  Purchase  Price,  the number of one  one-thousandth
(1/1000th) of a share of Preferred Stock purchasable from time to time hereunder
upon  exercise of the Rights,  all  subject to further  adjustments  as provided
herein.

                  (g) Unless the Company  shall have  exercised  its election as
provided in Section 11(h) hereof,  upon each adjustment of the Purchase Price as
a result of the  calculations  made in Section 11(a),  (b) and (c) hereof,  each
Right  outstanding  immediately  prior to the  making of such  adjustment  shall
thereafter evidence the right to purchase,  at the adjusted Purchase Price, that
number  of  one  one-thousandth   (1/1000th)  of  a  share  of  Preferred  Stock
(calculated  to the nearest one  one-millionth  of a share of  Preferred  Stock)
obtained by (i) multiplying (A) the number of one one-thousandth (1/1000th) of a
share of Preferred Stock covered by a Right immediately prior to this adjustment
by (B) the Purchase Price in effect  immediately prior to such adjustment of the
Purchase  Price and (ii) dividing the product so obtained by the Purchase  Price
in effect immediately after such adjustment of the Purchase Price.

                  (h)  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-thousandth  (1/1000th)  of a  share  of
Preferred  Stock  purchasable  upon the exercise of a Right.  Each of the Rights
outstanding  after such  adjustment of the number of Rights shall be exercisable
for the number of one  one-thousandth  (1/1000th) of a share of Preferred  Stock
for which such Right was exercisable immediately prior to such adjustment.  Each
Right held of record  prior to such  adjustment  of the  number of Rights  shall
become that number of Rights  (calculated to the nearest one  one-millionth of a
share of Preferred  Stock)  obtained by dividing  the  Purchase  Price in effect
immediately  prior to adjustment of the Purchase  Price by the Purchase Price in
effect  immediately  after  adjustment of the Purchase Price.  The Company shall
make a public  announcement  of its  election  to adjust  the  number of Rights,
indicating  the record date for the  adjustment,  and, if known at the time, the
amount of the  adjustment to be made.  This record date may be the date on which
the  Purchase  Price  is  adjusted  or any day  thereafter,  but,  if the  Right
Certificates have been issued,  shall be at least 10 days later than the date of
the public  announcement.  If Right  Certificates  have been  issued,  upon each
adjustment of the number of Rights  pursuant to this Section 11(h),  the Company
shall, as promptly as practicable,  cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 15  hereof,  the  additional  Rights to which such  holders  shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause  to  be  distributed  to  such  holders  of  record  in  substitution  and
replacement for the Right Certificates held by such holders prior to the date of
adjustment,  and upon surrender thereof,  if required by the Company,  new Right
Certificates  evidencing  all the Rights to which such holder  shall be entitled
after such adjustment.  Right Certificates so to be distributed shall be issued,
executed and  countersigned  in the manner provided for herein (and may bear, at
the option of the Company,  the adjusted Purchase Price) and shall be registered
in the names of the holders of record of Right  Certificates  on the record date
specified in the public announcement.


                                       22

<PAGE>



                  (i)  Irrespective  of any adjustment or change in the Purchase
Price or the number of one  one-thousandth  (1/1000th)  of a share of  Preferred
Stock  issuable  upon  the  exercise  of  the  Rights,  the  Right  Certificates
theretofore and thereafter issued may continue to express the Purchase Price and
the number of one one-thousandth  (1/1000th) of a share of Preferred Stock which
were expressed in the initial Right Certificates issued hereunder.

                  (j) Before  taking any action that would  cause an  adjustment
reducing the Purchase  Price below the then par or stated value,  if any, of the
Preferred Stock issuable upon exercise of the Rights, the Company shall take any
action which may, in the opinion of its counsel,  be necessary in order that the
Company may validly and legally  issue,  as fully paid and  nonassessable,  such
number of shares of Preferred Stock at such adjusted Purchase Price.

                  (k) In any case in which this Section 11 shall require that an
adjustment  in the  Purchase  Price be made  effective as of a record date for a
specified  event,  the Company may elect to defer until the  occurrence  of such
event the  issuing to the holder of any Right  exercised  after such record date
the number of shares of Preferred Stock and other securities of the Company,  if
any,  issuable  upon such  exercise on the basis of such  adjustment,  PROVIDED,
HOWEVER,  that the  Company  shall  deliver  to such  holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares of  Preferred  Stock  upon the  occurrence  of the event  requiring  such
adjustment.

                  (l)   Anything   in   this   Section   11  to   the   contrary
notwithstanding,  the Company  shall be entitled to make such  reductions in the
Purchase  Price,  in addition to those  adjustments  expressly  required by this
Section 11, as and to the extent that it in its sole discretion  shall determine
to be  advisable  in order  that any (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  which by their terms are  convertible  into or
exchangeable  for shares of Preferred  Stock,  (iv)  dividends on the  Preferred
Stock payable  solely in Preferred  Stock or (v) issuance of rights,  options or
warrants  referred to  hereinabove  in this  Section 11,  hereafter  made by the
Company to the  holders  of its  Preferred  Stock,  shall not be taxable to such
stockholders.

                  (m) The Company  covenants and agrees that it shall not at any
time after the Distribution  Date (i) consolidate with, (ii) merge with or into,
or  (iii)  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  any  of  its  subsidiaries  in  one  or  more
transactions  each of which  complies  with Section  11(o) hereof) if (A) at the
time or  immediately  after  such  consolidation,  merger or sale  there are any
rights,  warrants or other instruments outstanding or agreements or arrangements
in effect which would substantially diminish or otherwise eliminate the benefits
intended to be afforded  by the Rights or (B) prior to,  simultaneously  with or
immediately  after such  consolidation,  merger or sale, the  stockholders  of a
Person who  constitutes,  or would  constitute,  the  "Principal  Party" for the
purposes of Section  14(a) hereof shall have received a  distribution  of Rights
previously owned by such Person or any of its Affiliates and Associates.

                  (n) In the  event  that at any  time  after  the  date of this
Agreement and prior to the  Distribution  Date, the Company shall (i) declare or
pay any  dividend on the Common  Stock  payable in Common Stock or (ii) effect a
subdivision,   combination   or   consolidation   of  the   Common   Stock   (by
reclassification or otherwise then by payment of dividends in Common Stock) into
a greater or lesser number of shares of Common Stock,  then in any such case (i)
the  number  of one  one-thousandth  (1/1000th)  of shares  of  Preferred  Stock
purchasable  after such  event  upon  proper  exercise  of each  Right  shall be
determined by multiplying the number of one one-thousandth (1/1000th) of a share
of Preferred Stock so purchasable immediately prior to such event by a fraction,
the numerator of which is the number of shares of Common Stock outstanding


                                       23

<PAGE>



immediately  before  such  event and the  denominator  of which is the number of
shares of Common Stock  outstanding  immediately after such event, and (ii) each
share of Common Stock  outstanding  immediately after such event shall be issued
with  respect  to it that  number of rights  which  each  share of Common  Stock
outstanding  immediately  prior to such event has issued with respect to it. The
adjustments  provided  for in this  Section  11(n)  shall  be made  successively
whenever such a dividend is declared or paid or such a subdivision,  combination
or consolidation is effected.

                  (o)  The   Company   covenants   and  agrees  that  after  the
Distribution  Date it will not,  except as permitted by Section 25 or Section 28
hereof,  take (or permit any  Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will substantially
diminish or  otherwise  eliminate  the  benefits  intended to be afforded by the
Rights.

         SECTION 12.                CERTAIN ADJUSTMENTS.

                  (a) To preserve the actual or potential  economic value of the
Rights,  if at any time after the date of this Rights  Agreement  there shall be
any  change in the Common  Stock or the  Preferred  Stock,  whether by reason of
stock  dividends,  stock  splits,  recapitalizations,  mergers,  consolidations,
combinations  or  exchanges of  securities,  split-ups,  split-offs,  spin-offs,
liquidations,  other similar  changes in  capitalization,  any  distribution  or
issuance  of cash,  assets,  evidences  of  indebtedness  or stock  subscription
rights,  options or warrants to holders of the Common Stock or Preferred  Stock,
as the case may be or  otherwise  (other  than a  distribution  of the Rights or
regular  quarterly cash dividends or event  described in Section 11 or 14), then
in such event the Board of Directors of the Company shall make such  appropriate
adjustments  in the number of shares of Preferred  Stock,  Common Stock or other
securities,  as applicable  issuable  upon exercise of each Right,  the Purchase
Price and  Redemption  Price in  effect  at such  time and the  number of Rights
outstanding at such time  (including  the number of Rights or fractional  Rights
associated  with each share of Common Stock) such that following such adjustment
such event shall not have had the effect of reducing  or limiting  the  benefits
the holders of the Rights would have had absent such event.

                  (b) All Rights originally issued by the Company  subsequent to
any  adjustment  made to the  amount  of  Preferred  Stock or  other  securities
relating to a right  shall  evidence  the right to  purchase,  for the  Purchase
Price, the adjusted number and kind of securities  purchasable from time to time
hereunder  upon  exercise of the Rights,  all subject to further  adjustment  as
provided herein.

                  (c)  Irrespective  of any adjustment or change in the Purchase
Price or the  number  of shares  of  Preferred  Stock or number or kind of other
securities  issuable  upon the  exercise of the Rights,  the Right  Certificates
theretofore  and thereafter  issued may continue to express the terms which were
expressed in the initial Right Certificates issued hereunder.

                  (d) In any case in which  action  taken  pursuant  to  Section
12(a)  requires that an  adjustment 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  issuing to the holder of any Right  exercised  after such record date
the Preferred Stock and/or other securities, if any, issuable upon such exercise
over and above the Preferred  Stock and/or other  securities,  if any,  issuable
before giving effect to such  adjustment;  provided,  however,  that the Company
shall  deliver  to such  holder  a due  bill  or  other  appropriate  instrument
evidencing  such holder's right to receive such  additional  securities upon the
occurrence of the event requiring such adjustment.

         SECTION 13.       CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF 
SHARES.

         Whenever  an  adjustment  is made as  provided  in Section 11, 12 or 14
hereof, the Company shall (a) promptly prepare a certificate  setting forth such
adjustment and a brief  statement of the facts  accounting for such  adjustment,
(b)  promptly  file with the Rights Agent and with each  transfer  agent for the
Preferred Stock


                                       24

<PAGE>



and  Common  Stock a copy  of such  certificate,  and (c)  mail a brief  summary
thereof to each holder of a Right  Certificate (or, if prior to the Distribution
Date, to each holder of a certificate  representing  Common Stock) in accordance
with Section 26 hereof.  The Rights Agent shall be fully protected in relying on
any such certificate and on any adjustment therein contained.

         SECTION 14.       CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS 
OR EARNING POWER.

