SECURITIES EXCHANGE AND COMMISSION
Washington, D. C. 20549
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FORM 8-K
CURRENT REPORT
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Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported): June 12, 1996
ZITEL CORPORATION
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(Exact name of registrant as specified in its charter)
California 94-2566313
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(State of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
47211 Bayside Parkway, Fremont, CA 94538
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(Address of principal executive offices) (Zip Code)
(510) 440-9600
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(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events.
On June 12, 1996, the Board of Directors of Zitel Corporation (the
"Company") declared a dividend of one preferred share purchase right (a "Right")
for each outstanding share of common stock, without par value (the "Common
Shares"), of the Company. The dividend is payable to the shareholders of record
on July 1, 1996 ("the "Record Date"). Each Right entitles the registered holder
to purchase from the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock, without par value (the "Preferred Stock"), at a
price of one hundred thirty-nine dollars ($139.00) per one one-hundredth of a
Preferred Share (the "Purchase Price"), subject to adjustment. Each one
one-hundredth of a share of Preferred Stock has designations and the powers,
preferences and rights, and the qualifications, limitations and restrictions
which make its value approximately equal to the value of a Common Share. The
description and terms of the Rights are set forth in a Rights Agreement dated as
of June 12, 1996 (the "Rights Agreement"), between the Company and American
Stock Transfer & Trust Company, as Rights Agent (the "Rights Agent").
Initially, the Rights will be evidenced by the stock certificates
representing the Common Shares then outstanding, and no separate Right
Certificates, as defined below, will be distributed. Until the earlier to occur
of (i) 10 days following a public announcement that a person, entity or group of
affiliated or associated persons, with certain limited exceptions for the
Company's existing corporate partners (an "Acquiring Person") has acquired
beneficial ownership of 15% or more of the outstanding Common Shares or (ii) 10
business days (or such later date as may be determined by action of the Board of
Directors prior to such time as any person or entity becomes an Acquiring
Person) following the commencement of, or announcement of an intention to make,
a tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of such outstanding
Common Shares (the earlier of such dates being called the "Distribution Date"),
the Rights will be evidenced, with respect to any of the Common Share
certificates outstanding as of the Record Date, by such Common Share certificate
with or without a copy of the Summary of Rights, which is included in the Rights
Agreement as Exhibit C (the "Summary of Rights"), attached.
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date, upon transfer or new
issuance of Common Shares, will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender or transfer of any certificates for
Common Shares outstanding as of the Record Date, even without such notation or a
copy of the Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
1.
<PAGE>
The Rights are not exercisable until the Distribution Date. The Rights
will expire on June 11, 2006 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed by the
Company as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above). The exercise of Rights
for Preferred Shares is at all times subject to the availability of a sufficient
number of authorized but unissued Preferred Shares.
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidation or combinations of the Common Shares occurring, in any case, prior
to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 but will be entitled to an aggregate
payment of 100 times the payment made per Common Share. Each Preferred Share
will have 100 votes, voting together with the Common Shares. Finally, in the
event of any merger, consolidation or other transaction in which Common Shares
are exchanged, each Preferred Share will be entitled to receive 100 times the
amount of consideration received per Common Share. These rights are protected by
customary anti-dilution provisions. Because of the nature of the Preferred
Shares' dividend and liquidation rights, the value of one one-hundredth of a
Preferred Share should approximate the value of one Common Share.
In the event that any person becomes an Acquiring Person, proper
provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
for a 60-day period have the right to receive upon exercise that number of
Common Shares having a market value of two times the exercise price of the Right
(or, if such number of shares is not and cannot be authorized, the Company may
issue Preferred Stock, cash, debt, stock or a combination thereof in exchange
for the Rights). This right will terminate 60 days after the date on which the
Rights become nonredeemable (as described below), unless there is an injunction
or similar obstacle to exercise of the Rights, in which event this right will
terminate 60 days after the date on which the Rights again become exercisable.
2.
<PAGE>
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, proper provision will be made so that each holder of a Right
will thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Common Shares and prior to the acquisition by such person or group of 50% or
more of the outstanding Common Shares, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such person or group which have
become void), in whole or in part, at an exchange ratio of one Common Share, or
one one-hundredth of a Preferred Share, per Right (or, if the number of shares
is not and cannot be authorized, the Company may issue cash, debt, stock or a
combination thereof in exchange for the Rights), subject to adjustment.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of the number of one one-hundredths of a
Preferred Share issuable upon the exercise of one Right, which may, at the
option of the Company, be evidenced by depositary receipts), and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.
At any time prior to the earlier of (i) the close of business on the
day of the first public announcement that a person has become an Acquiring
Person or (ii) the Final Expiration Date, the Board of Directors of the Company
may redeem the Rights in whole, but not in part, at a price of $.01 per Right
(the "Redemption Price"). Following the expiration of the above periods, the
Rights become nonredeemable. Immediately upon any redemption of the Rights, the
right to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to lower the threshold for exercisability of the Rights from 15% to any
percentage which is (i) greater than the largest percentage of the outstanding
Common Shares then known to the Company to be beneficially owned by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or any Subsidiary, or any entity holding Common Shares
pursuant to the terms of any such plan and (ii) not less than 10%, except that
from and after such time as any person becomes an Acquiring Person no such
amendment may adversely affect the interest of the holders of the 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.
3.
<PAGE>
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors. The Rights should not
interfere with any merger or other business combination approved by the Board of
Directors since the Rights may be redeemed by the Company at $.01 per Right
prior to the earliest of (i) the twentieth day following the time that a person
or group has acquired beneficial ownership of 15% or more of the Common Shares
(unless extended for one or more 10 day periods by the Board of Directors), (ii)
a Change of Control, or (iii) the final expiration date of the rights.
Item 7. Exhibits.
1. Rights Agreement, dated as of June 12, 1996, between Zitel
Corporation and American Stock Transfer & Trust Company, with
exhibits.
2. Form of letter to be sent to Zitel Corporation shareholders, dated
July ___, 1996.
4.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ZITEL CORPORATION
Dated: June 20, 1996 By: /s/ Henry C. Harris
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Henry C. Harris
Secretary
<PAGE>
INDEX TO EXHIBITS
Page number in
sequentially
numbered version
----------------
1. Rights Agreement, dated as of
June 12, 1996, between
Zitel Corporation and
American Stock Transfer & Trust Company,
with exhibits.
2. Form of letter to be sent to
Zitel Corporation shareholders,
dated July ___, 1996.
<PAGE>
ZITEL CORPORATION
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
AS RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF JUNE 12, 1996
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
<S> <C> <C>
Section 1. Certain Definitions......................................................... 1
Section 2. Appointment of Rights Agent................................................. 4
Section 3. Issue of Right Certificates................................................. 4
Section 4. Form of Right Certificates.................................................. 6
Section 5. Countersignature and Registration........................................... 6
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates..................... 6
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights............... 7
Section 8. Cancellation and Destruction of Right Certificates.......................... 8
Section 9. Availability of Preferred Shares............................................ 9
Section 10. Preferred Shares Record Date................................................ 9
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights.......... 9
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.................. 16
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power........ 16
Section 14. Fractional Rights and Fractional Shares..................................... 19
Section 15. Rights of Action............................................................ 20
Section 16. Agreement of Right Holders.................................................. 20
Section 17. Right Certificate Holder Not Deemed a Shareholder........................... 21
Section 18. Concerning the Rights Agent................................................. 21
Section 19. Merger or Consolidation or Change of Name of Rights Agent................... 21
Section 20. Duties of Rights Agent...................................................... 22
Section 21. Change of Rights Agent...................................................... 24
</TABLE>
i.
<PAGE>
<TABLE>
<S> <C> <C>
Section 22. Issuance of New Right Certificates.......................................... 25
Section 23. Redemption.................................................................. 25
Section 24. Exchange.................................................................... 26
Section 25. Notice of Certain Events.................................................... 28
Section 26. Notices..................................................................... 29
Section 27. Supplements and Amendments.................................................. 29
Section 28. Determination and Actions by the Board of Directors, etc.................... 30
Section 29. Successors.................................................................. 30
Section 30. Benefits of this Agreement.................................................. 30
Section 31. Severability................................................................ 30
Section 32. Governing Law............................................................... 30
Section 33. Counterparts................................................................ 31
Section 34. Descriptive Headings........................................................ 31
Exhibit A - Certificate of Determination
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
</TABLE>
ii.
