<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
------- Securities Exchange Act of 1934
For the Quarter ended March 31, 1996
or
------- Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from ________________ to ___________
Commission file number 0-19533 .
---------
SUPERCUTS, INC.
_____________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 68-0141288
_______________________ __________________________________
(State of incorporation) (I.R.S. Employer Identification No.)
550 California Street, San Francisco, California 94104
_____________________________________________________ _________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 693-4700
______________________
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at May 8, 1996
___________________________ ____________________________
Common Stock $.01 par value 11,189,673 shares
____________________________
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Notes to Unaudited Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 3. NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 16
ITEM 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Index to Exhibits 18
Report on Form 8-K 18
2
<PAGE>
PART I - FINANCIAL INFORMATION
SUPERCUTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- -----------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 6,634 $ 2,054
Accounts receivable, net of allowance for doubtful
accounts of $52 and $47, respectively 3,258 3,255
Prepaid expenses and other assets 1,794 2,059
Deferred tax assets 6,403 6,600
Income taxes receivable 2,172 2,493
Inventories 1,808 1,885
------------- ------------
TOTAL CURRENT ASSETS 22,069 18,346
NON-CURRENT RECEIVABLES 15,917 13,917
PROPERTY AND EQUIPMENT, NET 28,347 28,891
OTHER ASSETS
Intangible assets, net 35,099 35,600
Deferred charges and other assets 785 612
-------------- -------------
TOTAL OTHER ASSETS 35,884 36,212
-------------- -------------
TOTAL ASSETS $ 102,217 $ 97,366
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 4,634 $ 7,380
Accrued liabilities 7,231 6,408
Deferred franchise fees and other liabilities 1,559 1,489
Current portion of revolving line of credit 26,800 --
Current portion of other debt 1,066 371
Restructuring liabilities 11,086 11,965
-------------- -------------
TOTAL CURRENT LIABILITIES 52,376 27,613
LONG-TERM LIABILITIES
Revolving line of credit -- 25,300
Other secured debt 4,237 --
Deferred income taxes 3,526 3,408
Other 2,187 2,479
-------------- --------------
TOTAL LONG-TERM LIABILITIES 9,950 31,187
-------------- --------------
TOTAL LIABILITIES 62,326 58,800
STOCKHOLDERS' EQUITY
Common stock $0.01 par value - 30,000,000
shares authorized; 11,996,513 and 11,982,385
issued at March 31, 1996 and December 31, 1995,
respectively 120 120
Additional paid-in capital 30,000 29,889
Retained earnings 14,412 13,198
Less 806,840 shares at March 31, 1996 and
December 31, 1995 in treasury at cost (4,641) (4,641)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 39,891 38,566
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 102,217 $ 97,366
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 1996 and 1995
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
--------------------------------------
1996 1995
--------------- --------------
<S> <C> <C>
REVENUES
Company-owned store sales $ 19,392 $ 17,632
Franchised and managed store revenues 6,330 5,891
-------------- -------------
TOTAL REVENUES 25,722 23,523
COSTS AND EXPENSES
Company-owned store expenses
Salaries and benefits 10,015 9,681
Other store expenses 6,558 6,497
-------------- -------------
Total Company-owned store expenses 16,573 16,178
Field management and support expenses 4,087 3,632
-------------- -------------
TOTAL COSTS AND EXPENSES 20,660 19,810
Corporate general & administrative expenses 1,652 1,390
Depreciation and amortization expenses 1,534 1,220
-------------- -------------
INCOME FROM OPERATIONS 1,876 1,103
Interest (income) (351) (283)
Interest expense 575 549
Other (income) expenses, net (225) (257)
-------------- -------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,877 1,094
PROVISION FOR INCOME TAXES 663 357
-------------- -------------
NET INCOME $ 1,214 $ 737
-------------- -------------
-------------- -------------
NET INCOME PER COMMON SHARE $ 0.11 $ 0.07
-------------- -------------
-------------- -------------
System-wide sales $ 76,181 $ 69,339
-------------- -------------
-------------- -------------
</TABLE>
See Exhibit 11 for computation of earnings per share.
See accompanying notes to the unaudited consolidated financial statements.
5
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For the three months ended March 31, 1996 and 1995
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,214 $ 737
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,534 1,220
Change in deferred income taxes 636 (251)
Changes in assets and liabilities:
Accounts receivable, net (3) (579)
Accounts payable and accrued liabilities (1,923) 2,249
Restructuring liabilities (558) --
Other assets and liabilities 80 (513)
----------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 980 2,863
CASH FLOWS FROM INVESTING ACTIVITIES:
Non-current receivables (2,000) (2,286)
Capital expenditures (595) (1,162)
Acquisition of stores, net of cash acquired -- (940)
----------- -------------
NET CASH (USED) IN INVESTING ACTIVITIES (2,595) (4,388)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit 1,500 1,200
Other secured borrowings 4,786 --
Issuance of common stock 111 170
Repayment of debt (202) (9)
----------- -------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 6,195 1,361
----------- -------------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 4,580 (164)
CASH AND SHORT-TERM INVESTMENTS,
BEGINNING OF PERIOD 2,054 1,504
CASH AND SHORT-TERM INVESTMENTS,
END OF PERIOD $ 6,634 $ 1,340
----------- -------------
----------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Interest paid 580 535
Income taxes paid -- 385
Liabilities assumed from acquisitions -- 9
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
6
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1.