                  (a) In the event that, directly or indirectly, (x) the Company
shall consolidate with, or merge with and into, any other Person (other than the
Company or a Subsidiary of the Company in one or more transactions each of which
complies with Section 11(o) hereof), and the Company shall not be the continuing
or surviving entity of such  consolidation or merger, (y) any Person (other than
a Subsidiary of the Company in one or more  transactions  each of which complies
with Section 11(o) hereof)  shall  consolidate  with, or merge with and into the
Company,  and the Company shall be the  continuing  or surviving  entity of such
merger and, in  connection  with such  merger,  all or part of the Common  Stock
shall be changed into or exchanged  for stock or other  securities  of any other
Person or cash or any other property, or (z) the Company shall sell or otherwise
transfer (or one or more of its Subsidiaries shall sell or otherwise  transfer),
in one transaction or a series of related transactions,  assets or earning power
aggregating  more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole and calculated on the basis of the Company's most
recent regularly prepared  financial  statements) to any other Person or Persons
(other  than a  Subsidiary  of the Company in one or more  transactions  each of
which  complies  with  Section  11(o)hereof),  then,  and  in  each  such  case,
appropriate  provision shall be made so that (i) each holder of a Right,  except
as provided in Section 7(f) hereof,  shall thereafter have the right to receive,
upon the exercise thereof at the then current Purchase Price, in accordance with
the terms of this Agreement, such number of validly authorized and issued, fully
paid and nonassessable  shares of freely tradeable Common Stock of the Principal
Party (as hereinafter defined,  including the Company as successor thereto or as
the  surviving  entity),  not  subject to any  rights of call or first  refusal,
liens, encumbrances or other claims, as shall be equal to the result obtained by
(A)  multiplying  the  then  current   Purchase  Price  by  the  number  of  one
one-thousandth  (1/1000th)  of a share of  Preferred  Stock for which a Right is
exercisable  immediately prior to the first occurrence of any event described in
Section  14(a)(x),  (y) or (z) hereof,  and (B) dividing  that  product  (which,
following the first occurrence of any event referred to in Section 14(a)(x), (y)
or (z), shall be referred to as the "Purchase  Price" for each Right and for all
purposes  of this  Agreement)  by 50% of the Current  Market  Price per share of
Common  Stock  of such  Principal  Party  on the  date of  consummation  of such
consolidation,  merger,  sale  or  transfer;  (ii)  the  Principal  Party  shall
thereafter  be liable for, and shall  assume,  by virtue of such  consolidation,
merger, sale or transfer, all the obligations and duties of the Company pursuant
to this Agreement;  (iii) the term "Company" shall thereafter be deemed to refer
to such Principal Party, it being  specifically  intended that the provisions of
Section 11 hereof shall apply to such  Principal  Party and (iv) such  Principal
Party shall take such steps  (including,  but not limited to, the  authorization
and  reservation of a sufficient  number of shares of its Common Stock to permit
exercise of all  outstanding  Rights in accordance  with this Section  14(a)) in
connection  with  such  consummation  as may be  necessary  to  assure  that the
provisions  hereof shall  thereafter be applicable,  as nearly as reasonably may
be, in relation to the shares of its Common Stock  thereafter  deliverable  upon
the exercise of the Rights, PROVIDED, that upon the subsequent occurrence of any
merger,  consolidation,  sale  of  all  or  substantially  all  of  the  assets,
recapitalization,   reclassification   of   shares,   reorganization   or  other
extraordinary transaction in respect of such Principal Party, each holder of the
Right shall  thereupon  be entitled  to  receive,  upon  exercise of a Right and
payment of the Purchase Price,  such cash,  shares,  rights,  warrants and other
property which holder would have been entitled to receive had he, at the time of
such  transaction,  owned  the  shares of Common  Stock of the  Principal  Party
purchasable  upon the exercise of a Right,  and such Principal  Party shall take
such steps  (including,  but not limited to,  reservation of shares of stock) as
may be necessary to permit the  subsequent  exercise of the Rights in accordance
with the terms hereof for such cash, shares, rights, warrants and other property
and (v) the


                                       25

<PAGE>



provisions  of Section  11(a)(ii)  hereof  shall be of no effect  following  the
occurrence of any event described in Section 14(a)(x), (y) or (z).

                  (b)      "Principal Party" shall mean

                             (i)    in the case of any transaction described in 
clause (x) or (y) of Section 14(a) hereof: 

     (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,
     or, if there is more than one such  issuer,  the issuer the Common Stock of
     which has the greatest  aggregate market value of shares outstanding or (B)
     if no securities  are so issued,  (x) the Person that is the other party to
     the  merger,  or, if there is more than one such  Person,  the  Person  the
     Common  Stock of which has the  greatest  aggregate  market value of shares
     outstanding or (y) if the Person that is the other party to the merger does
     not survive the merger,  the Person that does survive the merger (including
     the  corporation  if it  survives)  or (z) the  Person  resulting  from the
     consolidation; and

                            (ii) in the  case of any  transaction  described  in
clause (z) of Section 14(a) hereof,
the Person that is the party  receiving  the  greatest  portion of the assets or
earning power  transferred  pursuant to such  transaction or transactions or, if
each person that is a party to such  transaction  or  transactions  receives the
same  portion  of the assets or earning  power so  transferred  or if the Person
receiving  the  greatest  portion  of the  assets  or  earning  power  cannot be
determined,  whichever  of such  Persons as is the issuer of Common Stock having
the greatest aggregate market value of shares  outstanding;  PROVIDED,  HOWEVER,
that in any such case  described in the foregoing  clause (b)(i) or (ii), (A) if
the  Common  Stock  of  such  Person  is not at  such  time  and  has  not  been
continuously  over the preceding  12-month period registered under Section 12 of
the Exchange Act, and such Person is a direct or indirect  Subsidiary of another
Person  the  Common  Stock of which  is and has been so  registered,  "Principal
Party" shall refer to such other Person; and (B) if such Person is a Subsidiary,
directly or indirectly, of more than one Person, the Common Stock of two or more
of which are and have  been so  registered,  "Principal  Party"  shall  refer to
whichever  of such Persons is the issuer of the Common Stock having the greatest
aggregate  market value of shares  outstanding,  or (C) if such Person is owned,
directly or  indirectly,  by a joint venture  formed by two or more persons that
are not owned,  directly or indirectly,  by the same person, the rules set forth
in (A) and (B) above shall apply to each of the owners having an interest in the
venture as if the Person owned by the joint  venture was a Subsidiary of both or
all of such joint  venturers,  and the  Principal  Party in each such case shall
bear the  obligations  set  forth in this  Section  14 in the same  ratio as its
interest in such Person bears to the total of such interests.

                  (c) The Company  shall not enter into any  transaction  of the
kind referred to in this Section 14 if at the time of such transaction there are
rights,  warrants,  instruments  or securities  outstanding or any agreements or
arrangements  which, as a result of the consummation of such transaction,  would
eliminate or substantially  diminish the benefits intended to be afforded by the
Rights.  The  Company  shall  not agree to  consummate  or  consummate  any such
consolidation,  merger, sale or transfer unless the Principal Party shall have a
sufficient  number of authorized  shares of its Common Stock which have not been
issued or reserved  for issuance to permit the exercise in full of the Rights in
accordance  with this Section 14 and unless  prior  thereto the Company and such
Principal  Party  shall  have  executed  and  delivered  to the  Rights  Agent a
supplemental  agreement  so  providing,  confirming  that  the  requirements  of
Sections  14(a) and (b) hereof shall  promptly be performed in  accordance  with
their  terms and that such  consolidation,  merger,  sale or  transfer of assets
shall not result in a default by the Principal Party under this Agreement as the
same shall have been assumed by the Principal  Party  pursuant to Sections 14(a)
and (b) hereof and further providing that, as soon as practicable after the date
of any  consolidation,  merger or sale of assets mentioned in Section 14(a), the
Principal Party will:

                             (i)    prepare and file a registration statement 
under the Act, if necessary, with respect to the Rights and the securities 
purchasable upon exercise of the Rights on an appropriate form, will


                                       26

<PAGE>



use its best efforts to cause such registration statement to become effective as
soon as practicable after such filing and to remain effective (with a prospectus
at all times meeting the  requirements  of the Act) until the date of expiration
of the Rights, and similarly comply with applicable state securities laws; and

                            (ii) use its best  efforts,  if the Common  Stock of
the Principal Party shall become
listed on a national securities  exchange,  to list (or continue the listing of)
the Rights and the  securities  purchasable  upon exercise of the Rights on such
securities exchange and, if the Common Stock of the Principal Party shall not be
listed on a national securities exchange, to cause the Rights and the securities
purchasable  upon  exercise of the Rights to be reported by NASDAQ or such other
system then in use; and

                           (iii)  deliver to  holders  of the Rights  historical
financial statements for the
Principal Party and each of its Affiliates which comply in all respects with the
requirements  for  registration  on Form 10 (or any  successor  form)  under the
Exchange Act; and

                            (iv) obtain  waivers of any rights of first  refusal
or preemptive rights in respect
of the shares of the Common  Stock of the  Principal  Party  subject to purchase
upon exercise of outstanding Rights.

         The provisions of this Section 14 shall  similarly  apply to successive
mergers or consolidations or sales or other transfers. If any event described in
this  Section  14 shall  occur  at any  time  after  the  occurrence  of a Stock
Acquisition  Date, the Rights which have not  theretofore  been exercised  shall
thereafter become exercisable in the manner described in Section 14(a) hereof.

                  (d)  If  the  Principal  Party  which  is to be a  party  to a
transaction  referred  to in  this  Section  14  has a  provision  in any of its
authorized  securities or in its Certificate of Incorporation or Bylaws or other
instrument  governing  its corporate  affairs,  which  provision  would have the
effect of (i) causing such Principal  Party to issue, in connection with or as a
consequence of, the consummation of the transaction  referred to in this Section
14,  shares of Common  Stock of such  Principal  Party at less than the  Current
Market  Price per share or  securities  exercisable  for, or  convertible  into,
Common Stock of such Principal Party at less than such then Current Market Price
(other than to holders of Rights  pursuant to this Section 14) or (ii) providing
for any  special  payment,  tax or similar  provisions  in  connection  with the
issuance of the Common Stock of such Principal  Party pursuant to the provisions
of Section 14, then, in such event,  the Company  hereby agrees with each holder
of Rights that it shall not consummate any such transaction unless prior thereto
the Company and such  Principal  Party shall have  executed and delivered to the
Rights Agent a supplemental  agreement  providing that the provision in question
of such Principal Party shall have been canceled, waived or amended, or that the
authorized  securities shall be redeemed,  so that the applicable provision will
have no effect in connection  with or as a consequence  of, the  consummation of
the proposed transaction.

         SECTION 15.       FRACTIONAL RIGHTS AND FRACTIONAL SHARES.

                  (a) The Company  shall not be required to issue  fractions  of
Rights or to distribute Right Certificates which evidence  fractional Rights. In
lieu  of  such  fractional   Rights  existing  or  arising   subsequent  to  the
Distribution  Date,  there shall be paid to the registered  holders of the Right
Certificates  with regard to which such  fractional  Rights  would  otherwise be
issuable,  an amount in cash equal to the same  fraction of the  Current  Market
Value of a whole  Right.  For the purposes of this  Section  15(a),  the Current
Market  Value of a whole Right shall be the closing  price of the Rights for the
Trading Day immediately  prior to the date on which such fractional Rights would
have been otherwise issuable.  The closing price of the Rights for any day shall
be the last sale  price,  regular  way,  or, in case no such sale takes place on
such day,  the  average of the  closing bid and asked  prices,  regular  way, in
either case as  reported in the  principal  consolidated  transaction  reporting
system with respect to securities  listed or admitted to trading on the New York
Stock


                                       27

<PAGE>



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 bid and 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 of the Company.  If on any such date Rights are not quoted by any such
organization  and no  professional  market  maker is making such a market in the
Rights, the fair value of the Rights on such date as determined in good faith by
the Board of Directors shall be used.