<PAGE>
RIGHTS AGREEMENT
AGREEMENT, dated as of June 12, 1996 between ZITEL CORPORATION, a
California corporation (the "Company"), and AMERICAN STOCK TRANSFER & TRUST
COMPANY ("Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
(as hereinafter defined) of the Company outstanding at the close of business on
July 1, 1996 (the "Record Date "), each Right representing the right to purchase
one one-hundredth of a Preferred Share (as hereinafter defined), upon the terms
and subject to the conditions herein set forth, and has further authorized and
directed the issuance of one Right with respect to each Common Share that shall
become outstanding between the Record Date and the earliest of the Distribution
Date, the Redemption Date and the Final Expiration Date (as such terms are
hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(A) "ACQUIRING PERSON" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 15% or more of the Common Shares
of the Company then outstanding, but shall not include the Company, any
Subsidiary (as such term is hereinafter defined) of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as
the result of an acquisition of Common Shares by the Company which, by reducing
the number of shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 15% or more of the Common Shares of the
Company then outstanding; provided, however, that if a Person shall become the
Beneficial Owner of 15% or more of the Common Shares of the Company then
outstanding by reason of share purchases by the Company and shall, after such
share purchases by the Company, become the Beneficial Owner of any additional
Common Shares of the Company, then such Person shall be deemed to be an
"Acquiring Person." Notwithstanding the foregoing, if the Incumbent Board of
Directors of the Company (as hereinafter defined) determines in good faith that
a Person who would otherwise be an "Acquiring Person," as defined pursuant to
the foregoing provisions of this paragraph (a), has become such inadvertently,
and such Person divests as promptly as practicable a sufficient number of Common
Shares so that such Person would no longer be an Acquiring Person, as defined
pursuant to the foregoing provisions of this paragraph (a), then such Person
shall not be deemed to be an "Acquiring Person" for any purposes of this
Agreement.
1.
<PAGE>
(B) "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 of this Agreement.
(C) A Person shall be deemed the "BENEFICIAL OWNER" of and shall be
deemed to "beneficially own" any securities:
(I) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(II) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other than
these Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted
for purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security if the agreement, arrangement or understanding to
vote such security (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 promulgated under the Exchange Act and (2) is not
also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(III) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring, holding,
voting (except to the extent contemplated by the proviso to Section
1(c)(ii)(B)) or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase, "then outstanding," when used with reference to a Person's
Beneficial Ownership of securities of the Company, shall mean the number of such
securities then issued and outstanding together with the number of such
securities not then actually issued and outstanding which such Person would be
deemed to own beneficially hereunder.
(D) "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in the States of California and New York
are authorized or obligated by law or executive order to close.
2.
<PAGE>
(E) "CHANGE OF CONTROL" shall mean:
(I) The acquisition (other than from the Company) by any
person, entity or "group," within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act, (excluding, for this purpose, the Company
or its subsidiaries, or any employee benefit plan of the Company or its
subsidiaries which acquires beneficial ownership of voting securities
of the Company) of beneficial ownership, (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 50% or more of either the
then outstanding Common Shares or the combined voting power of the
Company's then outstanding voting securities entitled to vote generally
in the election of directors; or
(II) Individuals who, as of the date hereof, constitute the
Board (as of the date hereof the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board, provided that
any person becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board (other than an Affiliate or Associate of
an Acquiring Person) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent Board;
or
(III) Approval by the shareholders of the Company of a
reorganization, merger, or consolidation, in each case, with respect to
which persons who were the shareholders of the Company immediately
prior to such reorganization, merger or consolidation do not
immediately thereafter, own more than 50% of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding voting
securities, or a liquidation or dissolution of the Company or of the
sale of all or substantially all of the assets of the Company.
(F) "CLOSE OF BUSINESS" on any given date shall mean 5:00 p.m., Eastern
Standard time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 p.m., Eastern Standard time, on the next
succeeding Business Day.
(G) "COMMON SHARES" when used with reference to the Company shall mean
the shares of common stock, without par value, of the Company. "Common Shares"
when used with reference to any Person other than the Company shall mean the
capital stock (or equity interest) with the greatest voting power of such other
Person or, if such other Person is a Subsidiary of another Person, the Person or
Persons which ultimately control such first-mentioned Person.
(H) "DISTRIBUTION DATE" shall have the meaning set forth in Section 3
hereof.
(I) "FINAL EXPIRATION DATE" shall have the meaning set forth in Section
7 hereof.
(J) "PERSON" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
3.
<PAGE>
(K) "PREFERRED SHARES" shall mean shares of Series A Junior
Participating Preferred Stock, without par value, of the Company having the
rights, privileges and preferences set forth in the form of Certificate of
Determination attached to this Agreement as Exhibit A.
(L) "REDEMPTION DATE" shall have the meaning set forth in Section 7
hereof.
(M) "SHARES ACQUISITION DATE" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person has
become such.
(N) "SUBSIDIARY" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
SECTION 3. ISSUE OF RIGHT CERTIFICATES.
(A) Until the earlier of (i) the tenth day after the Shares Acquisition
Date or (ii) the tenth business day (or such later date as may be determined by
action of the Board of Directors prior to such time as any Person becomes an
Acquiring Person) after the date of the commencement (determined in accordance
with Rule 14d-2 under the Exchange Act) by any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the Company or of
any Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) of, or of the first public announcement
of the intention of any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company or any entity holding Common Shares for or pursuant to the terms of any
such plan) to commence, a tender or exchange offer, the consummation of which
would result in any Person becoming the Beneficial Owner of Common Shares
aggregating 15% or more of the then outstanding Common Shares (including any
such date which is after the date of this Agreement and prior to the issuance of
the Rights, the earlier of such dates being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced by the certificates for
Common Shares registered in the names of the holders thereof (which certificates
shall also be deemed to be Right Certificates) and not by separate Right
Certificates, and (y) the Rights (and the right to receive Right Certificates
therefor) will be transferable only in connection with the transfer of Common
Shares. As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Shares as of the close of business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Right Certificate, in
substantially the form of Exhibit B hereto (a "Right Certificate"), evidencing
one Right for each Common Share so held. As of the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
4.
<PAGE>
(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 Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the close of business on the Record Date, at the address of such holder shown on
the records of the Company. With respect to certificates for Common Shares
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates registered in the names of the holders
thereof. Until the Distribution Date (or the earlier of the Redemption Date and
the Final Expiration Date), the surrender for transfer of any certificate for
Common Shares outstanding on the Record Date shall also constitute the transfer
of the Rights associated with the Common Shares represented thereby.
(C) Certificates for Common Shares which become outstanding (including,
without limitation, reacquired Common Shares referred to in the last sentence of
this paragraph (c)) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date 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
Zitel Corporation and American Stock Transfer & Trust Company
dated as of June 12, 1996, as amended from time to time (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 Zitel Corporation.
Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this
certificate. Zitel Corporation will mail to the holder of this
certificate a copy of the Rights Agreement without charge
after receipt of a written request therefor. As described in
the Rights Agreement, Rights issued to any Person who becomes
an Acquiring Person (as defined in the Rights Agreement) shall
become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed canceled and retired so that the Company shall not
be entitled to exercise any Rights associated with the Common Shares which are
no longer outstanding.
SECTION 4. FORM OF RIGHT CERTIFICATES. The Right Certificates (and the
form of election to purchase Preferred Shares, the form of assignment and the
form of certification to be printed on the reverse thereof) shall be
substantially the same as 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 Agreement, or as may be required to comply with any
applicable law or with
5.
<PAGE>
any rule or regulation made pursuant thereto or with any rule or regulation of
any stock exchange on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of Section 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of one
one-hundredths of a Preferred Share as shall be set forth therein at the price
per one one-hundredth of a Preferred Share set forth therein (the "Purchase
Price"), but the number of such one one-hundredths of a Preferred Share and the
Purchase Price shall be subject to adjustment as provided herein.