The accompanying unaudited consolidated financial statements have been prepared
from the records of Supercuts, Inc. and its subsidiaries (the "Company") and, in
the opinion of management, include all adjustments necessary to present fairly
the financial position as of March 31, 1996, and the results of operations and
cash flows for the three months ended March 31, 1996 and 1995. The balance
sheet as of December 31, 1995 has been prepared from the audited financial
statements of the Company.
Certain information and footnote disclosures normally included in the annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted from these interim financial statements. It is
suggested that these consolidated financial statements be read in conjunction
with the consolidated financial statements and the notes thereto included in the
Company's 1995 Annual Report on Form 10-K.
Management believes the Company's business does not experience any material
seasonality. The Company's quarterly results of operations, however, may
fluctuate as a result of a number of factors, including the timing of new store
openings. The results of operations for the three months ended March 31, 1996
are not necessarily indicative of the operating results that may be expected for
the year ending December 31, 1996.
NOTE 2.
In 1996, the Company organized its operations management on a geographic
basis, incorporating franchise and Company-owned stores. The Company
believes this will provide better support for its growth in the future. The
income statement for the three months ended March 31, 1995 has been restated
to reflect this new organization.
NOTE 3.
In December 1993, the Company entered into an agreement ("Credit Agreement")
with a syndicated bank group ("Banks") for a $30 million revolving line of
credit. The credit agreement was composed of two facilities, a facility which
hads a maximum availability of $5 million, expiring in December 1996 and a
facility which had a maximum availability of $22 million through December 1994,
increasinged to $25 million through September 1996 and decreasing thereafter by
$2 million to $3 million quarterly, expiring in December 1998. The Credit
Agreement provides for a variety of covenants, including that the Company
maintain certain levels of tangible net worth, EBITDA and financial ratios.
Borrowings have been used to finance the growth of the Company's new stores
program. At March 31, 1996 and December 31, 1995, there were $26.8 million and
$25.3 million of borrowings outstanding under this line, respectively.
7
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
Interest on borrowings under this agreement is payable in arrears at each
interest payment date at the base rate, as defined, or at the offshore rate, as
defined, plus in each case, an applicable margin, as well as certain commitment
fees. The weighted average interest rate on the line of credit was 7.7% at both
March 31, 1996 and December 31, 1995, respectively.
On March 29, 1996, the Company and the Banks reached an agreement to amend
its $30 million revolving line of credit, which cured any possible default
under the previous covenants. The significant terms are as follows:
1) Facility A is eliminated in the Credit Agreement and Facility
B will have a maximum availability of $29.3 million. Expiration
of Facility B has been changed from December 31, 1998 to
March 31, 1997.
2) Facility B requires a reduction in the maximum availability on
the following dates:
Date Maximum Availability
-------------- --------------------
October 15, 1996 $ 28,325,000
November 15, 1996 27,325,000
December 31, 1996 26,800,000
January 31, 1997 25,800,000
February 28, 1997 24,800,000
3) The Banks receive a security interest in all the assets of the
Company.
4) The Company may purchase stores from investor/franchisee
stores for only up to $2 million to be paid over the term of
the amendment.
5) The Company is limited in the amount of its receivable balance
with the investor/franchisees.
The Company entered into a Loan and Security Agreement ("Loan") as of
February 1, 1996, with Prime Leasing, Inc., under which the Company borrowed
$5.0 million. The terms of the Loan provide for 60 monthly payments of
principal and interest of approximately $104,000 and a final payment of
$580,000. The Loan is secured by certain store equipment and leasehold
improvements.
8
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
NOTE 4.
In late 1995, a majority of the Board of Directors concluded that it was
appropriate to modify the Company's expansion plans and to replace its Chairman
of the Board and Chief Executive Officer. Future expansion efforts will focus on
expanding with existing franchisees in existing franchise markets. Additionally,
because of the significant operating losses and negative cash flow from
Supercuts New York, Inc. and its managed store expansion programs, stores in
certain markets, including metropolitan New York, will be closed or sold to
franchisees or other third parties. The restructuring costs related to these
activities, together with the costs relating to the management transition
described above, total $18.9 million before income taxes, of which $8.0 million
relates to non-cash items. This charge was recorded in the fourth quarter of
1995.
During the three months ended March 31, 1996, total charges incurred by the
Company related to these restructuring activities were $879 thousand, of
which $322 thousand related to non-cash items. Primarily the amounts incurred
related to professional fees, severance and costs related to the disposition
of assets.
NOTE 5.
On April 2, 1996, the Company's Board of Directors ("Board") adopted a
Shareholder Rights Plan ("Rights Plan"). The Rights Plan provides for the
distribution of preferred stock purchase rights ("Rights") as a dividend at
the rate of one Right for each share of the Company's common stock held as of
the close of business on April 15, 1996. The Rights will expire on April 15,
2006.
The Rights Plan is intended to protect the interests of the Company's
shareholders in the event the Company is confronted with coercive or unfair
takeover tactics. It is not intended to prevent an acquisition of the Company
on terms considered favorable by its Board, and fair to, and in the best
interests of, all shareholders. The Rights Plan will not prevent this in the
future.
The Rights Plan establishes a new class of Preferred Stock, Class A, with par
value of $.01 per share and 12,000 shares authorized. Each share will be
comprised of 1,000 units. These Rights were issued to shareholders as a
dividend on April 15, 1996. One Right is redeemable for one unit of the Class A
Preferred Stock at an exercise price of $40.00 upon the occurrence of certain
events.