                  (b) The  Company  shall not be  required  to issue  fractional
interests in the shares of  Preferred  Stock  (other than  fractional  interests
which are integral  multiples  of one  one-thousandth  (1/1000th)  of a share of
Preferred Stock) upon exercise of the Rights or to distribute certificates which
evidence fractional interests in shares of Preferred Stock (other than fractions
which are integral  multiples  of one  one-thousandth  (1/1000th)  of a share of
Preferred Stock).  Fractional interests in shares of Preferred Stock in integral
multiples of one one-thousandth (1/1000th) of a share of Preferred Stock may, at
the election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate  agreement  between  the Company  and a  depositary  selected by it;
PROVIDED,  that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are
entitled  as  beneficial  owners  of the  Preferred  Stock  represented  by such
depositary  receipts.  In lieu of  fractional  interests  in shares of Preferred
Stock, the Company shall pay to the registered  holders of Right Certificates at
the time such Right  Certificates  are exercised as herein provided an amount in
cash equal to the same  fraction  of the  Current  Market  Value of one share of
Preferred Stock or other securities of the Company on the date of exercise.

                  (c) The Company  shall not be required to issue  fractions  of
shares of Common Stock upon exercise of the Rights or to distribute certificates
which evidence  fractional  shares of Common Stock. In lieu of fractional shares
of  Common  Stock  the  Company  may pay to the  registered  holders  of  Rights
Certificates  at the time such Rights are exercised as herein provided an amount
in cash equal to the same  fraction of the Current  Market Value of one share of
Common Stock on the date of exercise.

                  (d) The  holder  of a Right by the  acceptance  of the  Rights
expressly  waives his right to receive any fractional  Rights  subsequent to the
Distribution  Date, or any fractional  share of Preferred Stock upon exercise of
Rights (except as provided above).

         SECTION 16.                EXCHANGE.

                           (a)      The Board of Directors of the Company may, 
at its option, at any time after a Stock  Acquisition Date (and, if the 
Distribution  Date has not then occurred, after  the  Distribution  Date),  
mandatorily  exchange  all or part of the then outstanding  and  exercisable  
Rights (which shall not include Rights that shall have become null and void and 
nontransferable  pursuant  to the  provisions  of Section 7(f) hereof) for  
consideration  per Right consisting of one-half of the securities that would be 
issuable at such time upon the exercise of one Right in accordance with Section 
11(a) (the consideration  issuable per Right pursuant to this Section 16 being 
the "Exchange  Consideration").  The Board of Directors of the Company may, at 
its option,  issue,  in  substitution  for Preferred  Stock, shares of Common
Stock in an amount per whole share of Preferred  Stock equal to the Formula 
Number if there are sufficient shares of Common Stock issued but not outstanding
or  authorized  but unissued.  If the Board of Directors  elects to exchange all
the Rights for Exchange  Consideration  pursuant to this Section 16 prior to the
physical  distribution of the Rights Certificates,  the Company may distribute 
the Exchange Consideration in lieu of distributing Right

                                       28

<PAGE>



Certificates,  in which case for  purposes of this Rights  Agreement  holders of
Rights  shall be deemed to have  simultaneously  received  and  surrendered  for
exchange Rights  Certificates on the date of such distribution.  Notwithstanding
the  foregoing,  the Board of  Directors  shall not be  empowered to effect such
exchange  at any time  after  any  Person  (other  than an  Exempt  Person  or a
Permitted  Holder)  which,  together with all  Affiliates and Associates of such
Person,  becomes  the  beneficial  owner  of 50% or  more  of the  Common  Stock
outstanding.

                           (b)      Any action of the Board of Directors of the 
Company ordering the exchange of any Rights  pursuant to Section 16(a) shall be 
irrevocable  and,  immediately upon the taking of such action and  without  any
 further  action and without any notice,  the right to exercise any such Right 
shall terminate and the only right thereafter  of a  holder  of  such  Right  
shall  be  to  receive  the  Exchange Consideration  in exchange for each such 
Right held by such holder.  The Company shall promptly give public notice of any
such exchange;  PROVIDED, HOWEVER, that the failure to give, or any defect in, 
such notice shall not affect the validity of such exchange. The Company promptly
shall mail a notice of any such exchange to all  holders of such Rights at their
last  addresses  as they appear upon the registry  books of the Rights  Agent.  
Any notice  which is mailed in the manner herein provided shall be deemed given,
whether or not the holder  receives the notice. Each such notice of exchange 
will state the method by which the exchange of the Rights for the Exchange  
Consideration will be effected and, in the event of any  partial  exchange,  
the number of Rights  which will be  exchanged.  Any partial exchange shall be 
effected pro rata based on the number of Rights (other than Rights which shall 
have become null and void and  nontransferable  pursuant to the provisions of 
Section 7(f)) held by each holder of Rights.

         SECTION 17.  RIGHTS OF ACTION.  All rights of action in respect of this
Rights  Agreement,  to the  extent  any such  rights  exist,  are  vested in the
respective  registered  holders  of the Right  Certificates  (and,  prior to the
Distribution  Date, the registered  holders of Common Stock); and any registered
holder of any Right  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 Right  Certificate  (or,  prior to the  Distribution  Date,  of the Common
Stock),  may,  in his own  behalf  and for his  own  benefit,  enforce,  and may
institute  and maintain any suit,  action or  proceeding  against the Company to
enforce,  or  otherwise  act in  respect  of, his right to  exercise  the Rights
evidenced  by such  Right  Certificate  in the  manner  provided  in such  Right
Certificate and in this Rights 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 Rights Agreement and will be entitled to specific  performance of
the  obligations  under,  and  injunctive  relief  against  actual or threatened
violations of the obligations of any Person subject to, this Rights Agreement.

         SECTION 18.       AGREEMENT OF RIGHT HOLDERS.  Every holder of a Right 
by accepting the same consents and agrees with the Company and the Rights Agent 
and with every other holder of a Right that:

                  (a)      prior to the Distribution Date, the Rights will be 
transferable only in connection with the transfer of Common Stock;

                  (b) after the  Distribution  Date, the Right  Certificates are
transferable  only on the registry  books of the Rights Agent if  surrendered at
the  principal  office  or  offices  of the  Rights  Agent  designated  for such
purposes,  duly endorsed or accompanied  by a proper  instrument of transfer and
with the appropriate certificates fully executed;

                  (c) subject to Sections 6 and 7(g) hereof, the Company and the
Rights  Agent may deem and treat the Person in whose name the Right  Certificate
(or, prior to the Distribution Date, the associated Common Stock certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby


                                       29

<PAGE>



(notwithstanding any notations of ownership or writing on the Right Certificates
or the associated Common Stock certificate made by anyone other than the Company
or the Rights  Agent) for all purposes  whatsoever,  and neither the Company nor
the Rights Agent, shall be affected by any notice to the contrary; and

                  (d)  notwithstanding  anything in this Rights Agreement to the
contrary,  neither the Company nor the Rights Agent shall have any  liability to
any holder of a Right or other  Person as a result of its  inability  to perform
any of its  obligations  under this  Agreement by reason of any  preliminary  or
permanent  injunction  or other  order,  decree or  ruling  issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission,  or any statute,  rule, regulation or executive order promulgated
or enacted by any governmental  authority  prohibiting or otherwise  restraining
performance of such obligation; PROVIDED, HOWEVER, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise  overturned
as soon as possible.

         SECTION  19.  RIGHT  CERTIFICATE  HOLDER NOT DEEMED A  STOCKHOLDER.  No
holder,  as such, of any Right  Certificate  shall be entitled to vote,  receive
dividends  or be deemed  for any  purpose  the holder of the number of shares of
Preferred Stock or any interest  therein or any other  securities of the Company
which may at any time be  issuable  on the  exercise  of the Rights  represented
thereby,  nor shall  anything  contained  herein or in any Right  Certificate be
construed to confer upon the holder of any Right  Certificate,  as such,  any of
the rights of a stockholder of the Company or any right to vote for the election
of  Directors  or upon any  matter  submitted  to  stockholders  at any  meeting
thereof,  or to give or withhold consent to any corporate  action, or to receive
notice of meetings or other actions affecting  stockholders  (except as provided
in Section 26  hereof),  or to receive  dividends  or  subscription  rights,  or
otherwise,  until the Right or Rights evidenced by such Right  Certificate shall
have been exercised in accordance with the provisions hereof.

         SECTION 20.       CONCERNING THE RIGHTS AGENT.

                  (a) In the event that the Rights Agent is not the Company, the
Company  agrees  to pay to the  Rights  Agent  reasonable  compensation  for all
services  rendered  by it  hereunder  and,  from time to time,  on demand of the
Rights Agent,  its reasonable  expenses and counsel fees and  disbursements  and
other  disbursements  incurred  in the  administration  and  execution  of  this
Agreement and the exercise and performance of its duties hereunder.

                  (b) The Rights  Agent  shall be  protected  and shall 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 its capacity as Rights
Agent in reliance upon any Right  Certificate or certificate for Common Stock or
Preferred 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 21.       MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS 
AGENT.

                  (a) Any  trust,  corporation  or other  entity  into which the
Rights Agent or any successor Rights Agent may be merged or with which it may be
consolidated,  or any trust,  corporation  or other  entity  resulting  from any
merger or  consolidation to which the Rights Agent or any successor Rights Agent
shall be a party or any trust,  corporation  or other entity  succeeding  to the
corporate  trust  business of the Rights  Agent,  shall be the  successor to the
Rights Agent under this Rights Agreement  without the execution or filing of any
paper or any further action on the part of any of the parties  hereto,  provided
that such trust,  corporation or other entity would be eligible for  appointment
as a successor  Rights Agent under the provisions of Section 23 hereof.  In case
at the time such  successor  Rights Agent shall succeed to the agency created by
this


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<PAGE>



Agreement,  any of the Right  Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor  Rights Agent and deliver such Right  Certificates so countersigned;
and in case at that  time any of the  Right  Certificates  shall  not have  been
countersigned,   any  successor   Rights  Agent  may   countersign   such  Right
Certificates  either in the name of the predecessor  Rights Agent or in the name
of the  successor  Rights Agent;  and in all such cases such Right  Certificates
shall have the full force provided in the Right  Certificates and in this Rights
Agreement.

                  (b) In case at any time the name of the Rights  Agent shall be
changed  and at  such  time  any of  the  Right  Certificates  shall  have  been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right  Certificates  so  countersigned;  and in
case  at  that  time  any  of  the  Right   Certificates  shall  not  have  been
countersigned,  the Rights Agent may countersign such Right Certificates  either
in its prior  name or in its  changed  name;  and in all such  cases  such Right
Certificates shall have the full force provided in the Right Certificates and in
this Rights Agreement.

         SECTION 22. DUTIES OF RIGHTS  AGENT.  The Rights Agent  undertakes  the
duties and  obligations  expressly  set forth in this  Rights  Agreement  and no
implied duties or obligations  shall be read into this Rights Agreement  against
the Rights Agent. The Rights Agent undertakes the duties and obligations imposed
by this Rights  Agreement  upon the following  terms and  conditions,  by all of
which the  Company and the holders of Right  Certificates,  by their  acceptance
thereof, shall be bound;

                  (a) The Rights Agent may consult  with legal  counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete  authorization  and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.

                  (b)  Whenever  in the  performance  of its  duties  under this
Rights  Agreement the Rights Agent shall deem it necessary or desirable that any
fact or matter  (including,  without  limitation,  the identity of any Acquiring
Person or any Affiliate or Associate  thereof and the  determination  of Current
Market  Price)  be  proved  or  established  by the  Company  prior to taking or
suffering any action  hereunder,  such fact or matter  (unless other evidence in
respect  thereof  be  herein  specifically  prescribed)  may  be  deemed  to  be
conclusively  proved and established by a certificate  signed by the Chairman of
the Board, the President,  the Chief Operating Officer or any Vice President and
by the Chief  Financial  Officer,  Treasurer or the Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full  authorization
to the Rights  Agent for any action  taken or suffered in good faith by it under
the provisions of this Rights Agreement in reliance upon such certificate.