SECTION 5. COUNTERSIGNATURE AND REGISTRATION. The Right Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
Chief Executive Officer, its President, its Vice Chairman of the Board, its
Chief Financial Officer, or any of its Vice Presidents, either manually or by
facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof, and shall be attested by the Secretary or an Assistant
Secretary of the Company, 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 countersigned. In case any officer of the
Company who shall have signed any of 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 and issued and delivered by the Company
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; and 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.
Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its office designated for such purpose, 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. Subject
to the provisions of Section 14 hereof, at any time after the close of business
on the Distribution Date, and at or prior to the close of business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
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 office of the Rights Agent
designated for such purpose. Thereupon the Rights Agent shall 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 of a sum sufficient to cover any tax or
6.
<PAGE>
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will issue, execute and deliver
a new Right Certificate of like tenor to the Rights Agent for countersignature
and delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS.
(A) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) 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 office of the Rights Agent designated
for such purpose, together with payment of the Purchase Price for each one
one-hundredth of a Preferred Share (or such other number of shares or other
securities) as to which the Rights are exercised, at or prior to the earliest of
(i) the close of business on June 11, 2006 (the "Final Expiration Date"), (ii)
the time at which the Rights are redeemed as provided in Section 23 hereof (the
"Redemption Date"), or (iii) the time at which such Rights are exchanged as
provided in Section 24 hereof.
(B) The Purchase Price for each one one-hundredth of a Preferred Share
pursuant to the exercise of a Right shall initially be one hundred thirty-nine
dollars ($139.00), shall be subject to adjustment from time to time as provided
in Sections 11 and 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
(C) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check, bank draft or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent for
the Preferred Shares certificates for the number of Preferred Shares to be
purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a
Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company hereby directs the depositary
agent to comply with such request, (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 14 hereof, (iii) 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
7.
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and (iv) when appropriate, after receipt, deliver such cash to or upon the order
of the registered holder of such Right Certificate.
(D) In case the registered holder of any Right Certificate shall
exercise fewer 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 to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14 hereof.
(E) The Company covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued Preferred Shares or any
Preferred Shares held in its treasury, the number of Preferred Shares that will
be sufficient to permit the exercise in full of all outstanding Rights in
accordance with this Section 7.
(F) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise as
set forth in this Section 7 unless such registered holder shall have (i)
completed and signed the certification following the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if delivered or 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 other Right Certificate purchased or
acquired by the Company otherwise than upon the exercise thereof. 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. AVAILABILITY OF PREFERRED SHARES. The Company covenants and
agrees that it will take all such action as may be necessary to ensure that all
Preferred Shares delivered upon exercise of Rights shall, at the time of
delivery of the certificates for such Preferred Shares (subject to payment of
the Purchase Price), be duly and validly authorized and issued and fully paid
and nonassessable shares.
The Company further 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 Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered
8.
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for exercise or to issue or to deliver any certificates or depositary receipts
for Preferred Shares 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 reasonable satisfaction that no such tax is due.
SECTION 10. PREFERRED SHARES RECORD DATE. Each person in whose name any
certificate for Preferred Shares or other securities is issued upon the exercise
of Rights shall for all purposes be deemed to have become the holder of record
of the Preferred Shares or other securities represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered with the forms of election and certification
duly executed 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 Preferred Shares or other securities transfer
books of the Company are closed, such person shall be deemed to have become the
record holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Shares or other securities
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Right Certificate, as such, shall not be
entitled to any rights of a holder of Preferred Shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF
RIGHTS. The Purchase Price, the number of Preferred Shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
(A) (I) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, such holder would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. If an event occurs which would require an
adjustment under both Section 11(a)(i) and Section 11(a)(ii), the adjustment
provided for in this Section 11(a)(i) shall be in addition to, and shall be made
prior to any adjustment required pursuant to Section 11(a)(ii).
9.
<PAGE>
(II) Subject to Section 24 of this Agreement, in the event any Person
shall become an Acquiring Person, each holder of a Right shall, for a period of
60 days after the expiration or termination of the redemption option set forth
in Section 23(b) (provided that, if at any time prior to the expiration or
termination of the Rights there shall be a temporary restraining order, a
preliminary injunction, an injunction, or temporary suspension by the Board of
Directors, or similar obstacle to exercise of the Rights (the "Injunction")
which prevents exercise of the Rights, a new 60-day period shall commence on the
date the Injunction is removed), have a right to receive, upon exercise thereof
at a price equal to the then current Purchase Price multiplied by the number of
one one-hundredths of a Preferred Share for which a Right is then exercisable,
in accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of the Company as shall equal the result obtained
by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable and
dividing that product by (B) 50% of the then current per share market price of
the Company's Common Shares (determined pursuant to Section 11(d) hereof) on the
date such Person became an Acquiring Person; provided, however, that if the
transaction that would otherwise give rise to the foregoing adjustment is also
subject to the provisions of Section 13 hereof, then only the provisions of
Section 13 hereof shall apply and no adjustment shall be made pursuant to this
Section 11(a)(ii). In the event that any Person shall become an Acquiring Person
and the Rights shall then be outstanding, the Company shall not take any action
which would eliminate or diminish the benefits intended to be afforded by the
Rights.
Notwithstanding anything in this Agreement to the contrary, from and
after the time any Person becomes an Acquiring Person, any Rights beneficially
owned by (i) such Acquiring Person or an Associate or Affiliate of such
Acquiring Person, (ii) a transferee of such Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
became such, or (iii) a transferee of such Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person's becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
the Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of this Section
11(a)(ii), shall become null and void without any further action and no holder
of such Rights shall have any rights whatsoever with respect to such Rights,
whether under any provision of this Agreement or otherwise. The Company shall
use all reasonable efforts to insure that the provisions of this Section
11(a)(ii) are complied with, but shall have no liability to any holder of Right
Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or its Affiliates, Associates
or transferees hereunder. No Right Certificate shall be issued at any time upon
the transfer of any Rights to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence or any Associate or Affiliate thereof or to
any nominee of such Acquiring Person, Associate or Affiliate; and any Right
Certificate delivered to the Rights Agent for transfer to an Acquiring Person
whose Rights would be void pursuant to the preceding sentence shall be canceled.
10.
<PAGE>
(III) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit the exercise in
full of the Rights in accordance with the foregoing subparagraph (ii), the
Company shall take all such action as may be necessary to authorize additional
Common Shares for issuance upon exercise of the Rights. In the event that the
Company shall, after a good faith effort, be unable to take all such action as
may be necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exercise
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied by such number
or fraction thereof is equal to the current per share market price of one Common
Share as of the date of issuance of such Preferred Shares or fraction thereof;
provided, however, that if the Company is further unable to cause the
authorization of a sufficient number of Preferred Shares, then, in the event the
Rights become so exercisable, the Board of Directors may, but shall not be
required to, with respect to each Right (A) pay cash in an amount equal to the
Purchase Price, in lieu of issuing Common Shares and requiring payment therefor,
or (B) issue debt or equity securities or a combination thereof, having a value
equal to the Current Value of the Common Shares (as defined hereinafter), where
the value of such securities shall be determined by a nationally recognized
investment banking firm selected by the Board of Directors of the Company, and
require the payment of the Purchase Price, or (C) deliver any combination of
cash, property, Common Shares, Preferred Shares and/or other securities having a
value equal to the Current Value, and require payment of all or any requisite
portions of the Purchase Price. The Current Value shall be the product of the
current market price per share of Common Shares (determined pursuant to Section
11(d) on the date of the occurrence of the event described above in subparagraph
(ii)) multiplied by the number of Common Shares for which the Right otherwise
would be exercisable if there were sufficient shares available. To the extent
that the Company determines that some action need be taken pursuant to the
second sentence of this subparagraph (iii), the Board of Directors may
temporarily suspend the exercisability of the Rights for a period of up to 45
days following the date on which the event described in Section 11(a)(ii) shall
have occurred, in order to seek any authorization of additional Common Shares
and/or to decide the appropriate form of distribution to be made pursuant to the
above provision and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended.