These events center around takeover actions by a third party that would impair
the Board's ability to represent shareholders' interests fully.
9
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
If any person (other than Heartland Advisors, Inc. and its affiliates and
associates) becomes the beneficial owner of 15 percent or more of the Company's
common stock, then each Right not owned by a 15 percent or more stockholder
or certain related parties will entitle its holder to
purchase, at the Right's then-current exercise price, shares of common stock
(or, in certain circumstances as determined by the Board, cash, other property,
or other securities) having a value of twice the Right's exercise price. Since
the Board understands that Heartland beneficially owns more than 15 percent of
the Company's common stock, the rights not owned by Heartland and its affiliates
will be entitled to the foregoing entitlements if the level of beneficial
ownership of Heartland and its affiliates exceeds 20.3 percent. In addition,
if, after any person has become a 15 percent or more stockholder (or after
Heartland and its affiliates have become a holder of 20.3 percent or more of the
Company's common stock), the Company is involved in a merger or other business
combination transaction with another person in which its common stock is changed
or converted, or sells 50 percent or more of its assets or earning power to
another person, each right will entitle its holder to purchase, at the Right's
then-current exercise price, shares of common stock of such other person having
a value of twice the Rights exercise price.
The Company will generally be entitled to redeem the Rights at $.01 per Right at
any time until the tenth day following public disclosure that a person or group
has become the beneficial owner of 15 percent or more (or after Heartland and
its affiliates have become a beneficial owner of 20.3 percent or more), of the
Company's common stock.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In 1996, the Company organized its operations management on a geographic
basis, incorporating franchise and Company-owned stores. The Company
believes this will provide better support for its growth in the future. The
income statement for the three months ended March 31, 1995 has been restated
to reflect this new organization.
REVENUES. Total revenues increased 9.3% to $25.7 million for the three months
ended March 31, 1996 from $23.5 million for the three months ended March 31,
1995.
Revenues from Company-owned store sales increased 10% to $19.4 million for the
three months ended March 31, 1996 from $17.6 million for the three months ended
March 31, 1995. The revenue increase is primarily the result of an increase to
370 Company-owned stores at March 31, 1996, compared to the 338 Company-owned
stores that generated the 1995 sales results.
Franchised and managed store revenues increased 7% to $6.3 million for the three
months ended March 31, 1996 from $5.9 million for the three months ended
March 31, 1995. The revenue increase is primarily the result of an increase to
654 and 141 franchised and managed stores, respectively, at March 31, 1996,
compared to the 622 and 102 franchised and managed stores, respectively, that
generated the 1995 revenue result.
System-wide sales increased 10% from $69.3 million to $76.2 million as the
number of stores increased to 1,165 as of March 31, 1996 from 1,062 as of
March 31, 1995, coupled with a 4% increase in comparable store sales.
COSTS AND EXPENSES. Costs and expenses for Company-owned stores include all
in-store operating expenses. Costs and expenses increased 2.4% to $16.6
million for the three months ended March 31, 1996 from $16.2 million for the
same period in 1995. The increases were due primarily to the 32 additional
Company-owned stores in operation in 1996. However, Company-owned store
expenses decreased as a percentage of sales to 85.5% from 91.8% including a
3.3 point decline in salaries and benefits.
Costs and expenses for Field management and support include training, marketing
and administrative expenses related to supporting all stores in the Supercuts
system, Company-owned, managed and franchised. These cost and expenses
increased 13% from $3.6 million for the three months ended March 31, 1995 to
$4.1 million for the same period in 1996. This increase was primarily the
result of increased personnel necessary to support the additional 103 stores in
the system.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Corporate general & administrative expenses increased 19% from $1.4 million
for the three months ended March 31, 1995 to $1.7 million for the same period
in 1996. This increase was due to increases in professional and consulting
fees that the Company incurred during the first quarter change in its
organization.
Income from Operations increased 70% to $1.9 million for the three months ended
March 31, 1996 from $1.1 million for the three months ended March 31, 1995.
This was due primarily to controlling store costs relative to the increase in
Company-owned store sales. Total store expenses, as a percentage of Company-
owned store sales, decreased from 91.8% for the three months ended March 31,
1995 to 85.5% for the same period in 1996.
DEPRECIATION AND AMORTIZATION EXPENSE. For the three months ended
March 31, 1996, depreciation and amortization expense was $1.5 million, an
increase of 26% over the comparable period in 1995. This was due to additional
stores owned by the Company from March 1995 to March 1996.
INTEREST INCOME. Interest income increased from $283 thousand for the three
month period ended March 31, 1995 to $351 thousand for the same period in 1996.
This was due primarily to an increase in the notes receivable balances due to
the Company from the investor/franchise stores.
INCOME TAXES. The effective tax rate of 35.3% for the quarter ended March 31,
1996, increased from 32.6% for the quarter ended March 31, 1995 due to increased
earnings over prior year.
NET INCOME. Net income increased 65% to $1.2 million for the three months ended
March 31, 1996 when compared to the three months ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated by operating activities for the three months ended March 31,1996
totaled $980 thousand while cash generated by operating activities totaled $2.9
million for the three months ended March 31, 1995. Capital expenditures for the
same periods totaled $595 thousand and $1.2 million, respectively.
On April 1, 1996, the Company used approximately $4.7 million of the cash and
short-term investments on March 31, 1996 as a paydown on the current portion of
the revolving line of credit, reducing this balance to $22.1 million.