                  (c) The Rights  Agent shall be liable  hereunder  only for its
own negligence, bad faith or willful misconduct.

                  (d) The Rights  Agent  shall not be liable for or by reason of
any of the statements of fact or recitals  contained in this Rights Agreement or
in the Right Certificates (except its  countersignature  thereof) or be required
to verify the same, but all such statements and recitals are and shall be deemed
to have been made by the Company only.

                  (e) The Rights Agent shall not be under any  responsibility in
respect of the validity of this Rights  Agreement or the  execution and delivery
hereof  (except the due  execution  hereof by the Rights Agent) or in respect of
the validity or execution of any Right Certificate (except its  countersignature
thereof);  nor shall it be  responsible  for any  breach by the  Company  of any
covenant  or  condition  contained  in this  Rights  Agreement  or in any  Right
Certificate; nor shall it be responsible for any change in the exercisability of
the Rights  (including  certain of the Rights  becoming void pursuant to Section
7(f) hereof) or any adjustment in the terms of the Rights (including the manner,
method or amount thereof) provided for in


                                       31

<PAGE>



Sections 3, 11, 12, 14, 16 or 25 hereof, or the ascertaining of the existence of
facts  that  would  require  any such  adjustment  (except  with  respect to the
exercise of Rights  evidenced by Right  Certificates  after actual notice of any
such  adjustment);  nor  shall it by any act  hereunder  be  deemed  to make any
representation  or warranty as to the authorization or reservation of any shares
of Preferred Stock, Common Stock and/or other securities, as the case may be, to
be issued  pursuant to this Rights  Agreement or any Right  Certificate or as to
whether any shares of Preferred Stock, Common Stock and/or other securities,  as
the case may be, will, when issued, be validly authorized and issued, fully paid
and nonassessable.

                  (f)  The  Company  agrees  that  it  will  perform,   execute,
acknowledge  and deliver or cause to be performed,  executed,  acknowledged  and
delivered  all such further and other acts,  instruments  and  assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Rights Agreement.

                  (g) The Rights  Agent is hereby  authorized  and  directed  to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the Chief Executive Officer, the President, the Chief
Operating  Officer,  the Chief  Financial  Officer or any Vice  President or the
Treasurer or the  Secretary of the  Company,  and to apply to such  officers for
advice or instructions in connection with its duties, and it shall not be liable
for any action  taken or suffered to be taken by it in good faith in  accordance
with instructions of any such officer.

                  (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,  or  contract  with or lend money to the
Company  or  otherwise  act as fully and freely as though it were not the Rights
Agent under this Rights  Agreement.  Nothing  herein  shall  preclude the Rights
Agent from acting in any other  capacity  for the Company or for any other legal
entity.

                  (i) The  Rights  Agent may  execute  and  exercise  any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through  its  attorneys  or agents,  and the Rights  Agent shall not be
answerable or  accountable  for any act,  default,  neglect or misconduct of any
such attorneys or agents or for any loss to the Company  resulting from any such
act, default,  neglect or misconduct,  PROVIDED reasonable care was exercised in
the selection and continued employment thereof.

                  (j) No provision of this Rights  Agreement  shall  require the
Rights  Agent to expend or risk its own funds or otherwise  incur any  financial
liability in the  performance of any of its duties  hereunder or in the exercise
of its rights if there shall be reasonable  grounds for believing that repayment
of such funds or adequate  indemnification against such risk or liability is not
reasonably assured to it.

                  (k) If, with respect to any Right  Certificate  surrendered to
the Rights Agent for exercise or transfer,  the certificate attached to the form
of  assignment  or form of election to purchase,  as the case may be, has either
not been  completed or indicates  an  affirmative  response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise of transfer without first consulting with the Company.

                  (l) The  Company  agrees to  indemnify  and to hold the Rights
Agent  harmless  against  any  loss,  liability,  damage or  expense  (including
reasonable  fees and  expenses  of  counsel)  which the  Rights  Agent may incur
resulting  from its actions as Rights Agent  pursuant to this Rights  Agreement;
PROVIDED,  HOWEVER,  that the  Rights  Agent  shall not be  indemnified  or held
harmless with respect to any such loss, liability, damage or expense incurred by
the  Rights  Agent as a result of, or arising  out of, its own  negligence,  bad
faith or wilful misconduct.  In no case shall the Company be liable with respect
to any action, proceeding,


                                       32

<PAGE>



suit or claim  against  the Rights  Agent  unless the  Rights  Agent  shall have
notified the  Company,  by letter or by  facsimile  confirmed by letter,  of the
assertion  of an action,  proceeding,  suit or claim  against the Rights  Agent,
promptly  after the Rights  Agent shall have notice of any such  assertion of an
action, proceeding,  suit or claim or have been served with the summons or other
first legal process giving information as to the nature and basis of the action,
proceeding,  suit or claim.  The Company shall be entitled to participate at its
own expense in the defense of any such action,  proceeding,  suit or claim, and,
if the  Company so elects,  the  Company  shall  assume the  defense of any such
action,  proceeding,  suit or claim.  In the event that the Company assumes such
defense, the Company shall not thereafter be liable for the fees and expenses of
any  additional  counsel  retained by the Rights  Agent,  so long as the Company
shall retain counsel  satisfactory  to the Rights Agent,  in the exercise of its
reasonable  judgment,  to defend such  action,  proceeding,  suit or claim.  The
Rights Agent agrees not to settle any litigation in connection  with any action,
proceeding, suit or claim with respect to which it may seek indemnification from
the Company without the prior written consent of the Company.

         SECTION 23. CHANGE OF RIGHTS  AGENT.  The Rights Agent or any successor
Rights  Agent may resign and be  discharged  from its duties  under this  Rights
Agreement  upon 30 days'  notice in writing  mailed to the  Company  and to each
transfer  agent of the shares of Common Stock and  Preferred  Stock,  if any, by
registered or certified mail, and,  subsequent to the Distribution  Date, to the
holders of the Right  Certificates  by first-class  mail. The Company may remove
the Rights Agent or any successor  Rights Agent upon 30 days' notice in writing,
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,  if any,  by
registered or certified  mail, and subsequent to the  Distribution  Date, to the
holders of the Right Certificates by first-class mail. If the Rights Agent shall
resign or be removed or shall otherwise become incapable of acting,  the Company
shall appoint a successor to the Rights Agent. If the Company shall fail to make
such  appointment  within a period of 30 days after such removal or after it has
been notified in writing of such  resignation  or incapacity by the resigning or
incapacitated  Rights Agent or by the holder of a Right  Certificate (who shall,
with such notice,  submit his Right  Certificate for inspection by the Company),
then the registered  holder of any Right  Certificate  may apply to any court of
competent  jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent,  whether  appointed by the Company or by such a court,  shall be a
corporation  organized and doing business under the laws of the United States or
of any state at the United States,  in good standing,  having a principal office
in the United States of America, which is authorized under such laws to exercise
stock  transfer  or  corporate  trust  powers and is subject to  supervision  or
examination  by federal or state  authority.  After  appointment,  the successor
Rights  Agent  shall  be  vested  with  the  same  powers,  rights,  duties  and
responsibilities  as if it had been  originally  named as Rights  Agent  without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of such appointment,  the Company
shall file notice thereof in writing with the predecessor  Rights Agent and each
transfer  agent of the Common Stock and the Preferred  Stock and,  subsequent to
the  Distribution  Date,  mail a notice  thereof in  writing  to the  registered
holders of the Right  Certificates.  Failure to give any notice  provided for in
this Section 23, however,  or any defect therein,  shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.

         SECTION 24. ISSUANCE OF NEW RIGHT CERTIFICATES.  Notwithstanding any of
the  provisions of this Rights  Agreement or of the Rights to the contrary,  the
Company may, at its option,  issue new Right  Certificates  evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change  in the  Purchase  Price and the  number or kind or class of shares of
Preferred  Stock,  Common  Stock and/or  other  securities,  as the case may be,
purchasable under the Right  Certificates made in accordance with the provisions
of this Rights Agreement. In addition, if deemed necessary or appropriate by the
Board of  Directors  of the  Company,  the Company may issue Right  Certificates
representing the


                                       33

<PAGE>



appropriate  number of Rights in connection  with the issuance or sale of Common
Stock  following  the  Distribution  Date  but  prior  to the  Expiration  Date;
PROVIDED, HOWEVER, that (a) no such Right Certificate shall be issued if, and to
the extent  that,  the Company  shall be advised by counsel  that such  issuance
would create a  significant  risk of material  adverse tax  consequences  to the
Company or the person to whom such Right Certificate would be issued, and (b) no
such Right Certificate  shall be issued if, and to the extent that,  appropriate
adjustment shall otherwise have been made in lieu of the issuance thereof.

         SECTION 25.       REDEMPTION.

                  (a) The Company may, by  resolution  of the Board of Directors
(which  resolution  shall, if adopted  following the Stock  Acquisition Date, be
effective only with the  concurrence  of a majority of the Continuing  Directors
and only if the  Continuing  Directors  constitute  a majority  of the number of
Directors  then in office),  at its option,  at any time prior to the earlier to
occur of (i) the  close  of  business  on the  tenth  day  following  the  Stock
Acquisition  Date, and (ii) the close of business on the Final  Expiration Date,
elect to redeem  all but not less than all of the then  outstanding  Rights at a
redemption  price of $.001 per  Right  (the  date of such  redemption  being the
"Redemption  Date"),  appropriately  adjusted to reflect any stock split,  stock
dividend or similar transaction occurring after the date hereof (such redemption
price being hereinafter referred to as the "Redemption Price"). The Company may,
at its  option,  pay the  Redemption  Price in cash,  shares of Common  Stock or
Preferred  Stock  (based on the  Current  Market  Price of the  Common  Stock or
Preferred  Stock,  as applicable at the time of redemption) or any other form of
consideration deemed appropriate by the Board of Directors.

                  (b) If,  following the occurrence of a Stock  Acquisition Date
and prior to the  Distribution  Date,  (i) a Person who is an  Acquiring  Person
shall have  transferred  or  otherwise  disposed of a number of shares of Common
Stock of the  Company  in one  transaction,  or a series  of  transactions  (not
directly or indirectly involving the Company or any of its Subsidiaries),  which
did not result in an event described in Section 14 hereof, such that such Person
is  thereafter  a  Beneficial  Owner  of less  than 15% (or (a) in the case of a
Permitted  Holder,  the percentage the Permitted Holder may hold without ceasing
to be a  Permitted  Holder,  and  (b) in the  case  of an  Adverse  Person,  the
percentage  such Person may hold as determined by the Board of Directors,  which
in no event may the Board of Directors require to be less than 10% of the shares
of Common  Stock  then  outstanding,  so that the Board of  Directors  no longer
declares such Person to be an Adverse Person) of the outstanding Common Stock of
the  Company,  (ii)  there  are no  other  Persons,  immediately  following  the
occurrence of the event described in clause (i), who are Acquiring Persons,  and
(iii) the Board of Directors of the Company (with the  concurrence of a majority
of the  Continuing  Directors)  shall so approve,  then the  Company's  right of
redemption  provided in subparagraph  (a) of this Section 25 shall be reinstated
and thereafter all  outstanding  Rights shall again be subject to the provisions
of this Section 25.  Notwithstanding  anything to the contrary contained in this
Rights Agreement, the Rights shall not be exercisable after the first occurrence
of a Stock Acquisition Date until such time as the Company's right of redemption
hereunder has expired.