(B) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("equivalent preferred
shares")) or securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent preferred share
(or having a conversion price per share, if a security convertible into
Preferred Shares or equivalent preferred shares) less than the then current per
share market price of the Preferred Shares (as defined in Section 11(d)) on such
record date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of Preferred
Shares which the aggregate offering price of the total number of Preferred
Shares and/or equivalent preferred shares so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such current
11.
<PAGE>
market price and the denominator of which shall be the number of Preferred
Shares outstanding on such record date plus the number of additional Preferred
Shares and/or equivalent preferred shares to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
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 Agent. Preferred Shares 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 the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or 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 then current per share market price of the Preferred Shares (as
defined in Section 11(d)) on such record date, less 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) of
the portion of the assets or evidences of indebtedness so to be distributed or
of such subscription rights or warrants applicable to one Preferred Share and
the denominator of which shall be such current per share market price of the
Preferred Shares; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company to be issued upon exercise of one
Right. 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 be the Purchase Price which would then be in
effect if such record date had not been fixed.
(D) (I) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security 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 per share market price of the
Security is determined during a period following the announcement by the issuer
of such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security or securities
convertible into such shares, or (C) any subdivision, combination or
reclassification of such Security 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, then, and in each
such case, the current per share market price
12.
<PAGE>
shall be appropriately adjusted to reflect the current market price per share
equivalent of such Security. 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 Security 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 on the principal national securities exchange
on which the Security is listed or admitted to trading or as reported on the
Nasdaq National Market or, if the Security is not listed or admitted to trading
on any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System ("Nasdaq") or such other system then in use, or, if on any
such date the Security is 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 Security selected by the Board of Directors of the
Company. The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to trading is
open for the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business Day.
(II) For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof) multiplied by one hundred. If
neither the Common Shares nor the Preferred Shares are publicly held or so
listed or traded, "current per share market price" shall mean the fair value per
share 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.
(E) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.
(F) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right 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 Shares contained in Section 11(a) through (c), inclusive, and the
provisions of
13.
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Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares shall apply on
like terms to any such other shares.
(G) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(H) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Section 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share (calculated to the nearest one one-millionth of a Preferred
Share) obtained by (i) multiplying (x) the number of one one-hundredths of a
Preferred Share covered by a Right immediately prior to this adjustment by (y)
the Purchase Price in effect immediately prior to such adjustment of the
Purchase Price and (ii) dividing the product so obtained by the Purchase Price
in effect immediately after such adjustment of the Purchase Price.
(I) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share 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-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten- thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company 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(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
subject to Section 14 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 holders 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 shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(J) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a Preferred Share issuable upon the exercise
of the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the
14.
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number of one one-hundredths of a Preferred Share which were expressed in the
initial Right Certificates issued hereunder.
(K) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(L) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise on the basis of the Purchase Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(M) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, dividends on
Preferred Shares payable in Preferred Shares or issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such shareholders.
(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 Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had 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.
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the
Company shall
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promptly (a) prepare a certificate setting forth such adjustment, and a brief
statement of the facts accounting for such adjustment, (b) file with the Rights
Agent and with each transfer agent for the Common Shares or the Preferred Shares
a copy of such certificate and (c) mail a brief summary thereof to each holder
of a Right Certificate in accordance with Section 25 hereof. The Rights Agent
shall be fully protected in relying on any such certificate and on any
adjustment therein contained and shall not be deemed to have knowledge of any
adjustment unless and until it shall have received such certificate.
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(A) In the event that, following the Shares Acquisition Date, directly
or indirectly (x) the Company shall consolidate with, or merge with and into,
any other Person, (y) any Person shall consolidate with the Company, or merge
with and into the Company, and the Company shall be the continuing or surviving
corporation of such merger (other than, in the case of either transaction
described in (x) or (y), a merger or consolidation which would result in all of
the voting power represented by the securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into securities of the surviving entity) all
of the voting power represented by the securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation and
the holders of such securities not having changed as a result of such merger or
consolidation), or (z) the Company shall sell, mortgage or otherwise transfer
(or one or more of its subsidiaries shall sell, mortgage or otherwise transfer),
in one or more 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, then, and in each such case, proper provision shall
be made so that (i) following the Distribution Date, each holder of a Right,
subject to Section 7(e), shall have the right to receive, upon the exercise
thereof at a price equal to the then current Purchase Price multiplied by the
number of one-hundredths of a Preferred Share for which a Right is then
exercisable in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of shares of freely tradeable Common Shares of the
Principal Party (as hereinafter defined), free and clear of liens, rights of
call or first refusal, encumbrances or other adverse claims, as shall be equal
to the result obtained by (A) multiplying the then current Purchase Price by the
number of one one-hundredths of a Preferred Share for which a Right is then
exercisable (without taking into account any adjustment previously made pursuant
to Section 11(a)(ii) hereof) and dividing that product by (B) 50% of the then
current per share market price of the Common Shares of such Principal Party
(determined pursuant to Section 11(d) hereof) on the date of consummation of
such consolidation, merger, sale or transfer; (ii) such 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 reservation of a
sufficient number of shares of its Common Shares in accordance with Section 9
hereof) 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 its Common Shares thereafter deliverable upon the
exercise of the Rights.
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(B) "Principal Party" shall mean:
(I) in the case of any transaction described in (x) or (y) of
the first sentence of Section 13(a), the Person that is the issuer of
any securities into which Common Shares of the Company are converted in
such merger or consolidation, and if no securities are so issued, the
Person that is the other party to the merger or consolidation
(including, if applicable, the Company, if it is the surviving
corporation); and
(II) in the case of any transaction described in (z) of the
first sentence in Section 13(a), the Person that is the party receiving
the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions;
provided, however, that in any case, (1) if the Common Shares of such Person are
not at such time and have 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 or Affiliate of another Person the Common Shares
of which are and have been so registered, "Principal Party" shall refer to such
other Person; (2) in case such Person is a subsidiary, directly or indirectly,
or Affiliate of more than one Person, the Common Shares 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 Shares having the greatest aggregate
market value; and (3) in case 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 (1) and (2) above shall
apply to each of the chains of ownership having an interest in such joint
venture as if such party were a "subsidiary" of both or all of such joint
venturers and the Principal Parties in each such chain shall bear the
obligations set forth in this Section 13 in the same ratio as their direct or
indirect interests in such Person bear to the total of such interests.
(C) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its Common Shares that have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and each Principal Party and
each other Person who may become a Principal Party as a result of such
consolidation, merger, sale or transfer shall have executed and delivered to the
Rights Agent a supplemental agreement providing for the terms set forth in
paragraphs (a) and (b) of this Section 13 and further providing that, as soon as
practicable after the date of any consolidation, merger, sale or transfer of
assets mentioned in paragraph (a) of this Section 13, the Principal Party at its
own expense will:
(I) prepare and file a registration statement under the
Securities Act of 1933 (the "Act") with respect to the Rights and the
securities purchasable upon exercise of the Rights on an appropriate
form, will use its best efforts to cause such registration statement to
become effective as soon as practicable after such filing and will use
its best efforts to cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of
the Act) until the Final Expiration Date;
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(II) use its best efforts to qualify or register the Rights
and the securities purchasable upon exercise of the Rights under the
blue sky laws of such jurisdictions as may be necessary or appropriate;
and
(III) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which
comply in all material respects with the requirements for registration
on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers.
(D) After the Shares Acquisition Date, the Company covenants and agrees
that it shall not (i) consolidate with, (ii) merge with or into, or (iii) sell
or transfer to, in one or more 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, any other Person, if at the time of or after such
consolidation, merger or sale there are any charter or bylaw provisions or any
rights, warrants or other instruments or securities outstanding, agreements in
effect or any other action taken which would diminish or otherwise eliminate the
benefits intended to be afforded by the Rights. The Company shall not consummate
any such consolidation, merger or sale unless prior thereto the Company and such
other Person shall have executed and delivered to the Rights Agent a
supplemental agreement evidencing compliance with this subsection.