In December 1993, the Company entered into an agreement ("Credit Agreement")
with a syndicated bank group ("Banks") for a $30 million revolving line of
credit. The credit agreement was composed of two facilities, a facility which
hads a maximum availability of $5 million, expiring in December 1996 and a
facility which had a maximum availability of $22 million through December 1994,
increasinged to $25 million through September 1996 and decreasing thereafter by
$2 million to $3 million quarterly, expiring in December 1998.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Credit Agreement provides for a variety of covenants, including that the
Company maintain certain levels of tangible net worth, EBITDA and financial
ratios. Borrowings have been used to finance the growth of the Company's new
stores program. At March 31, 1996 and December 31, 1995, there were $26.8
million and $25.3 million of borrowings outstanding under this line,
respectively. Interest on borrowings under this agreement is payable in arrears
at each interest payment date at the base rate, as defined, or at the offshore
rate, as defined, plus in each case, an applicable margin, as well as certain
commitment fees. The weighted average interest rate on the line of credit was
7.7% at both March 31, 1996 and December 31, 1995, respectively.
On March 29, 1996, the Company and the Banks reached an agreement to amend
its $30 million revolving line of credit, which cured any possible default
under the previous covenants. The significant terms are as follows:
1) Facility A is eliminated in the Credit Agreement and Facility
B will have a maximum availability of $29.3 million.
Expiration of Facility B has been changed from December 31, 1998
to March 31, 1997.
2) Facility B requires a reduction in the maximum availability on
the following dates:
Date Maximum Availability
-------------- --------------------
October 15, 1996 $ 28,325,000
November 15, 1996 27,325,000
December 31, 1996 26,800,000
January 31, 1997 25,800,000
February 28, 1997 24,800,000
3) The Banks receive a security interest in all the assets of the
Company.
4) The Company may purchase stores from investor/franchisee
stores for only up to $2 million to be paid over the term of
the amendment.
5) The Company is limited in the amount of its receivable balance
with the investor/franchisees.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company entered into a Loan and Security Agreement ("Loan") as of
February 1, 1996, with Prime Leasing, Inc., under which the Company borrowed
$5.0 million. The terms of the Loan provide for 60 monthly payments of
principal and interest of approximately $104,000 and a final payment of
$580,000. The Loan is secured by certain store equipment and leasehold
improvements.
The Company believes cash flow from operations and available borrowings
will be sufficient to meet its operating expense and capital expenditure
requirements for the next 12 months. The Company has engaged Donaldson,
Lufkin, and Jenrette to advise the Company with respect to long range
financing possibilities on its behalf.
STORE COUNT
<TABLE>
<CAPTION>
Investor/
Franchisee
Company-owned Stores Managed Franchise
Stores by the Company Stores Total
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1995 338 102 622 1,062
----- ------ ---- ------
----- ------ ---- ------
December 31, 1995 369 141 653 1,163
Openings 3 -- 3 6
Acquisitions 1 -- -- 1
Closed (3) -- (2) (5)
----- ------ ---- ------
March 31, 1996 370 141 654 1,165
----- ------ ---- ------
----- ------ ---- ------
</TABLE>
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 13, 1996, Mr. David E. Lipson and DEL Holding Corporation ("DEL"), a
Nevada corporation which the Company believes is wholly owned by Mr. Lipson
brought legal action against the Company and certain of its directors and
officers. The lawsuit seeks payment of $3 million, allegedly due to DEL
pursuant to a Consulting Agreement dated as of August 22, 1995, between the
Company and DEL. The lawsuit also seeks unspecified damages allegedly
sustained by Mr. Lipson as a result of a delay in his ability to sell
1,508,220 shares of the Company's common stock, which were sold by him
between February 20 and February 28, 1996, because of the Company's refusal
to remove restrictive legends from certificates representing such stock.
According to his lawsuit, Mr. Lipson sold the number of shares noted for an
aggregate of $7.8 million, or a reported average price of $5.20 per share.
The Company's common stock price range for the month of February 1996 was a
high of 7-3/8, a low of 5-1/8 and a close of 5-1/8. In the opinion of
management, the outcome of the litigation will not have a material adverse
effect on the Company's financial position or its results of operations.
ITEM 2. CHANGES IN SECURITIES
On April 2, 1996, the Company's Board of Directors adopted a Shareholder Rights
Plan ("Rights Plan"). The Rights Plan provides for the distribution of
preferred stock purchase rights ("Rights") as a dividend at the rate of one
Right for each share of the Company's common stock held as of the close of
business on April 15, 1996. The Rights will expire on April 15, 2006.
The Rights Plan is intended to protect the interests of the Company's
shareholders in the event the Company is confronted with coercive or unfair
takeover tactics. It is not intended to prevent an acquisition of the Company
on terms considered favorable by its Board, and fair to, and in the best
interests of, all shareholders. The Rights Plan will not prevent this in the
future.
The Rights Plan establishes a new class of Preferred Stock, Class A, with par
value of $.01 per share and 12,000 shares authorized. Each share will be
comprised of 1,000 units. These Rights were issued to shareholders as a
dividend on April 15, 1996. One Right is redeemable for one unit of the Class A
Preferred Stock at an exercise price of $40.00 upon the occurrence of certain
events.
These events center around takeover actions by a third party that would impair
the Board's ability to represent shareholders' interests fully.