                  (c)  Immediately  upon the action of the Board of Directors of
the Company  electing to redeem the Rights (or, if such redemption is subject to
conditions, immediately upon satisfaction of such conditions), evidence of which
shall have 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  shall be to receive the  Redemption
Price for each Right so held.  Promptly  (but,  in any  event,  within ten days)
after the  action of the  Board of  Directors  ordering  the  redemption  of the
Rights, the Company shall 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 their last  addresses as they appear upon the  registry  books of the
Rights Agent or, prior to the  Distribution  Date, on the registry  books of the
Transfer  Agent for the Common  Stock.  Any notice which is mailed in the manner
herein  provided shall be deemed given,  whether or not the holder  receives the
notice. Each such notice of redemption will state the method by which the


                                       34

<PAGE>



payment of the Redemption Price will be made. Neither the Company nor any of its
Affiliates or Associates may redeem, acquire or purchase for value any Rights at
any time in any manner other than as specifically  set forth in this Section 25,
and other than in  connection  with the purchase,  acquisition  or redemption of
Common Stock prior to the Distribution Date.

         SECTION 26.       NOTICE OF CERTAIN EVENTS.

                  (a) In case the Company shall  propose,  at any time after the
Distribution  Date, (i) to pay any dividend payable in securities of the Company
of any class to the  holders  of its  shares of  Preferred  Stock or to make any
other  distribution  to the holders of shares of  Preferred  Stock (other than a
regular  periodic cash dividend),  or (ii) to offer to the holders of its shares
of Preferred  Stock rights,  options or warrants to subscribe for or to purchase
any additional  shares of Preferred Stock or securities  convertible into shares
of Preferred  Stock,  or (iii) to effect any  reclassification  of its shares of
Preferred Stock (other than a reclassification involving only the subdivision of
outstanding  shares of Preferred  Stock), or (iv) to effect any consolidation or
merger into or with any other  Person,  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,  or (v) to effect  the  liquidation,
dissolution  or  winding up of the  Company,  then,  in each such case,  (i) the
Company  shall give to each  holder of a Right,  to the extent  feasible  and in
accordance with Section 26, a notice of such proposed action, which notice shall
specify the proposed event and the  consequences  of the event to the holders of
Rights under Section 11(a), Section 12 or Section 14 hereof, as the case may be,
and, upon consummating such transaction,  shall similarly give notice thereof to
each holder of Rights and (ii) all references in the preceding  paragraph (a) to
Preferred  Stock shall be deemed  thereafter  referred to Common  Stock or other
securities, as appropriate 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 Common
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any  action  covered by clause  (i),  (ii) or (v) above at least 20 days
prior to the record date for determining holders of Common Stock for purposes of
such action, and in the case of any such other action, at least 20 days prior to
the date of the  taking of such  proposed  action  or the date of  participation
therein by the holders of Common  Stock,  whichever  shall be the  earlier.  The
failure to give notice  required by this Section 26 or any defect  therein shall
not affect the  legality or  validity of the action  taken by the Company or the
vote upon any such action.

                  (b)  Notwithstanding  anything in this Rights Agreement to the
contrary,  prior to the  Distribution  Date a  filing  by the  Company  with the
Securities and Exchange  Commission  shall constitute  sufficient  notice to the
holders of securities of the Company, including the Rights, for purposes of this
Rights Agreement and no other notice need be given.

         SECTION  27.  NOTICES.  Notices or demands  authorized  by this  Rights
Agreement to be given or made by the Rights Agents or by the holder of any Right
Certificate (or, prior to the  Distribution  Date, of the Common Stock) to or on
the Company shall be  sufficiently  given or made if sent by  first-class  mail,
postage  prepaid,  addressed (until another address if filed in writing with the
Rights Agent) as follows:

                           Tag-It Pacific, Inc.
                           3820 South Hill Street
                           Los Angeles, California 90037
                           Attention: Chief Executive Officer

Subject to the provisions of Section 23 hereof,  any notice or demand authorized
by this Rights  Agreement to be given or made by the Company or by the holder of
any Right Certificate to or on the Rights Agent shall


                                       35

<PAGE>



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:

                           American Stock Transfer and Trust Company
                           40 Wall Street
                           New York, New York 10005

Notices or demands  authorized  by this Rights  Agreement to be given or made by
the  Company or the Rights  Agent to the  holder of any Right  Certificate  (or,
prior to the  Distribution  Date, to the holder of any certificate  representing
Common Stock) shall be sufficiently  given or made if sent by first-class  mail,
postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Company.

         SECTION 28. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution Date,
the  Company  may and  the  Rights  Agent  shall,  if the  Company  so  directs,
supplement or amend any provision of this Rights Agreement  (including,  without
limitation,  the date on which the Distribution Date shall occur, the definition
of Acquiring  Person or Adverse Person,  the time during which the Rights may be
redeemed  or any  provision  of the  Certificate  of  Designation)  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  28, the  Company and the Rights  Agent  shall,  if the Company so
directs,  supplement or amend this Rights Agreement  without the approval of any
holders  of  Rights  Certificates  in order  (a) to cure any  ambiguity,  (b) to
correct or supplement any provision  contained  herein which may be defective or
inconsistent  with any other provisions  herein,  (c) to shorten or lengthen any
time period hereunder (which  shortening or lengthening  shall be effective only
if  there  are  Continuing  Directors  then in  office  and  shall  require  the
concurrence  of a majority of such  Continuing  Directors if such  supplement or
amendment  occurs at or after the time a Person becomes an Acquiring  Person) or
(d) to change or  supplement  the  provisions  hereof  in any  manner  which the
Company may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Rights  Certificate  (other than an Acquiring Person
or an Affiliate or Associate of an Acquiring Person);  PROVIDED,  HOWEVER,  that
this Rights  Agreement may not be supplemented or amended to lengthen,  pursuant
to clause (c) of this  sentence,  (i) a time period  relating to when the Rights
may be redeemed at such time as the Rights are not then  redeemable  or (ii) any
other time period  unless such  lengthening  is for the purposes of  protecting,
enhancing or  clarifying  the rights of,  and/or the benefits to, the holders of
Rights.  Upon the delivery of a certificate  from an appropriate  officer of the
Company which states that the proposed  supplement or amendment is in compliance
with  the  terms of this  Section  28,  the  Rights  Agent  shall  execute  such
supplement or amendment.  Prior to the  Distribution  Date, the interests of the
holders of Rights shall be deemed  coincident  with the interests of the holders
of Common Stock.

         SECTION 29.       SUCCESSORS.  All the covenants and provisions of this
Rights Agreement by or for the benefit of the Company or the Rights Agent shall 
bind and inure to the benefit of their respective successors and assigns 
hereunder.

         SECTION 30. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS,  ETC.
For all  purposes of this Rights  Agreement,  any  calculation  of the number of
shares of  Common  Stock  outstanding  at any  particular  time,  including  for
purposes of determining the particular  percentage of such outstanding shares of
Common  Stock of which any  Person  is the  Beneficial  Owner,  shall be made in
accordance  with the last sentence of Rule  13d-3(d)(1)(i)  of the General Rules
and Regulations under the Exchange Act. Except as explicitly  otherwise provided
herein, the Board of Directors of the Company shall have the exclusive power and
authority to  administer  this Rights  Agreement  and to exercise all rights and
powers  specifically  granted to the Board of Directors or to the Company, or as
may be necessary or advisable in the  administration  of this Rights  Agreement,
including  without  limitation,  the  right  and  power  to  (a)  interpret  the
provisions  of this  Rights  Agreement  and (b) make all  determinations  deemed
necessary or advisable for the administration of


                                       36

<PAGE>



this Rights  Agreement  (including a  determination  to redeem or not redeem the
Rights or to amend the Rights  Agreement and a determination of whether there is
an  Acquiring  Person).  All such  actions,  calculations,  interpretations  and
determinations (including, for purposes of clause (ii) below, all omissions with
respect to the  foregoing)  which are done or made by the Board of  Directors in
good  faith,  shall (i) be final,  conclusive  and binding on the  Company,  the
Rights  Agent,  the  holders of the Rights and all other  parties,  and (ii) not
subject the Board of Directors to any liability to the holders of the Rights.

         SECTION 31. BENEFITS OF THIS RIGHTS  AGREEMENT.  Nothing in this Rights
Agreement  shall be construed to give to any Person other than the Company,  the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim under this Rights  Agreement;  but this Rights  Agreement shall be for the
sole and exclusive  benefit of the Company,  the Rights Agent and the registered
holders of the Right  Certificates  (and,  prior to the  Distribution  Date, the
Common Stock).

         SECTION  32.  SEVERABILITY.   If  any  term,  provision,   covenant  or
restriction  of  this  Rights   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 Rights
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.

         SECTION 33. GOVERNING LAW. This Rights  Agreement,  each right and each
right  certificate  issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes  shall be governed by and
construed in accordance  with the laws of such state  applicable to contracts to
be made and performed entirely within such state.

         SECTION 34. COUNTERPARTS;  EFFECTIVENESS.  This Rights Agreement may be
executed in any number of counterparts and each of such  counterparts  shall for
all  purposes  be  deemed to be an  original,  and all such  counterparts  shall
together constitute one and the same instrument.  This Rights Agreement shall be
effective as of the close of business on the date hereof.

         SECTION 35.  DESCRIPTIVE HEADINGS. The captions herein are included for
convenience of reference only, do not constitute a part of this Rights Agreement
and shall be ignored in the construction and interpretation hereof.

         IN  WITNESS  WHEREOF,  the  parties  hereto  have  caused  this  Rights
Agreement to be duly executed, all as of the date and year first above written.

                                               TAG-IT PACIFIC, INC.,
                                               a Delaware corporation


                                               By:       /S/ FRANCIS SHINSATO
                                                         Francis Shinsato
                                               Title:    Chief Financial Officer



Attest:                                       AMERICAN STOCK TRANSFER
                                              AND TRUST COMPANY,
                                              as Rights Agent



                                       37

<PAGE>




By:       /S/ SUSAN SILBER                           By:     /S/ HERBERT LEMME
          -----------------                                  ------------------
         Susan Silber                                        Herbert J. Lemmer\
Title:   Assistant Secretary                         Title:  Vice President



                                       38

<PAGE>



                                                                       EXHIBIT A

                          CERTIFICATE OF DESIGNATION OF
                       RIGHTS, PREFERENCES, AND PRIVILEGES
                           OF SERIES A PREFERRED STOCK
                                       OF
                              TAG-IT PACIFIC, INC.