SECTION 14. 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, 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 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, 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 as reported on the
Nasdaq National Market or, if the Rights are not listed or admitted to trading
on any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by Nasdaq or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights, the fair value of
the Rights on such date as determined in good faith by the Board of Directors of
the Company shall be used.
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(B) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-hundredth of a Preferred Share
may, at the election of the Company, be evidenced by depositary receipts;
provided, however, that holders of such depositary receipts shall have all of
the rights, privileges and preferences to which they are entitled as beneficial
owners of the Preferred Shares represented by such depositary receipts. In lieu
of fractional Preferred Shares that are not integral multiples of one
one-hundredth of a Preferred Share, the Company shall pay to the registered
holders of Right Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of one Preferred Share. For the purposes of this Section 14(b), the
current market value of a Preferred Share shall be the closing price of a
Preferred Share (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise.
(C) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
SECTION 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Sections 18 and 20 hereof, are vested in the respective registered holders of
the Right Certificates (and, prior to the Distribution Date, the registered
holders of the Common Shares) and any registered holder of any Right Certificate
(or, prior to the Distribution Date, of the Common Shares), 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 Shares), may, in his own behalf and for
his own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement. Holders
of Rights shall be entitled to recover the reasonable costs and expenses,
including attorneys fees, incurred by them in any action to enforce the
provisions of this Agreement.
SECTION 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(A) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
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(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 of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(C) 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 Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
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.
SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER. 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 Preferred Shares 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 shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in Section 25 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 18. CONCERNING THE RIGHTS AGENT. 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 other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises. The indemnity provided
herein shall survive the expiration of the Rights and the termination of this
Agreement.
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 reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with
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which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Rights Agent or any successor Rights Agent shall be a
party, or any corporation succeeding to the shareholder services or corporate
trust business of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as a successor
Rights Agent under the provisions of Section 21 hereof. In case at the time such
successor Rights Agent shall succeed to the agency created by this Agreement any
of the Right Certificates shall have been countersigned but not delivered, any
such successor Rights Agent may adopt the countersignature of 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 Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
SECTION 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this 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 of its choice (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 Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter 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 any one of the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Financial Officer, any Vice
President, the 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 Agreement in reliance upon such certificate.
(C) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own 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 Agreement or in the Right
Certificates (except its
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countersignature thereof) or be required to verify the same, but all such
statements and recitals are and shall be deemed to have been made by the Company
only.
(E) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in
the terms of the Rights (including the manner, method or amount thereof)
provided for in Section 3, 11, 13, 23 or 24, or the ascertaining of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after receipt
of a certificate pursuant to Section 12 describing such change or adjustment);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Preferred Shares to be
issued pursuant to this Agreement or any Right Certificate or as to whether any
Preferred Shares 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 Agreement.
(G) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
the Chief Financial Officer, any Vice President, the Secretary or the Treasurer
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 by it in good faith in accordance with instructions of any such officer
or for any delay in acting while waiting for those instructions. Any application
by the Rights Agent for written instructions from the Company may, at the option
of the Rights Agent, set forth in writing any action proposed to be taken or
omitted by the Rights Agent with respect to its duties or obligations under this
Rights Agreement and the date on and/or after which such action shall be taken
or omitted and the Rights Agent shall not be liable for any action taken or
omitted in accordance with a proposal included in any such application on or
after the date specified therein (which date shall not be less than three
business days after the date indicated in such application unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking or omitting any such action, the Rights Agent has received written
instructions in response to such application specifying the action to be taken
or omitted.
(H) The Rights Agent and any shareholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
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(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 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 not been
executed, the Rights Agent shall not take any further action with respect to
such requested exercise of transfer without first consulting with the Company.
SECTION 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
for the Common Shares or Preferred Shares by registered or certified mail, and
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 for the Common Shares or Preferred Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of any other state of the United States which is authorized under such laws to
exercise corporate trust or stock transfer powers and is subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent for the Common Shares
or Preferred Shares, and mail a notice thereof in writing to the registered
holders of the Right Certificates. Failure
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to give any notice provided for in this Section 21, 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 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement.
SECTION 23. REDEMPTION.
(A) The Rights may be redeemed by action of the Board of Directors
pursuant to subsection (b) of this Section 23 and shall not be redeemed in any
other manner.
(B) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) the close of business on the Shares Acquisition
Date; or (ii) the Final Expiration Date, redeem all but not less than all the
then outstanding Rights at a redemption price of $.01 per Right, 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"), and the Company may, at its option, pay
the Redemption Price in Common Shares (based on the "current per share market
price," as defined in Section 11(d) hereof, of the Common Shares at the time of
redemption), cash or any other form of consideration deemed appropriate by the
Board of Directors. The redemption of the Rights by the Board of Directors may
be made effective at such time, on such basis and subject to such conditions as
the Board of Directors in its sole discretion may establish. Notwithstanding
anything contained in this Agreement to the contrary, the Rights shall not be
exercisable pursuant to Section 11(a)(ii) hereof prior to the expiration or
termination of the Company's right of redemption hereunder.
(C) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to subsection (b) of this
Section 23, 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. The Company shall promptly
give public notice of any such redemption; provided, however, that the failure
to give, or any defect in, any such notice shall not affect the validity of such
redemption. Within 10 days after such action of the Board of Directors ordering
the redemption of the Rights pursuant to subsection (b) the Company shall mail a
notice of redemption to all the holders of the then outstanding Rights at their
last addresses as they appear upon the registry books of the Rights Agent or,
prior to the Distribution Date, on the registry books of the transfer agent for
the Common Shares. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice. Each such
notice of redemption will state the method by which the payment of the
Redemption Price will be made. 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 that specifically set forth in this Section 23 or in
Section 24
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hereof, and other than in connection with the purchase of Common Shares prior to
the Distribution Date.
(D) The Company may, at its option, discharge all of its obligations
with respect to the Rights by (i) issuing a press release announcing the manner
of redemption of the Rights and (ii) mailing payment of the Redemption Price to
the registered holders of the Rights at their last addresses as they appear on
the registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the transfer agent for the Common Shares, and upon such
action, all outstanding Right Certificates shall be null and void without any
further action by the Company.
SECTION 24. EXCHANGE.
(A) The Board of Directors of the Company may, at its option, at any
time after any Person becomes an Acquiring Person, exchange all or part of the
then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 11(a)(ii) hereof) for
Common Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any such Subsidiary, or any entity holding Common
Shares for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or
more of the Common Shares then outstanding.
(B) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. 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 of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares for Rights 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 have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.
(C) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with this Section 24, the Company shall
take all such action as may be necessary to authorize additional Common Shares
for issuance upon exchange of the Rights. In the event that the Company shall,
after a good faith effort, be unable to take all such action as may be
25.
<PAGE>
necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exchange
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied by such number
or fraction thereof multiplied by such number or fraction is equal to the
current per share market price of one Common Share as of the date of issuance of
such Preferred Shares or fraction thereof; provided, however, that if the
Company is further unable to cause the authorization of a sufficient number of
additional Common Shares, then, in the event the Rights become so exchangeable,
the Board of Directors may, but shall not be required to, with respect to each
Right (A) pay cash in an amount equal to the current per share market price of
one Common Share (determined pursuant to Section 11(d) on the date of the
occurrence of the event described in Section 11(a)(ii)) in exchange for each
Right, in lieu of issuing Common Shares, or (B) issue debt or equity securities
or a combination thereof, having a value equal to the current per share market
price of one Common Share (determined pursuant to Section 11(d) on the date of
the occurrence of the event described in Section 11(a)(ii)) where the value of
such securities shall be determined by a nationally recognized investment
banking firm selected by the Board of Directors of the Company, in exchange for
each Right, or (C) deliver any combination of cash, property, Common Shares
and/or other securities having a value equal to the current per share market
price of one Common Share (determined pursuant to Section 11(d) on the date of
the occurrence of the event described in Section 11(2)(ii)) in exchange for each
Right. To the extent that the Company determines that some action need be taken
pursuant to the second sentence of this Section 24(c), the Board of Directors
may temporarily suspend the exercisability of the Rights for a period of up to
45 days following the date on which the event described in Section 11(a)(ii)
shall have occurred, in order to seek any authorization of additional Common
Shares and/or to decide the appropriate form of distribution to be made pursuant
to the above provision and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended.