15
CHANGES IN SECURITIES (continued)
If any person (other than Heartland Advisors, Inc. and its affiliates and
associates) becomes the beneficial owner of 15 percent or more of the Company's
common stock, then each Right not owned by a 15 percent or more stockholder
or certain related parties will entitle its holder to
purchase, at the Right's then-current exercise price, shares of common stock
(or, in certain circumstances as determined by the Board, cash, other property,
or other securities) having a value of twice the Right's exercise price. Since
the Board understands that Heartland beneficially owns more than 15 percent of
the Company's common stock, the rights not owned by Heartland and its affiliates
will be entitled to the foregoing entitlements if the level of beneficial
ownership of Heartland and its affiliates exceeds 20.3 percent. In addition,
if, after any person has become a 15 percent or more stockholder (or after
Heartland and its affiliates have become a holder of 20.3 percent or more of the
Company's common stock), the Company is involved in a merger or other business
combination transaction with another person in which its common stock is changed
or converted, or sells 50 percent or more of its assets or earning power to
another person, each right will entitle its holder to purchase, at the Right's
then-current exercise price, shares of common stock of such other person having
a value of twice the Rights exercise price.
The Company will generally be entitled to redeem the Rights at $.01 per Right at
any time until the tenth day following public disclosure that a person or group
has become the beneficial owner of 15 percent or more (or after Heartland and
its affiliates have become a beneficial owner of 20.3 percent or more), of the
Company's common stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Supercuts, Inc. was held on May
9, 1996. The following matters were voted upon at the annual meeting:
1) Election to the Board of Directors of six nominees;
2) Ratification and appointment of the independent public accountants, Arthur
Andersen LLP;
3) Approval of the amendment to the Company's Nonemployee Director
Nonqualified Stock Option Plan to increase by 50,000 the number of
shares covered by the plan;
4) Approval of an amendment to the Stock Plan of the Company to increase by
400,000 the number of shares covered by the plan;
5) Approval of an amendment to the Company's Employee Stock Purchase Plan to
increase by 100,000 the number of shares reserved for issuance
thereunder.
16
<PAGE>
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (continued)
Set forth below is a separate tabulation of the votes cast with
respect to each of the matters listed above:
<TABLE>
<CAPTION>
Votes Abstention Broker
Votes For Against Votes Non-Votes
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
(1) Election of Directors:
Thomas L. Gregory 7,170,044 0 648,529 0
Edward D. Faber 7,170,044 0 648,529 0
Paul W. Geraldson 7,171,037 0 647,536 0
Daniel J. Good 7,170,044 0 648,529 0
Steve Price 7,171,534 0 647,039 0
Agnieszka Winkler 7,170,034 0 648,539 0
(2) Arthur Andersen LLP 7,745,350 64,318 8,905 0
(3) Amendment to the Non-employee
Director Non-qualified Stock
Option Plan 6,818,983 856,800 40,356 102,434
(4) Amendment to the Stock Plan of
the Company 5,922,980 1,747,568 45,591 102,434
(5) Amendment to the Company's
Employee Stock Purchase Plan 6,963,799 712,404 39,936 102,434
</TABLE>
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- -------- ---------------------------------------------
2.44 Stock Purchase Agreement dated as of April 1, 1996
between Supercuts, Inc., a Delaware corporation,
and John T. McEnroe
2.45 Rights Agreement dated April 2, 1996, between
Supercuts, Inc., a Delaware corporation, and U.S.
Stock Transfer Corporation
11 Computation of Earnings per share
REPORT ON FORM 8-K
The Company filed one Form 8-K pursuant to Item 5 thereof, as follows:
- Dated April 8, 1996, the announcement that the Board of Directors of the
Registrant has adopted a Stockholder Rights Plan.
18
<PAGE>
SIGNATURES
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.
SUPERCUTS, INC.
-----------------------------
Registrant
Date: May 14, 1996 -----------------------------
Daniel M. Lechin
Senior Vice President
Chief Financial Officer
(Duly authorized officer and
principal financial officer
of the registrant.)
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share data)
(Unaudited)
For the three months Ended
-----------------------------
March 31, March 31,
1996 1995
---------- ----------
Net earnings $ 1,214 $ 737
------------ -----------
------------ -----------
Weighted average number of
outstanding shares 11,188 11,156
------------ -----------
------------ -----------
Earnings per common share $ 0.11 $ 0.07
------------ -----------
------------ -----------
Common stock equivalents are considered immaterial for the periods
presented.
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of April 1, 1996, between Supercuts,
Inc., a Delaware corporation ("Purchaser"), and John T. McEnroe ("Seller").
WHEREAS, Seller is the owner of 1000 shares of the common stock, $0.01 par
value of EHM, Inc., a Delaware corporation (which shares of common stock are
hereinafter referred to as the "Securities"); and
WHEREAS, Purchaser wishes to purchase and Seller wishes to sell, pursuant
to the terms hereof, the Securities.
In consideration of the following mutual covenants and conditions, the
parties hereto agree as follows:
1. SALE OF SECURITIES TO THE PURCHASER. On the Closing Date (as hereinafter
defined) and on the terms and subject to the conditions of this Agreement,
Seller will sell, and Purchaser will purchase, the Securities. The
purchase price for the Securities is $1.00.
2. METHOD OF PAYMENT OF PURCHASE PRICE. The aggregate purchase price will be
paid, by check, to Seller on April 1, 1996.