         Pursuant to Section 151 of the Delaware General Corporation law:

         The undersigned hereby certifies that the following resolution has been
adopted  by  the  Board  of  Directors  of  Tag-It  Pacific,  Inc.,  a  Delaware
corporation  (the  "Corporation")  as required  by Section  151 of the  Delaware
General  Corporation  Law by action of the  Corporation's  Board of Directors on
October 15, 1998;

                           RESOLVED,  that pursuant to the  authority  vested in
                  the Board of Directors in  accordance  with the  provisions of
                  the certificate of incorporation of the Corporation, the Board
                  of Directors  hereby creates a series of preferred  stock, par
                  value $0.001 per share of the  Corporation  and hereby  states
                  the designation  and number of shares,  and fixes the relative
                  rights,  preferences and  limitations  thereof (in addition to
                  any provisions set forth in the  certificate of  incorporation
                  of the Corporation which are applicable to the Preferred Stock
                  of all classes and series) as set forth in the  Certificate of
                  Designation of Rights,  Preferences and Privileges of Series A
                  Preferred  Stock of Tag-It  Pacific,  Inc., a copy of which is
                  attached to the Rights Agreement as Exhibit A:

         Series A Preferred Stock:

         Section 1.  DESIGNATION AND AMOUNT.  The shares of such series shall be
designated  as "Series A Preferred  Stock" (the "Series A Preferred  Stock") and
the number of shares  constituting the Series A Preferred Stock shall be 250,000
shares of Series A Preferred Stock, having a par value of $0.001 per share. Such
number of shares may be increased or  decreased  by  resolution  of the Board of
Directors;  PROVIDED,  that no  decrease  shall  reduce  the number of shares of
Series A  Preferred  Stock to a number  less  than the  number  of  shares  then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding  options,   rights  or  warrants  or  upon  the  conversion  of  any
outstanding  securities  issued by the  Corporation  convertible  into  Series A
Preferred Stock.

         Section  2.       DIVIDENDS AND DISTRIBUTIONS

                  (a)  Subject to the rights of the holders of any shares of any
series of Preferred  Stock (or any similar  stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred  Stock,  in preference  to the holders of Common  Stock,  par
value  $0.001 per share (the "Common  Stock"),  of the  Corporation,  and of any
other junior  stock,  shall be entitled to receive,  when, as and if declared by
the Board of Directors out of funds legally available for the purpose,  (i) cash
dividends  in an amount per whole share  (rounded to the nearest  cent) equal to
the Formula  Number (as defined  below) then in effect,  times the aggregate per
share amount of all cash  dividends  declared or paid on the Common  Stock,  and
(ii) a preferential  cash dividend (a "Preferential  Dividend"),  if any, on the
first day of April, July, October and January in each year (each such date being
referred to herein as a "Quarterly

                                       39

<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 Series A Preferred
Stock,  in an amount per share  (rounded to the nearest cent) equal to $1.00 per
share  of  Series  A  Preferred  Stock  less the per  share  amount  of all cash
dividends  declared  on the Series A Preferred  Stock  pursuant to clause (i) of
this sentence since the immediately  preceding  Quarterly  Dividend Payment Date
or, with respect to the first Quarterly  Dividend  Payment Date, since the first
issuance of any share or fraction  of a share of Series A  Preferred  Stock.  In
addition,  if the Corporation shall pay any dividend or make any distribution on
the  Common  Stock  payable  in  assets,  securities  or other  forms of noncash
consideration  (other than dividends or distributions solely in shares of Common
Stock),  then, in each such case, the Corporation  shall  simultaneously  pay or
make on each whole  outstanding share of Series A Preferred Stock, a dividend or
distribution  in like kind equal to the Formula Number then in effect times such
dividend or  distribution  on each share of the Common Stock.  The dividends and
distributions  on the Series A  Preferred  Stock to which  holders  thereof  are
entitled  pursuant to clause (i) of the first sentence of this paragraph and the
second sentence of this paragraph are hereinafter  referred to as "Participating
Dividends."  As used herein,  the  "Formula  Number"  shall be 1,000;  provided,
however,  that if at any time after November 6, 1998, the Corporation  shall (i)
declare  or pay any  dividend  or make any  distribution  on the  Common  Stock,
payable  in  shares  of  Common  Stock,  (ii)  subdivide  (by a stock  split  or
otherwise),  the  outstanding  shares of Common  Stock  into a larger  number of
shares of Common Stock, or (iii) combine (by a reverse stock split or otherwise)
the outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then in each such case the Formula Number in effect  immediately prior to
such event shall be adjusted to a number  determined by multiplying  the Formula
Number then in effect 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 (and  rounding  the result to the
nearest whole number); and provided further, that, if at any time after November
6, 1998 the Corporation shall issue any shares of its capital stock in a merger,
reclassification,  or change of the outstanding  shares of Common Stock, then in
each such event the Formula  Number shall be  appropriately  adjusted to reflect
such  merger,  reclassification,  or  change  so that  each  share  of  Series A
Preferred Stock  continues to be the economic  equivalent of a Formula Number of
shares of Common Stock prior to such merger, reclassification or change.

                  (b) The Corporation shall declare each Participating  Dividend
immediately  prior  to or at the same  time it  declares  any  cash or  non-cash
dividend or distribution on the Common Stock in respect of which a Participating
Dividend is required to be paid. No cash or non-cash dividend or distribution on
the Common Stock in respect of which a Participating  Dividend is required shall
be paid or set aside for  payment on the  Common  Stock  unless a  Participating
Dividend in respect of such dividend shall have been paid.

                  (c)  Dividends  shall  begin to accrue  and be  cumulative  on
outstanding  shares of Series A  Preferred  Stock  from the  Quarterly  Dividend
Payment  Date  preceding  the date of issue of such  shares,  unless the date of
issue of such  shares  is  prior to the  record  date  for the  first  Quarterly
Dividend  Payment  Date,  in which case  dividends on such shares shall begin to
accrue from the date of issue of such  shares,  or unless the date of issue is a
Quarterly  Dividend  Payment  Date or is a date  after the  record  date for the
determination  of  holders of shares of Series A  Preferred  Stock  entitled  to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such  dividends  shall begin to accrue and be  cumulative
from such Quarterly  Dividend  Payment Date.  Accrued but unpaid dividends shall
not bear interest.  Dividends paid on the shares of Series A Preferred  Stock in
an amount less than the total  amount of such  dividends at the time accrued and
payable on such shares  shall be allocated  pro rata on a share-by-  share basis
among all such shares at the time outstanding.  The Board of Directors may fix a
record  date for the  determination  of holders of shares of Series A  Preferred
Stock  entitled  to  receive  payment  of a dividend  or  distribution  declared
thereon,  which  record  date  shall be not more than 60 days  prior to the date
fixed for the payment thereof.



                                       40

<PAGE>



         Section 3.        VOTING RIGHTS.  The holders of shares of Series A 
Preferred Stock shall have the following voting rights:

                  (a) Each holder of Series A Preferred  Stock shall be entitled
to a number of votes equal to the Formula Number then in effect,  for each share
of Series A Preferred  Stock held of record on each  matter on which  holders of
the Common Stock or stockholders  generally are entitled to vote,  multiplied by
the maximum  number of votes per share  which any holder of the Common  Stock or
stockholders  generally  then have with  respect to such  matter  (assuming  any
holding  period  or other  requirement  to vote a  greater  number  of shares is
satisfied).

                  (b)  Except  as  otherwise   provided  herein,  in  any  other
Certificate  of Amendment  creating a series of  Preferred  Stock or any similar
stock,  or by law,  the  holders of shares of Series A  Preferred  Stock and the
holders of shares of Common Stock and any other capital stock of the Corporation
having  general  voting  rights shall vote  together as one class on all matters
submitted to a vote of stockholders of the Corporation.

                  (c) Except as set forth  herein,  or as otherwise  provided by
law, holders of Series A Preferred Stock shall have no special voting rights and
their consent  shall not be required  (except to the extent they are entitled to
vote with holders of Common Stock as set forth  herein) for taking any corporate
action.

         Section 4.        CERTAIN RESTRICTIONS.

                  (a) Whenever Preferential Dividends or Participating Dividends
are in arrears  or the  Corporation  shall be in  default  in  payment  thereof,
thereafter  and  until  all  accrued  and  unpaid  Participating  Dividends  and
Preferential Dividends, whether or not declared, on shares of Series A Preferred
Stock  outstanding  shall have been paid or set aside for  payment in full,  the
Corporation shall not:

                             (i)    declare or pay dividends, or make any other 
distributions on or redeem or purchase or  otherwise  acquire for  consideration
any shares of stock  ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;

                            (ii)  declare  or pay  dividends,  or make any other
distributions, on the shares of stock  ranking  on a  parity  (either  as  to  
dividends  or  upon  liquidation, dissolution or winding up) with the Series A 
Preferred  Stock,  except dividends paid ratably on the Series A 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 junior or on a parity (either as to 
dividends or upon liquidation, dissolution  or winding up) to or with the Series
A Preferred  Stock,  provided that the  Corporation  may at any time  redeem,  
purchase or  otherwise  acquire shares of any such junior or 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
Series A Preferred Stock; or

                            (iv)  redeem or purchase  or  otherwise  acquire for
consideration shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred  Stock,  except in accordance with a 
purchase offer made in writing or by publication  (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of  
Directors,  after  consideration  of the respective  annual  dividend rates and
other relative  rights and preferences of the respective series and classes,  
shall determine in good faith will result in fair and equitable treatment among 
the respective series or classes.


                                       41

<PAGE>




                  (b) The  Corporation  shall not permit any  subsidiary  of the
Corporation  to purchase or otherwise  acquire for  consideration  any shares of
stock of the Corporation  unless the Corporation  could,  under paragraph (a) of
this Section 4,  purchase or  otherwise  acquire such shares at such time and in
such manner.

         Section 5.  REACQUIRED  SHARES.  Any shares of Series A Preferred Stock
purchased  or otherwise  acquired by the  Corporation  in any manner  whatsoever
shall be retired and canceled promptly after the acquisition  thereof.  All such
shares shall upon their  cancellation  become  authorized but unissued shares of
Preferred  Stock and may be reissued as part of a new series of Preferred  Stock
subject to the conditions and restrictions on issuance set forth herein,  in the
Certificate  of  Incorporation,  or in any other  Certificate  of  Amendment  or
Certificate of Designation  creating a series of Preferred  Stock or any similar
stock or as otherwise required by law.

         Section 6.  LIQUIDATION,  DISSOLUTION OR WINDING UP. Upon any voluntary
or involuntary  liquidation,  dissolution or winding up of the  Corporation,  no
distribution  shall be made (a) to the holders of shares of stock ranking junior
(either as to dividends or upon  liquidation,  dissolution or winding up) to the
Series A Preferred Stock unless,  prior thereto, the holders of shares of Series
A Preferred  Stock shall have received an amount equal to the accrued and unpaid
dividends and  distributions  thereon,  whether or not declared,  to the date of
such payment,  plus an amount equal to the greater of (i) $0.01 per whole share,
or (ii) an aggregate amount per share equal to the Formula Number then in effect
times the  aggregate  amount to be  distributed  per share to  holders of Common
Stock,  or (b) to the holders of shares of stock ranking on a parity  (either as
to dividends or upon  liquidation,  dissolution or winding up) with the Series A
Preferred Stock, unless simultaneously  therewith distributions are made ratably
on the Series A Preferred  Stock and all such parity stock in  proportion to the
total  amounts  to which the  holders  of Series A  Preferred  Stock  shares are
entitled  under clause  (a)(i) of this sentence and to which the holders of such
parity shares are entitled in each case upon such  liquidation,  dissolution  or
winding up.

         Section 7.  CONSOLIDATION,  MERGER, ETC. If the Corporation shall enter
into any  consolidation,  merger,  combination or other transaction in which the
shares  of  Common  Stock are  exchanged  for or  changed  into  other  stock or
securities,  cash and/or any other property, then in any such case each share of
Series A  Preferred  Stock  shall at the same  time be  similarly  exchanged  or
changed  into an amount per share  equal to the  Formula  Number  then in effect
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 that both this Section 7 and
Section 2 appear to apply to a transaction, this Section 7 shall control.