(D) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares. In
lieu of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share. For the purposes of this
subsection (d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately after the date of
the first public announcement by the Company that an exchange is to be effected
pursuant to this Section 24.
(E) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exchange of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-hundredth of a Preferred Share
may, at the election of the Company, be evidenced by depositary receipts;
provided, however, that holders of such depositary receipts shall have all of
the rights, privileges and preferences to which they are entitled as beneficial
owners of the Preferred Shares represented by such depositary receipts. In lieu
of fractional Preferred Shares that are not integral multiples of one
26.
<PAGE>
one-hundredth of a Preferred Share, the Company shall pay to the registered
holders of Right Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of one Preferred Share. For the purposes of this Section 24(e), the
current market value of a Preferred Share shall be the closing price of a
Preferred Share (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately after the date of the first
public announcement by the Company that an exchange is to be effected pursuant
to this Section 24.
SECTION 25. NOTICE OF CERTAIN EVENTS.
(A) In case the Company shall propose (i) to pay any dividend payable
in stock of any class to the holders of its Preferred Shares or to make any
other distribution to the holders of its Preferred Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares
rights or warrants to subscribe for or to purchase any additional Preferred
Shares or shares of stock of any class or any other securities, rights or
options, (iii) to effect any reclassification of its Preferred Shares (other
than a reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, 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 or more transactions, of 50% or more
of the assets or earning power of the Company and its Subsidiaries (taken as a
whole), to any other Person, (v) to effect the liquidation, dissolution or
winding up of the Company, or (vi) to declare or pay any dividend on the Common
Shares payable in Common Shares or to effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares), then, in each such case, the Company
shall give to each holder of a Right Certificate, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record date
for the purpose of such stock dividend, or distribution of rights or warrants,
or the date on which such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution, or winding up is to take place and the date
of participation therein by the holders of the Common Shares and/or the
Preferred Shares, if any such date is to be fixed, and such notice shall be so
given in the case of any action covered by clause (i) or (ii) above at least 10
days prior to the record date for determining holders of the Preferred Shares
for purposes of such action, and in the case of any such other action, at least
10 days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or the Preferred
Shares, whichever shall be the earlier.
(B) In case the event set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe the event and the
consequences of the event to holders of Rights under Section 11(a)(ii) hereof.
SECTION 26. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
27.
<PAGE>
Zitel Corporation
47211 Bayside Parkway
Fremont, CA 94538-6517
Attention: Henry C. Harris
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall 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 & TRUST COMPANY
6210 15th Avenue
Brooklyn, NY 11219
Attention: Joseph Wolf
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
SECTION 27. SUPPLEMENTS AND AMENDMENTS. The Company may from time to
time supplement or amend this Agreement without the approval of any holders of
Right Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights. Without limiting the
foregoing, the Company may at any time prior to such time as any Person becomes
an Acquiring Person amend this Agreement to lower the thresholds set forth in
Sections 1(a) and 3(a) hereof from 15% to any percentage which is (i) greater
than the largest percentage of the outstanding Common Shares then known by the
Company to be beneficially owned by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any
Subsidiary, or any entity holding Common Shares for or pursuant to the terms of
any such plan) and (ii) not less than 10%. Upon delivery of a certificate from
an appropriate officer of the Company which states that the proposed supplement
or amendment is in compliance with the terms of this Section 27, the Rights
Agent shall execute such supplement or amendment unless the Rights Agent shall
have determined in good faith that such supplement or amendment would adversely
affect its interest under this Agreement. Prior to the Distribution Date, the
interests of the holders of Rights shall be deemed coincident with the interests
of the holders of Common Shares.
SECTION 28. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.
For all purposes of this Agreement, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding Common Shares or any other
securities 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
28.
<PAGE>
Rules and Regulations under the Exchange Act as in effect on the date of this
Agreement. The Board of Directors of the Company shall have the exclusive power
and authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board, or the Company, or as may be necessary or
advisable in the administration of this Agreement, including without limitation,
the right and power to (i) interpret the provisions of this Agreement, and (ii)
make all determinations deemed necessary or advisable for the administration of
this Agreement (including a determination to redeem or not redeem the Rights or
to amend the Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board in good faith,
shall (x) be final, conclusive and binding on the Rights Agent and the holders
of the Right Certificates, and (y) not subject the Board to any liability to the
holders of the Right Certificates.
SECTION 29. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).
SECTION 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
SECTION 32. GOVERNING LAW. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of California 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 33. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
SECTION 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
29.
<PAGE>
IN WITNESS WHEREOF, parties whereto have caused this Agreement to be
duly executed and their seals attested, all as of the day and year first above
written.
ATTEST: ZITEL CORPORATION
By: /S/ HENRY C. HARRIS By: /S/ JACK H. KING
- -------------------------------------- ------------------------------------
Henry C. Harris Jack H. King
Secretary President
ATTEST: AMERICAN STOCK TRANSFER & TRUST COMPANY
By: /S/ HERBERT J. LEMMER By: /S/ JOSEPH WOLF
- -------------------------------------- ------------------------------------
Title: VICE PRESIDENT Title: VICE PRESIDENT
- -------------------------------------- ------------------------------------
30.
<PAGE>
EXHIBIT A
CERTIFICATE OF DETERMINATION
<PAGE>
CERTIFICATE OF DETERMINATION
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
ZITEL CORPORATION
(Pursuant to Section 401 of the
California General Corporation Law)
The undersigned, JACK H. KING and HENRY C. HARRIS hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of Zitel Corporation (the "Corporation").
2. Pursuant to authority given by the Corporation's Articles of
Incorporation, the Board of Directors of the Corporation has duly adopted the
following resolutions at a meeting duly called and held on June 12, 1996:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of the Corporation in accordance with the
provisions of its Restated Articles of Incorporation, the Board of
Directors hereby creates a series of Preferred Stock, without par
value, of the Corporation and hereby states the designation and number
of shares, and fixes the relative rights, preferences, privileges and
restrictions thereof (in addition to the provisions set forth in the
Restated Articles of Incorporation of the Corporation, which are
applicable to the Preferred Stock of all classes and series), as
follows:
Series A Junior Participating Preferred Stock:
SECTION 1. DESIGNATION AND AMOUNT. One Hundred
Thousand (100,000) shares of Preferred Stock, without par value, are
designated "Series A Junior Participating Preferred Stock" with the
rights, preferences, privileges and restrictions specified herein (the
"Junior Preferred Stock"). 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 Junior 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,
1.
<PAGE>
rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Junior 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 Junior Preferred Stock with respect to dividends, the
holders of shares of Junior Preferred Stock, in preference to the
holders of Common Stock, without par value (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, quarterly dividends payable in
cash on the first day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Junior
Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $l.00 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise) declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Junior Preferred Stock. In the
event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Junior Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Junior Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1.00 per share on the Junior Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
2.
<PAGE>
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Junior Preferred Stock from the Quarterly
Dividend Payment Date next 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 Junior 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 Junior 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 Junior 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.
SECTION 3. VOTING RIGHTS. The holders of shares of Junior
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Junior Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Junior Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Determination of Preferences creating a series of
Preferred Stock or any similar stock, or by law, the holders of shares
of Junior 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
shareholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Junior Preferred Stock shall have no special voting
rights and their
3.
<PAGE>
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 quarterly dividends or other dividends or
distributions payable on the Junior Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Junior Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(I) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Junior
Preferred Stock;
(II) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Junior Preferred Stock, except dividends paid ratably on the Junior
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 (either as to
dividends or upon liquidation, dissolution or winding up) to the Junior
Preferred Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such junior 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 Junior Preferred Stock; or
(IV) redeem or purchase or otherwise acquire for
consideration any shares of Junior Preferred Stock, or any shares of
stock ranking on a parity with the Junior Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
4.