3. CLOSING. The consummation of the purchase and sale of the Securities (the
"Closing") will take place at the offices of the Purchaser's attorneys,
Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street, Suite 2600,
Chicago, Illinois 60601 at 10:00 a.m., Chicago time on April 3, 1996, or
such other time and date as may be agreed by Purchaser and Seller. The
date on which the Closing actually takes place is referred to in this
Agreement as the "Closing Date."
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby makes the
following representations and warranties to Purchaser:
a. AUTHORIZATION: ENFORCEABILITY. Seller has full power to enter into
this Agreement and to consummate the transactions contemplated hereby.
All necessary actions required to authorize Seller's execution and
delivery have been duly taken, made or obtained. This Agreement
constitutes the valid and legally binding obligation of Seller,
enforceable in accordance with its terms and conditions.
b. NO BREACH. The execution and delivery of this Agreement by Seller,
and the sale and delivery of the Securities to Purchaser pursuant
hereto, do not and will not (i) conflict with or result in a breach of
the terms, conditions or provisions of, (ii) constitute a default
under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Securities pursuant to, (iv) result in
the violation
<PAGE>
of, or (v) require any authorization, consent approval,
exemption or other action by or notice to any court or administrative
or governmental body pursuant to, any law, statute, rule or regulation
to which Seller is subject (other than the federal and state
securities law, as to which no representation or warranty is made by
Seller), or any order, judgment or decree to which Seller or any of
his assets are subject.
c. OWNERSHIP OF SECURITIES. Seller is the record and beneficial owner of
the Securities. Upon the purchase of the Securities by the Purchaser
at the Closing, the Purchaser will acquire good title thereto, free
and clear of any lien, claim, charge or encumbrance whatsoever
relating to Seller or his assets.
d. UNDISCLOSED LIABILITIES. To the best of Seller's knowledge, EHM, Inc.
has no liabilities or obligations other than those liabilities or
obligations stated on EHM, Inc.'s financial statements, which have
been prepared by Purchaser, those liabilities or obligations incurred
by EHM, Inc. in the ordinary course of business since the date of the
latest financial statements of EHM, Inc. and those liabilities and
obligations of EHM, Inc. of which Purchaser has knowledge.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Purchaser hereby makes
the following representations and warranties to Seller:
a. ORGANIZATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
b. AUTHORIZATION: ENFORCEABILITY. Purchaser has full corporate power
and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. All necessary corporate actions and
proceedings, including, but not limited to, any approvals required by
the stockholders of Purchaser, required to authorize Purchaser's
execution, delivery and performance of this Agreement, including
without limitation the delivery of all required notices to and the
obtaining of all required consents from any court or regulatory or
administrative agency, have been duly taken, made or obtained. This
Agreement constitutes the valid and legally binding obligations of
Purchaser, enforceable in accordance with its terms and conditions.
c. NO BREACH. The execution and delivery of this Agreement by Purchaser,
and the acquisition of the Securities by Purchaser pursuant hereto, do
not and will not (i) conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a default under, (iii)
result in the creation of any lien, security interest, charge or
encumbrance upon the capital stock or assets of Purchaser pursuant to,
(iv) result in the violation of, or (v) require any authorization,
consent, approval, exemption or other action by notice to any court or
administrative or governmental body pursuant to, the charter or bylaws
of Purchaser, any law,
2
<PAGE>
statute, rule or regulation to which Purchaser is subject, any
agreement or other instrument to which Purchaser is a party or
by which Purchaser is bound, or any order, judgment or decree
to which Purchaser or any of its assets are subject.
d. INVESTMENT INTENT. Purchaser is acquiring the Securities for its own
account for investment and not with a view toward resale to any other
party or public distribution.
6. CLOSING CONDITIONS.
a. The obligations of Seller to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of the following
conditions (i) except as otherwise provided in Subsection 5(e), the
representations and warranties set forth in Section 5 of this
Agreement will be true and correct in all respects at and as of the
Closing Date and Seller shall be furnished with a certificate of
Purchaser to this effect on the Closing Date, (ii) no court order will
be in effect which prevents or prohibits the transactions contemplated
by this Agreement and (iii) Purchaser shall have paid to the aggregate
purchase price.
b. The obligations of Purchaser to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of the
following conditions (i) the representations and warranties set forth
in Section 4 of this Agreement will be true and correct in all
respects at and as of the Closing Date and Purchaser shall be
furnished with a certificate of Seller to this effect on each Closing
Date, (ii) no court order will be in effect which prevents or
prohibits the transactions contemplated by this Agreement and (iii)
Seller will have delivered to Purchaser the certificates evidencing
the Securities together with appropriate transfer documentation duly
executed in blank.
c. Seller and Purchaser may waive any of the conditions contained in this
Section 6; provided that no such waiver will be effective or binding
against Seller or Purchaser unless it is contained in a written
instrument executed by such party.
7. INDEMNIFICATION.
a. SELLER'S INDEMNIFICATION. Seller hereby agrees to indemnify and hold
harmless each of Purchaser, the stockholders, directors, officers,
employees and agents of Purchaser and each affiliate of Purchaser and
the successor, assigns, executors, heirs and legal representatives of
each of the foregoing persons, from and against any and all
liabilities, costs, expenses and damages (including without limitation
reasonable attorneys' fees and expenses) arising out of, relating to
or resulting from (i) any failure by Seller to perform his obligations
under this Agreement or (ii) the failure of any representation and
warranty set forth in Section 4 of this
3
<PAGE>
Agreement to be true and correct as of the date of this Agreement
or as of each Closing Date.
b. PURCHASER'S INDEMNIFICATION. Purchaser agrees to indemnify and hold
harmless each of Seller and the agents of Seller and his affiliates,
and the successors, assigns, executors, heirs and legal
representatives of each of the foregoing persons, from and against any
and all liabilities, costs, expenses and damages (including without
limitation reasonable attorneys' fees and expenses) arising out of,
resulting from (i) any failure by Purchaser to perform its obligations
under this Agreement or (ii) the failure of any representation or
warranty set forth in Section 5 of this Agreement to be true and
correct as of the date of this Agreement or as of each Closing Date.