         Section 8.        EFFECTIVE TIME OF ADJUSTMENTS.

                  (a)  Adjustments  to the Series A Preferred  Stock required by
the  provisions  hereof  shall be  effective  as of the time at which  the event
requiring such adjustments occurs.

                  (b) The  Corporation  shall give prompt written notice to each
holder of a share of Series A  Preferred  Stock of the effect on any such shares
of any adjustment to the dividend rights or rights upon liquidation, dissolution
or  winding  up  of  the   Corporation   required  by  the  provisions   hereof.
Notwithstanding the foregoing  sentence,  the failure of the Corporation to give
such  notice  shall not affect the  validity of or the force or effect of or the
requirement for such adjustment.

         Section 9.        NO REDEMPTION. The shares of Series A Preferred Stock
shall not be redeemable.


                                       42

<PAGE>



         Section 10.  RANK.  Unless  otherwise  provided in the  Certificate  of
Incorporation or a Certificate of Designation relating to a subsequent series of
Preferred  Stock of the  Corporation,  the Series A Preferred  Stock shall rank,
with respect to the payment of dividends and the distribution of assets,  junior
to all series of any other class of the Corporation's Preferred Stock.

         Section 11.  FRACTIONAL  SHARES.  The Series A Preferred Stock shall be
issuable upon exercise of the Rights issued pursuant to the Rights  Agreement in
whole shares or in any fraction of a share that is one one-thousandth (1/1000th)
of a share or any integral  multiple of such  fraction  which shall  entitle the
holder, in proportion to such holder's  fractional shares, to receive dividends,
exercise voting rights,  participate in distributions and to have the benefit of
all other rights of holders of Series A Preferred  Stock.  In lieu of fractional
shares, the Corporation, prior to the first issuance of a share or a fraction of
a share of Series A  Preferred  Stock,  may elect (1) to make a cash  payment as
provided  in the  Rights  Agreement  for  fractions  of a share  other  than one
one-thousandth (1/1000th) of a share or any integral multiple thereof, or (2) to
issue  depository  receipts  evidencing such  authorized  fraction of a share of
Series A  Preferred  Stock  pursuant  to an  appropriate  agreement  between the
Corporation  and a depository  selected by the  Corporation;  provided that such
agreement shall provide that the holders of such depository  receipts shall have
the rights,  privileges and preferences to which they are entitled as holders of
the Series A Preferred Stock.

         Section  12.  AMENDMENT.   The  Certificate  of  Incorporation  of  the
Corporation  shall not be amended in any manner which would  materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding  shares of Series A Preferred Stock,  voting
together as a single class.

                  IN WITNESS  WHEREOF,  Tag-It  Pacific,  Inc.  has caused  this
Certificate to be signed and attested this 4th day of November, 1998.


                                                       -------------------------
                                                       Francis Shinsato
                                                       Chief Financial Officer


                                       43

<PAGE>



                                                                       EXHIBIT B



                           FORM OF RIGHTS CERTIFICATE

Certificate No. R-                                           ____________ Rights



         NOT  EXERCISABLE  AFTER  NOVEMBER  6, 2008 OR  EARLIER IF  REDEEMED  OR
         EXCHANGED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION,  AT THE
         OPTION OF THE COMPANY, AT $.001 PER RIGHT ON THE TERMS SET FORTH IN THE
         RIGHTS  AGREEMENT.  UNDER CERTAIN  CIRCUMSTANCES,  RIGHTS  BENEFICIALLY
         OWNED BY AN  ACQUIRING  PERSON  (AS SUCH TERM IS  DEFINED IN THE RIGHTS
         AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND
         VOID AND NON-TRANSFERABLE.


                                RIGHT CERTIFICATE

                              TAG-IT PACIFIC, 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 November 4, 1998 (the  "Rights
Agreement")   between  Tag-It  Pacific,   Inc.,  a  Delaware   corporation  (the
"Company"),  and American  Stock Transfer and Trust Company as Rights Agent (the
"Rights  Agent"),  unless the rights evidenced hereby shall have been previously
redeemed  by the  Company,  to  purchase  from the Company at any time after the
Distribution Date (as such term is defined in the Rights Agreement) and prior to
5:00 p.m.  Los  Angeles  time on November 6, 2008,  at the  principal  office or
offices of the Rights Agent designated for such purpose, or at the office of its
successor as Rights Agent or its successors as Rights Agent, one  one-thousandth
(1/1000th) of a fully paid and non-assessable share of Series A Preferred Stock,
par value $0.001 per share,  of the Company (the "Preferred  Stock"),  at a cash
purchase  price  of  $10.00  per one  one-thousandth  (1/1000th)  of a share  of
Preferred  Stock,  as the same may from time to time be adjusted  in  accordance
with  the  Rights  Agreement  (the  "Purchase  Price"),  upon  presentation  and
surrender  of this Right  Certificate  with the form of election to purchase and
the related  certificate  duly executed.  The number of Rights evidenced by this
Right  Certificate (and the number of fractional shares of Preferred Stock which
may be purchased upon exercise  thereof) set forth above, and the Purchase Price
set forth above,  are the number and Purchase  Price as of  __________  __, ____
based on the shares of Preferred Stock as constituted at such date.

         As provided in the Rights Agreement,  the Purchase Price and the number
of shares of  Preferred  Stock which may be  purchased  upon the exercise of the
Rights  evidenced  by this Right  Certificate  are subject to  modification  and
adjustment  upon the happening of certain events,  and in certain  circumstances
may be exercised to purchase  securities other than shares of Preferred Stock or
securities of issuers other than the Company.

         If the Rights  evidenced  by this  Rights  Certificate  are at any time
beneficially  owned by an  Acquiring  Person or an  Affiliate or Associate of an
Acquiring  Person (as such terms are  defined  in the  Rights  Agreement),  such
Rights  shall be null and void and  nontransferable  and the  holder of any such
Right

                                       44

<PAGE>



(including  any purported  transferee  or subsequent  holder) shall not have any
right to exercise or transfer any such Right.

         This Right  Certificate is subject to all of the terms,  provisions and
conditions of the Rights Agreement,  which terms,  provisions and conditions are
hereby  incorporated  herein by  reference  and made a part  hereof and to which
Rights Agreement  reference is hereby made for a full description of the rights,
limitations  of rights,  obligations,  duties and  immunities  thereunder of the
Rights  Agent,  the  Company and the  holders of the Right  Certificates,  which
limitations of rights include the temporary  suspension of the exercisability of
such Rights under the specific  circumstances set forth in the Rights Agreement.
Copies of the Rights  Agreement are on file at the office of the Company and the
Rights Agent and are also available  free of charge upon written  request mailed
to the Rights Agent at:

                    American Stock Transfer and Trust Company
                                 40 Wall Street
                           New York, New York 10005

         This Right Certificate, with or without other Right Certificates,  upon
surrender  at the  office or offices of the  Rights  Agent  designated  for such
purpose, may be exchanged for another Right Certificate or Right Certificates of
like tenor and date  evidencing  Rights  entitling the holder to purchase a like
aggregate  number of shares of  Preferred  Stock as the Rights  evidenced by the
Right  Certificate or Right  Certificates  surrendered  shall have entitled such
holder to purchase.  If this Right  Certificate  shall be exercised in part, the
holder  shall be  entitled  to  receive  upon  surrender  hereof  another  Right
Certificate or Right Certificates for the number of whole Rights not exercised.

         Subject to the provisions of the Rights Agreement, the Rights evidenced
by this  Right  Certificate  may be  redeemed  by the  Board of  Directors  at a
redemption  price of $.001 per Right  (payable  in cash or other  consideration)
appropriately  adjusted as provided in the Rights Agreement at any time prior to
the earlier to occur of (i) 10 days after a Stock  Acquisition  Date (as defined
in the Rights Agreement), and (ii) the Final Expiration Date.

         No fractional shares of Preferred Stock (other than integral  multiples
of one one-thousandths (1/1000ths) of a share, which may, at the election of the
Company,  be evidenced by depositary  receipts) will be issued upon the exercise
of any Right or Rights evidenced hereby, but in lieu thereof a cash payment will
be made, as provided in the Rights Agreement.

         No holder of this Right Certificate, as such, shall 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 which may at any time
be issuable on the exercise hereof,  nor shall anything  contained in the Rights
Agreement or herein be construed to confer upon the holder hereof,  as such, any
of the  rights  of a  stockholder  of the  Company  or any right to vote for the
election  of  directors  or upon any matter  submitted  to  stockholders  at any
meeting  thereof,  or give or withhold  consent to any corporate  action,  or to
receive notice of meetings or other actions  affecting  stockholders  (except as
provided  in the Rights  Agreement),  or to receive  dividends  or  subscription
rights,  or  otherwise,  until  the  Right or  Rights  evidenced  by this  Right
Certificate shall have been exercised as provided in the Rights Agreement.

         This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.

         WITNESS the facsimile signature of the proper officers of the Company.


                                       45

<PAGE>



Dated as of                                         TAG-IT PACIFIC, INC.
- ----------------,-------


- --------------------------                       By: 
Secretary                                            ---------------------------
                                                      Title:
Countersigned:

- ------------------------------
as Rights Agent


By: 
   ---------------------------
   Title:


                                       46

<PAGE>



                     [On Reverse Side of Rights Certificate]

                          FORM OF ELECTION TO PURCHASE

                  (To be executed if holder desires to exercise
                                   Rights represented by the Right Certificate.)

To:      TAG-IT PACIFIC, INC.


         The undersigned hereby  irrevocably  elects to exercise  ______________
Rights  represented  by this Right  Certificate  to purchase one  one-thousandth
(1/1000th)  of a share of  Preferred  Stock  issuable  upon the  exercise of the
Rights (or such other securities of the Company or of any other Person which may
be issuable upon the exercise of the Rights) and requests that  certificates for
such securities be issued in the name of and delivered to:

Please insert social security
or other identifying number

- ------------------------------------------------------------------------------
                         (Please print name and address)

- ------------------------------------------------------------------------------

         If such number of Rights shall not be all the Rights  evidenced by this
Right Certificate,  a new Right Certificate for the balance of such Rights shall
be registered in the name of and delivered to:

Please insert social security
or other identifying number

- ------------------------------------------------------------------------------
                         (Please print name and address)

- ------------------------------------------------------------------------------




OPTIONAL ELECTION TO EXERCISE WITHOUT PAYMENT OF CASH:

With respect to the exercise of  ______________  of the Rights  specified above,
the  undersigned  hereby elects to exercise such Rights without  payment of cash
and to receive a number of one one-thousandth (1/1000th) of a share of Preferred
Stock or other securities  having a value (as determined  pursuant to the Rights
Agreement) equal to the difference  between (i) the value of the Preferred Stock
or other securities that would


                                       47

<PAGE>



have been issuable upon exercise  thereof upon payment of the Purchase  Price as
provided in the Rights Agreement, and (ii) the amount of such Purchase Price.


Dated:  
       ------------------, --------


                                                  ------------------------------
                                                  Signature

Signature Guaranteed:



                                   CERTIFICATE


         The  undersigned  hereby  certifies by checking the  appropriate  boxes
that:

         1. the Rights evidenced by this Right  Certificate  ____are ____are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an  Affiliate  or  Associate  of any such  Acquiring  Person  (as such terms are
defined in the Rights Agreement);

         2. after due inquiry and to the best knowledge of the  undersigned,  it
____did ____did not acquire the Rights evidenced by this Right  Certificate from
any  Person  who is,  was or  became an  Acquiring  Person  or an  Affiliate  or
Associate of an Acquiring Person.