<PAGE>
SECTION 5. REACQUIRED SHARES. Any shares of Junior Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled 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
Restated Articles of Incorporation, or in any other Certificate of
Determination of Preferences 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
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Junior Preferred Stock unless, prior thereto, the
holders of shares of Junior Preferred Stock shall have received the
greater of: (A) $100 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to
the date of such payment; or (B) an aggregate amount per share, subject
to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of
shares of Common Stock, or (2) to the holders of shares of stock
ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Junior Preferred Stock, except
distributions made ratably on the Junior Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of
all such shares are entitled upon such liquidation, dissolution or
winding up. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Junior Preferred Stock
were entitled immediately prior to such event under the proviso in
clause (1) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 7. CONSOLIDATION, MERGER, ETC. In case 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 Junior Preferred Stock shall at the
same time be similarly exchanged or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to
100 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is changed or exchanged. In the event
the Corporation shall at any time declare or pay any dividend on the
Common Stock
5.
<PAGE>
payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of
Junior Preferred Stock shall be adjusted by multiplying such amount by
a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
SECTION 8. NO REDEMPTION. The shares of Junior Preferred Stock
shall not be redeemable.
SECTION 9. RANK. The Junior Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets,
junior to all other series of the Corporation's Preferred Stock.
SECTION 10. AMENDMENT. The Restated Articles 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 Junior 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 Junior Preferred Stock, voting together as a
single class.
3. The authorized number of shares of Preferred Stock of this
corporation is 1,000,000, and the number of shares of Preferred Stock
constituting Series A Junior Preferred Stock, none of which has been issued, is
100,000.
6.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on
June __, 1996.
-----------------------------------
JACK H. KING
President
-----------------------------------
HENRY C. HARRIS
Secretary
The undersigned Jack H. King, President of Zitel Corporation, and Henry
C. Harris, Secretary of said corporation, each certifies under penalty of
perjury that the matters set forth in the foregoing Certificate of Determination
are true of their own knowledge.
Executed at Fremont, California on June ___, 1996.
-----------------------------------
JACK H. KING
President
Executed at Fremont, California on June ___, 1996.
-----------------------------------
HENRY C. HARRIS
Secretary
7.
<PAGE>
EXHIBIT B
FORM OF RIGHT CERTIFICATE
<PAGE>
FORM OF RIGHT CERTIFICATE
CERTIFICATE NO. R- _____ RIGHTS
NOT EXERCISABLE AFTER JUNE 11, 2006 OR EARLIER IF REDEMPTION
OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION
AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH
IN THE RIGHTS AGREEMENT.
RIGHT CERTIFICATE
ZITEL CORPORATION
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 June 12, 1996 (the "Rights Agreement"),
between Zitel Corporation, a California corporation (the "Company"), and
American Stock Transfer & Trust Company (the "Rights Agent"), 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., New York Time, on June 11, 2006 at
the office of the Rights Agent designated for such purpose, or at the office of
its successor as Rights Agent, one one-hundredth of a fully paid non-assessable
share of Series A Junior Participating Preferred Stock, without par value (the
"Preferred Shares"), of the Company, at a purchase price of one hundred
thirty-nine dollars ($139.00) per one one-hundredth of a Preferred Share (the
"Purchase Price"), upon presentation and surrender of this Right Certificate
with the Form of Election to Purchase duly executed. The number of Rights
evidenced by this Right Certificate (and the number of one one-hundredths of a
Preferred Share which may be purchased upon exercise hereof) set forth above,
and the Purchase Price set forth above, are the number and Purchase Price as of
_______________, based on the Preferred Shares as constituted at such date.
As provided in the Rights Agreement, the Purchase Price and the number
of one one-hundredths of a Preferred Share 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.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, as amended from time to time, which terms,
provisions and conditions are hereby incorporated herein by reference and made a
part hereof and to which Rights Agreement reference is hereby made for a full
description of the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Company and the holders of the
Right Certificates. Copies of the Rights Agreement are on file at the principal
executive offices of the Company and the above-mentioned offices of the Rights
Agent.
1.
<PAGE>
This Right Certificate, with or without other Right Certificates, upon
surrender at the office 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 Preferred Shares 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 Certificate (i) may be redeemed by the Company at a redemption price of
$.01 per Right or (ii) may be exchanged in whole or in part for shares of the
Company's Common Stock or Preferred Shares, without par value.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts) but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares 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 shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (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.
2.
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of _______________, 1996.
ATTEST: ZITEL CORPORATION
By:
- -------------------------------------- ------------------------------------
Countersigned:
- --------------------------------------
as Rights Agent
By:
-----------------------------------
Authorized Signature
3.
<PAGE>
Form of Reverse Side of Right Certificate
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 the within-named Company,
with full power of substitution.
Dated: ____________________
--------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934,
as amended.
- ---------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
--------------------------------------
Signature
1.
<PAGE>
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To Zitel Corporation
The undersigned hereby irrevocably elects to exercise
___________________________ Rights represented by this Right Certificate to
purchase the Preferred Shares issuable upon the exercise of such Rights and
requests that certificates for such Preferred Shares be issued in the name of:
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 remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number: ______________
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated: _________________
--------------------------------------
Signature
1.
<PAGE>
Form of Reverse Side of Right Certificate -- continued
Signature Guaranteed:
Signatures must be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934,
as amended.
- ---------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement)
--------------------------------------
Signature
- -----------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
2.
<PAGE>
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES
<PAGE>
ZITEL RIGHTS PLAN
SUMMARY OF TERMS
ISSUANCE: One right to buy 1/100 of a share of a new series of junior
participating preferred stock, without par value (the "Preferred Stock"), of
Zitel Corporation (the "Company"), issued as a dividend on each outstanding
share of common stock, without par value (the "Common Stock"), of the Company.
Until the rights become exercisable, all further issuances of Common Stock,
including Common Stock issuable upon exercise of outstanding options, would
carry the rights.
TERM: The term is 10 years from date of declaration of the dividend.
EXERCISE PRICE: The exercise price is one hundred thirty-nine dollars
($139.00) per 1/100 of a share of Preferred Stock. The exercise price is subject
to certain anti-dilution adjustments for stock splits, etc.
RIGHTS DETACH AND BECOME EXERCISABLE: The rights detach and become
exercisable 10 days after such time as a person or group acquires beneficial
ownership of 15% or more of the Company's Common Stock or 10 business days after
such a time as a person or group commences or announces its intention to
commence a tender or exchange offer the consummation of which would result in
beneficial ownership by such person or group of 15% or more of the Company's
Common Stock (the "Distribution Date"). Prior to such time, the rights are not
exercisable and are not transferable apart from the Company's Common Stock. As
soon as practicable after the rights become exercisable, separate right
certificates would be issued and the rights would become transferable apart from
the Company's Common Stock. After such detachment, the rights would continue,
until a triggering event as described below, to be exercisable for the purchase
of 1/100 of a share of the Preferred Stock per right at the exercise price of
$139.00 per 1/100 of a share.
PROTECTION AGAINST CREEPING ACQUISITION/OPEN MARKET PURCHASES: In the
event a person or group were to acquire a 15% or greater position in the Company
then, unless redeemed as described below, each right then outstanding would
"flip in" and become a right to buy that number of shares of Common Stock of the
Company obtained by dividing two times the exercise price of the right by the
then-current market price of the Company's Common Stock. The acquirer who
triggered the rights would be excluded from the "flip-in." Thus, if the exercise
price were $100, as a result of the flip-in, the rightholder would be entitled
to purchase shares of the Common Stock of the Company having a market value of
$200 at an exercise price of $100. If the Company did not have sufficient shares
of authorized Common Stock available for the complete exercise of the "flip-in"
rights, the Company could satisfy its obligations to rights holders by issuing
Preferred Stock or cash, debt, stock or a combination thereof. This flip-in
right would terminate 60 days after the date on which the rights become
nonredeemable (as described below), unless there were an injunction or similar
obstacle to exercise of the rights, in which event this flip-in right would
terminate 60 days after the rights again became exercisable.