8. MUTUAL RELEASE. Immediately after or simultaneously with the Closing,
Seller shall, and shall cause Priscilla M. McEnroe to, execute and deliver
to Purchaser the Mutual Release in the form attached hereto and
incorporated herein as Exhibit A (the "Mutual Release"). Immediately after
or simultaneously with the Closing, Purchaser shall, and shall cause SC
Capital, Inc. and EHM, Inc. to, execute and deliver to Seller the Mutual
Release.
9. CONSENT TO PRE-CLOSING TRANSACTIONS. Purchaser hereby consents to the
following transactions consummated prior to the Closing: (i) the repayment
by EHM, Inc. of all amounts due pursuant to that certain Subordinated
Promissory Note dated October 14, 1994 in the original principal amount of
$100,000 executed by EHM, Inc. for the benefit of the John T. McEnroe
Profit Sharing and Money Purchase Pension Trust; (ii) a distribution by
EHM, Inc. to Seller of approximately $60,000 in respect to the common
equity of EHM, Inc.; and (iii) the termination of the certain Stock
Subscription Agreement dated as of December 30, 1994 by and between EHM,
Inc. and Seller.
10. REMEDIES. Any person having rights under any provision of this Agreement
will be entitled to enforce such rights specifically, to recover damages
caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
11. ATTORNEY FEES. If either party employs legal counsel in connection with
enforcing this Agreement or the Mutual Release, in addition to the
indemnification provisions of Section 7 above, the attorney fees, court
costs and all other expenses relating to enforcing this Agreement,
including but not limited to litigation, of the prevailing party shall be
paid by the other party.
12. AMENDMENTS AND WAIVERS. No modifications, amendment or waiver of any
provision of this Agreement will be effective against any party to this
Agreement unless such modification, amendment or waiver is approved in
writing by such party. The failure of any party to enforce any of the
provisions of this Agreement will in no way be construed as a waiver of
such provision and will not affect the right of such party
4
<PAGE>
thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
13. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Agreement by
or on behalf of any of the parties hereto will bind and inure to the
benefit of the respective successors and assigns of the parties hereto
whether so expressed or not; provided that Seller may not assign or
delegate its rights or obligations under this Agreement without the prior
written consent of Purchaser.
14. SEVERABILITY. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
15. THIRD PARTY BENEFICIARIES. The covenants and agreements contained herein
are solely for the benefit of, and are intended to be enforceable solely
by, the parties to this Agreement and their respective successors and
assigns.
16. COUNTERPARTS. This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more that
one party, but all such counterparts taken together will constitute one and
the same
17. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted by convenience only and do not constitute a part of this
Agreement.
18. GOVERNING LAW. All questions concerning the construction, validity and
interpretation of this Agreement and the exhibits hereto will be governed
by the internal law, and not the law of conflicts, of the State of
Delaware.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
SUPERCUTS, INC.
By: /s/ Lawrence D. Imber
-----------------------------
Name: Lawrence D. Imber
Title: Sr. Vice President
/s/ John T. McEnroe
-----------------------------
John T. McEnroe
5
<PAGE>
EXHIBIT A
MUTUAL RELEASE
This Mutual Release is made and entered into this 1st day of April,
1996, by and between (i) John T. McEnroe and Priscilla M. McEnroe
(collectively, the "McEnroes") and (ii) Supercuts, Inc., a Delaware
corporation, SC Capital, Inc., a Delaware corporation, and EHM, Inc., a
Delaware corporation (collectively "Supercuts").
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the McEnroes do hereby release, waive, and
forever discharge Supercuts, and its successors and assigns, of and from all
manner of actions, causes, causes of action, suits, debts, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, controversies,
agreements, promises, variances, trespasses, damages, judgments, executions,
claims, liabilities, and demands whatsoever, in law or in equity, and whether
under state or federal law, which the McEnroes now have against Supercuts or
its successors or assigns, or hereafter can, shall, or may have in connection
with or related to EHM, Inc. or the assets or business of EHM, Inc. existing
on or at any time prior to the date of this Mutual Release.
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Supercuts does hereby release, waive and
forever discharge the McEnroes and their successors and assigns, of and from
all manner of actions, causes, causes of action, suits, debts, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, controversies,
agreements, promises, variances, trespasses, damages, judgments, executions,
claims, liabilities and demands whatsoever in law or in equity, and whether
under state or federal law, which Supercuts now has against the McEnroes and
their successors and assigns, or hereafter can, shall or may have in
connection with or related to EHM, Inc. or the assets or business of EHM,
Inc., existing on or prior to the date of this Mutual Release.
The provisions of this Mutual Release shall not apply to claims by
John T. McEnroe against Supercuts, Inc. or by Supercuts, Inc. against John T.
McEnroe pursuant to that certain Stock Purchase Agreement of even date
herewith between John T. McEnroe and Supercuts, Inc.