Dated:  ______________, ____                ______________________________
                                             Signature

Signature Guaranteed:





                                     NOTICE

         The  signature to the  foregoing  Election to Purchase and  Certificate
must  correspond to the name as written upon the face of this Right  Certificate
in every particular, without alteration or enlargement or any change whatsoever.


                                       48

<PAGE>



                               FORM OF ASSIGNMENT


                (To be executed by the registered holder if such
                holder desires to transfer the Right Certificate)


         FOR VALUE RECEIVED _____________________ hereby sells, assigns and 
transfers unto

- ------------------------------------------------------------------------------
                  (Please print name and address of transferee)

- ------------------------------------------------------------------------------

this Right Certificate, together with all right, title and interest therein, and
does  hereby  irrevocably  constitute  and  appoint  ___________________________
Attorney,  to  transfer  the  within  Right  Certificate  on the books of Tag-It
Pacific, Inc., with full power of substitution.


Dated:  ____________________, ____



                                                  ------------------------------
                                                  Signature

Signature Guaranteed:



                                   CERTIFICATE


         The  undersigned  hereby  certifies by checking the  appropriate  boxes
that:

         1. the Rights evidenced by this Right  Certificate  ____are ____are not
being sold,  assigned and  transferred by or on behalf of a Person who is or was
an Acquiring  Person or an Affiliate or Associate of any such  Acquiring  Person
(as such terms are defined in the Rights Agreement);


                                       49

<PAGE>



         2. after due inquiry and to the best knowledge of the  undersigned,  it
____did ____did not acquire the Rights evidenced by this Right  Certificate from
any  Person  who is,  was or  subsequently  became  an  Acquiring  Person  or an
Affiliate or Associate of an Acquiring Person.


Dated:  ______________, ____                ______________________________
                                              Signature

Signature Guaranteed:



                                     NOTICE

         The  signature  to  the  foregoing   Assignment  and  Certificate  must
correspond  to the name as written  upon the face of this Right  Certificate  in
every particular, without alteration or enlargement or any change whatsoever.




                                       50

<PAGE>



                                                                       EXHIBIT C


                  SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK


         DISTRIBUTION  OF  RIGHTS:  Effective  October  15,  1998,  the Board of
Directors (the "Board") of Tag-It  Pacific,  Inc., a Delaware  corporation  (the
"Company")  authorized and declared a dividend of one right (a "Right") for each
issued and  outstanding  share of the Common  Stock,  par value $0.001 per share
(the "Common Stock") of the Company. The dividend is payable to the stockholders
of record on  November  6, 1998 (the  "Record  Date").  All  Rights  are  issued
pursuant  to,  and will be subject  to the terms and  conditions  of, the Rights
Agreement  between the Company and American  Stock Transfer and Trust Company as
Rights Agent dated as of November 4, 1998.  The  following is a brief summary of
the terms of the Rights.

         Each  Right,  when  exercisable,  will  entitle the  registered  holder
thereof to purchase from the Company one one-thousandth (1/1000th) of a share of
the Series A Preferred  Stock,  par value $0.001 per share,  of the Company (the
"Preferred  Stock")  at a  Purchase  Price  of  $10.00  per  one  one-thousandth
(1/1000th)  of a share of Preferred  Stock (the  "Purchase  Price"),  subject to
certain adjustments.

         EXERCISE OF RIGHTS:  The Rights will  initially be  represented  by the
certificates  evidencing  the  Common  Stock  and  will not be  exercisable,  or
transferable apart from the Common Stock, until the earliest to occur of (i) the
tenth day after the acquisition by a person or group of affiliated or associated
persons (other than an Exempt Person or, in certain  cases, a Permitted  Holder)
of  beneficial  ownership  of  15% or  more  of the  outstanding  Common  Stock;
PROVIDED,  that if within said ten-day  period the Acquiring  Person reduces his
beneficial  ownership  to less  than 15%,  then he shall be deemed  not to be an
Acquiring  Person and the Stock  Acquisition  Date (as defined  below)  shall be
deemed  not to have  occurred;  (ii) the tenth day after the  commencement  of a
tender  or  exchange  offer  the  consummation  of  which  would  result  in the
beneficial ownership by a person or group of affiliated or associated persons of
15% or more of the outstanding Common Stock;  PROVIDED,  that if within said ten
day period the person  withdraws the tender or exchange  offer,  then such offer
shall be  deemed  not to have been  made;  (iii) the tenth day after the date of
filing  of a  registration  statement  for any such  exchange  offer  under  the
Securities  Act of 1933,  as  amended,  and (iv) the tenth day after the date on
which the Board declares any person or group of affiliated or associated persons
which  beneficially  owns 10% or more of the  outstanding  Common Stock to be an
"Adverse  Person" (as described  below) (the earliest of these dates is referred
to as the "Distribution Date"). Under the Rights Agreement,  any person or group
described  in items (i) or (iv) above is referred to as an  "Acquiring  Person,"
and the date upon which a person or group first  becomes an Acquiring  Person is
referred to as the "Stock Acquisition Date."

         An "Adverse  Person" is any person or group of affiliated or associated
persons (other than an Exempt Person and a Permitted Holder) beneficially owning
10% or more of the outstanding  Common Stock,  if the Board  determines (i) that
the person or group is holding the shares of Common  Stock in order to cause the
Company to repurchase  their Common Stock or to take any other actions  intended
to provide them with short-term financial gain, in circumstances where the Board
determines that the actions to be taken are not in the best long-term  interests
of the Company or its  stockholders,  or (ii) that  beneficial  ownership of the
Common Stock by the person or group is causing or  reasonably  likely to cause a
material adverse impact on the business or prospects of the Company.

         An  "Exempt  Person" is defined as the  Company,  a  subsidiary  of the
Company,  an employee benefit plan of the Company,  or any of its  subsidiaries,
and, subject to certain  conditions,  Harold Dyne, Colin Dyne, Mark Dyne, Gerard
Guez, Todd Kay and Tarrant Apparel Group.


                                       51

<PAGE>



         A  "Permitted  Holder"  shall  mean a Person  who  acquires  beneficial
ownership  of  the  Common  Stock  of  the  Company   pursuant  to  a  Permitted
Acquisition;  PROVIDED,  HOWEVER,  a Permitted  Holder  shall remain a Permitted
Holder so long as the  aggregate  beneficial  ownership  of Common Stock held by
such Person  does not exceed that number of shares of Common  Stock held by such
Person immediately  following the Permitted  Acquisition  pursuant to which such
Person  became a  Permitted  Holder  (reduced  by the number of shares of Common
Stock from time to time  disposed of by such Person) plus a number of additional
shares  of Common  Stock  equal to 1% of the then  outstanding  shares of Common
Stock of the Company;  PROVIDED,  HOWEVER,  any shares of Common Stock issued or
issuable to a Permitted  Holder pursuant to employee benefit plans maintained by
the Company for the benefit of its employees, directors and consultants shall be
disregarded and not counted for purposes of calculating the limitations  imposed
by the immediately preceding sentence.

         "Permitted  Acquisition"  shall mean an acquisition of shares of Common
Stock by a Person in a  transaction  or series  of  transactions  which has been
previously approved by a majority of the Board of Directors with the concurrence
of a majority of the Continuing Directors.

         The Rights  (unless sooner  redeemed) will first become  exercisable on
the Distribution Date, at which time the Company will distribute  separate Right
Certificates representing the Rights to its then current stockholders, and it is
expected  that the Rights could then begin  trading  separately  from the Common
Stock. The Rights will expire on November 6, 2008 (the "Final Expiration Date"),
unless the Final  Expiration  Date is  extended or unless the Rights are earlier
redeemed or exchanged by the Company.

         ANTI-TAKEOVER  PROVISIONS:  Following the Stock  Acquisition  Date, the
Rights would give holders (other than the Acquiring  Person,  its affiliates and
transferees)  the right to purchase  from the Company,  for the Purchase  Price,
that number of one one-thousandth  (1/1000th) of a share of Preferred Stock (or,
in certain  circumstances,  Common Stock, cash,  property or other securities of
the Company)  having a market  value of twice the  Purchase  Price of the Right.
Notwithstanding any of the foregoing,  following the Stock Acquisition Date, all
Rights  that are,  or  (under  certain  circumstances  specified  in the  Rights
Agreement)  were,  beneficially  owned by any Acquiring  Person will be null and
void.

         Further, in a merger,  consolidation or sale or transfer of 50% or more
of the consolidated  assets or earning power of the Company,  each Right will be
converted  into the right to purchase,  for the Purchase  Price,  that number of
shares of common stock of the surviving entity or (in certain circumstances) its
parent  corporation,  which at the time of such  transaction  will have a market
value of twice the Purchase Price of the Right.

         Following the Distribution  Date,  exercisable Rights may be exercised,
at the option of the holder  thereof,  without the payment of the Purchase Price
in cash.  In any such case,  the number of  securities  which such person  would
otherwise  be  entitled  to receive  upon the  exercise  of such  Rights will be
reduced by the amount of the Purchase Price.

         Preferred  Stock  purchasable  upon  exercise of the Rights will not be
redeemable.  Each one  one-thousandth  (1/1000th) of a share of Preferred  Stock
will be entitled to participating dividends per one one-thousandth (1/1000th) of
a share equal to dividends which may from time to time be declared on a share of
Common Stock. In the event of  liquidation,  the Preferred Stock holders will be
entitled to a preferential  liquidation  payment.  These rights are protected by
customary anti-dilution provisions.

         REDEMPTION OF RIGHTS:  At any time prior to that date which is ten days
following the Stock Acquisition Date, the Board may redeem the outstanding 
Rights at a price of $.001 per Right, and may amend the Rights Agreement in any 
and all respects and particulars.  If during said ten-day period the Acquiring
Person reduces his beneficial ownership to less than 15%, the Rights will again 
be redeemable.  Subsequent

                                       52

<PAGE>


to ten days following the Stock  Acquisition Date, the Rights are not redeemable
and the Board may amend the Rights Agreement only to eliminate ambiguities or to
provide  additional  benefits  to the  holders  of the  Rights  (other  than any
Acquiring Person).

         VOTING OR  DIVIDEND  RIGHTS:  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.

         EFFECT OF RIGHTS: The Rights have certain  anti-takeover  effects.  The
Rights may cause  substantial  dilution  to a person or group that  attempts  to
acquire the Company on terms not  approved by the Board.  The Rights  should not
interfere  with any merger or other business  combination  approved by the Board
prior to the time that holders of the Rights become  entitled to exercise  their
Rights for Common  Stock (or common  stock of the  surviving  entity in a merger
with the Company), since until that time the Rights may be redeemed by the Board
at $.001 per Right.

         AMENDMENT: Any of the provisions of the Rights Agreement may be amended
by the Board 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 or to shorten or  lengthen  any time  period  under the Rights
Agreement;  PROVIDED,  HOWEVER,  that no  amendment  to adjust  the time  period
governing  redemption  shall  be  made  at  such  time  as the  Rights  are  not
redeemable.

         RIGHTS  AGREEMENT:  A copy of the Rights  Agreement is being filed with
the Securities and Exchange Commission as an Exhibit to a Current Report on Form
8-K dated on or about  November  4,  1998.  A copy of the  Rights  Agreement  is
available  free of charge from the  Company.  This  summary  description  of the
Rights does not  purport to be  complete  and is  qualified  in its  entirety by
reference to the Rights Agreement, which is incorporated herein by reference.



                                       53

<PAGE>



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