1.
<PAGE>
EXCHANGE: At any time after the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 15% or more of the
outstanding Common Stock of the Company and until such person or group has
acquired beneficial ownership of 50% or more of the outstanding Common Stock,
the Board of Directors could cause the exchange of the rights (other than rights
owned by the acquirer, which have become void), in whole or in part, for shares
of Common Stock at an exchange ratio of one share of the Company's Common Stock
for each right (or, if the number of shares is not and cannot be authorized, the
Company may issue 1/100 of a share of the Preferred Stock or cash, debt, stock
or a combination thereof in exchange for the rights), subject to adjustment.
PROTECTION AGAINST SQUEEZEOUT: If, after the rights have detached and
become exercisable, an acquiring company were to merge or otherwise combine with
the Company, or the Company were to sell 50% or more of its assets or earning
power, each right then outstanding and not previously exercised or exchanged
would "flip over" and thereby would become a right to buy that number of shares
of common stock of the acquiring company which at the time of such transaction
would have a market value of two times the exercise price of the right. Thus, as
a result of the flip-over, the rightholder would be entitled to purchase shares
of the acquiring company's stock having a market value of $200 at an exercise
price of $100.
REDEMPTION: The rights are redeemable by the Company's Board of
Directors at a price of $.01 per right (the "Redemption Price") at any time
prior to the earliest of (i) the close of business on the first day of a public
announcement that a person or group has acquired 15% or more of the Company's
Common Stock, or (ii) the expiration of the rights 10 years after adoption of
the Rights Plan. Following the expiration of these periods, the rights become
nonredeemable.
TERMS OF THE PREFERRED STOCK: The Preferred Stock issuable upon
exercise of the rights would be nonredeemable and rank junior to any other
series of the Company's Preferred Stock. The dividend, liquidation and voting
rights, and the nonredemption features, of the Preferred Stock are designed so
the value of the 1/100 interest in a share of Preferred Stock purchasable with
each right will approximate the value of one share of Common Stock. Each whole
share of Preferred Stock would be entitled to receive a cumulative quarterly
preferential dividend of $1 per share but would be entitled to receive, in the
aggregate, a dividend of 100 times the dividend declared on the Common Stock. In
the event of liquidation, the holders of the Preferred Stock would be entitled
to receive a preferential liquidation payment of $100 per share but would be
entitled to receive, in the aggregate, a liquidation payment equal to 100 times
the payment made per share of Common Stock. Each share of Preferred Stock would
have 100 votes, voting together with the Common Stock. Finally, in the event of
any merger, consolidation or other transaction in which shares of Common Stock
are exchanged for or changed into other stock or securities, cash and/or other
property, each share of Preferred Stock would be entitled to receive 100 times
the amount received per share of Common Stock. The foregoing rights are
protected against dilution in the event additional shares of Common Stock are
issued. Since the "out-of-the-money" rights would not be exercisable
immediately, registration of the Preferred Stock issuable upon exercise of the
rights with the Securities and Exchange Commission need not be effective until
the rights become exercisable and are "in the money" or are so close to being
"in the money" so as to make exercise economically reasonable.
2.
<PAGE>
VOTING: The rights would not have any voting rights.
AMENDMENT: The rights could be amended or otherwise modified by the
Board of Directors at any time prior to the time a person acquires a 15% or
greater position in the Company.
FEDERAL INCOME TAX CONSEQUENCES: The federal income tax consequences of
rights plans have not been directly established by Congress or the courts, and
the only revenue ruling issued by the Internal Revenue Service to date addresses
the adoption of a rights plan, but not any later tax consequences. The following
discussion of probable tax consequences is subject to changes in the law as well
as clarification and interpretation of existing law that may have retroactive as
well as prospective effect.
Under Revenue Ruling 90-11, the adoption of a rights plan and the
subsequent distribution of the rights to stockholders is not a taxable event for
the Company or its stockholders under the federal income tax laws. Although not
addressed in the revenue ruling, the physical distribution of rights
certificates upon the rights becoming exercisable should not result in any tax.
After such physical distribution, the rights would probably be treated
for tax purposes as capital assets in the hands of most stockholders and each
right would probably have a basis of zero and a holding period which relates
back to the holding period of the stock with respect to which such right was
issued. Upon the rights becoming rights to purchase an acquirer's common stock,
holders of rights probably would be taxed even if the rights were not exercised.
Upon the rights being redeemed for cash or the rights being exchanged for stock
of the Company, holders of the rights probably would have a taxable event. Upon
the rights becoming rights to purchase Common Stock of the Company, holders of
rights probably would not have a taxable event. The rights may have an impact on
tax-free reorganizations involving the Company. Several types of tax-free
transactions can still be structured, although the rights may be treated as
taxable "boot."
ACCOUNTING CONSEQUENCES: The initial issuance of the rights has no
accounting or financial reporting impact. Since the rights would be "out of the
money" when issued, they would not dilute earnings per share. Because the
redemption date of the rights is neither fixed nor determinable, the accounting
guidelines do not require the redemption amount to be accounted for as a
long-term obligation of the Company. The rights do raise certain issues with
respect to pooling-of-interests transactions, but several national accounting
firms have advised that the rights should not interfere with a company's ability
to consummate a pooling transaction so long as the transaction is properly
structured.
MISCELLANEOUS: The rights agreement would provide that the Company may
not enter into any transaction of the sort enumerated in the squeezeout
provision if in connection therewith there are outstanding securities or there
are agreements or arrangements intended to counteract the protective provisions
of the rights. The rights agreement would provide for amendment from time to
time in any manner consistent with the Board's purposes in adopting the rights
plan, including lowering the thresholds at which the rights become exercisable
or flip in from 15%
3.
<PAGE>
to not less than 10%, prior to the acquisition by a person or group of
beneficial ownership of 15% or more of the Company's Common Stock.
4.
<PAGE>
[ON ZITEL CORPORATION LETTERHEAD]
July ___, 1996
To Our Shareholders:
Your Board of Directors has adopted a Preferred Share Purchase Rights
Plan under which ZITEL CORPORATION (the "Company") will issue Rights with
respect to its Common Shares. We believe that this Plan will provide protection
to the shareholders from many of the takeover abuses prevalent today. The terms
of the plan are set forth in a Rights Agreement. A summary of the Rights
Agreement, which you may wish to attach to your share certificate, is included
with this letter.
The Rights to be issued under the Plan contain provisions to protect
shareholders in the event of an unsolicited attempt to acquire the Company,
including a gradual accumulation of shares in the open market, a partial or
two-tier tender offer that does not treat all shareholders equally, a
squeeze-out merger and other abusive takeover tactics which the Board believes
are not in the best interests of shareholders. These tactics unfairly pressure
shareholders, squeeze them out of their investment without giving them any real
choice and deprive them of the full value of their shares. We consider the
Rights to be the best available means of protecting both your right to retain
your equity investment in the Company and the full value of that investment,
while not foreclosing a fair acquisition bid for the Company.
The Plan is not intended to protect management or to prevent a takeover
of the Company and will not do so. However, it should deter any attempt to
acquire the Company in a manner or on terms not approved by the Board and, in
some cases, by the shareholders. The Plan is designed to deal with the very
serious problem of another person or company using abusive tactics to deprive
the Company's Board and shareholders of any real opportunity to determine the
destiny of the Company.
The Rights will trade automatically with shares of the Company's Common
Shares and are not exercisable except as provided in the Rights Agreement.
However, as more fully described in the Summary attached to this letter, ten
days after the announcement that a person or group has acquired 15% or more of
the Company's shares, or ten business days after the announcement that a person
or group has commenced a tender offer the consummation of which would result in
such person or group owning 15% or more of the shares (even if no purchases
actually occur), the Rights will become exercisable, and separate certificates
representing the Rights will be distributed. We expect that the Rights would
begin to trade independently from the Company's shares at that time. At no time
will the Rights have any voting power.
In adopting the Plan, we have expressed our continued confidence in the
future and our determination that you, our shareholders, be given every
opportunity to participate fully in that future.
On behalf of the Board of Directors,
Jack H. King
President