The McEnroes and Supercuts understand and acknowledge that this is
a general release and each expressly waives the benefits of the provisions of
Section 1542 of the Civil Code of the State of California which reads as
follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected his settlement with the
debtor."
<PAGE>
This Mutual Release may be executed in counterparts, each of which
shall constitute an original.
IN WITNESS WHEREOF, the parties hereby have executed this Mutual
Release as of the day and year first above written.
/s/ John T. McEnroe
----------------------
John T. McEnroe
/s/ Priscilla M. McEnroe
------------------------
Priscilla M. McEnroe
SUPERCUTS, INC.
By: /s/ Lawrence D. Imber
-------------------------------
Name: Lawrence D. Imber
Title: Sr. Vice President
SC CAPITAL, INC.
By: /s/ Lawrence D. Imber
-------------------------------
Name: Lawrence D. Imber
Title: Sr. Vice President
EHM, INC.
By: /s/ John T. McEnroe
-------------------------------
Name: John T. McEnroe
Title: President
2
<PAGE>
- -----------------------------------------------------------------------------
RIGHTS AGREEMENT
Supercuts, Inc.
and
U.S. Stock Transfer Corporation
Rights Agent
Dated as of April 2, 1996
- -----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
Section 1. Certain Definitions. . . . . . . . . . . . . . . 1
Section 2. Appointment of Rights Agent. . . . . . . . . . . 6
Section 3. Issue of Rights Certificates . . . . . . . . . . 6
Section 4. Form of Rights Certificates. . . . . . . . . . . 8
Section 5. Countersignature and Registration. . . . . . . . 9
Section 6. Transfer, Split Up, Combination and Exchange
of Rights Certificates; Mutilated, Destroyed,
Lost or Stolen Rights Certificates. . . . . . . 10
Section 7. Exercise of Rights; Purchase Price; Expiration
Date of Rights. . . . . . . . . . . . . . . . . 11
Section 8. Cancellation and Destruction of Rights
Certificates . . . . . . . . . . . . . . . . . 13
Section 9. Reservation and Availability of Capital Stock. . 13
Section 10. Preferred Stock Record Date . . . . . . . . . . 15
Section 11. Adjustment of Purchase Price, Number and Kind
of Shares or Number of Rights. . . . . . . . . 15
Section 12. Certificate of Adjusted Purchase Price or
Number of Shares . . . . . . . . . . . . . . . 24
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power . . . . . . . . . . . . 25
Section 14. Fractional Rights and Fractional Shares . . . . 27
Section 15. Rights of Action. . . . . . . . . . . . . . . . 28
Section 16. Agreement of Rights Holders . . . . . . . . . . 29
Section 17. Rights Certificate Holder Not Deemed a
Stockholder . . . . . . . . . . . . . . . . . 30
Section 18. Concerning the Rights Agent . . . . . . . . . . 30
Section 19. Merger or Consolidation or Change of Name
of Rights Agent . . . . . . . . . . . . . . . 31
Section 20. Duties of Rights Agent. . . . . . . . . . . . . 31
(i)
<PAGE>
Section 21. Change of Rights Agent. . . . . . . . . . . . . . 33
Section 22. Issuance of New Rights Certificates . . . . . . . 34
Section 23. Redemption and Termination. . . . . . . . . . . . 34
Section 24. Exchange. . . . . . . . . . . . . . . . . . . . . 36
Section 25. Notice of Certain Events. . . . . . . . . . . . . 37
Section 26. Notices . . . . . . . . . . . . . . . . . . . . . 38
Section 27. Supplements and Amendments. . . . . . . . . . . . 38
Section 28. Successors. . . . . . . . . . . . . . . . . . . . 39
Section 29. Determinations and Actions by the Board of
Directors, etc. . . . . . . . . . . . . . . . . 39
Section 30. Benefits of this Agreement. . . . . . . . . . . . 40
Section 31. Severability. . . . . . . . . . . . . . . . . . . 40
Section 32. Governing Law . . . . . . . . . . . . . . . . . . 41
Section 33. Counterparts. . . . . . . . . . . . . . . . . . . 41
Section 34. Descriptive Headings. . . . . . . . . . . . . . . 41
Exhibit A -- Form of Certificate of Designation, Preferences
and Rights
Exhibit B -- Form of Rights Certificate
Exhibit C -- Summary of Rights
(ii)
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of April 2, 1996 between Supercuts, Inc., a
Delaware corporation (the "COMPANY"), and U.S. Stock Transfer Corporation (the
"RIGHTS AGENT").
W I T N E S S E T H
WHEREAS, on March 28, 1996 (the "RIGHTS DIVIDEND DECLARATION
DATE"), the Board of Directors of the Company authorized and declared a
dividend distribution of one Right for each share of Common Stock of the
Company outstanding at the close of business on April 15, 1996 (the "RECORD
DATE"), and has authorized the issuance of one Right (as such number may
hereinafter be adjusted pursuant to the provisions of Section 11(p) hereof)
for each share of Common Stock of the Company issued between the Record Date
(whether originally issued or delivered from the Company's treasury) and the
Distribution Date, each Right initially representing the right to purchase
one unit (a "UNIT") with each such unit consisting initially of one
one-thousandth of a share of Preferred Stock of the Company having the
rights, powers and preferences set forth in the form of Certificate of
Designation, Preferences and Rights attached hereto as EXHIBIT A, upon the
terms and subject to the conditions hereinafter set forth ("RIGHTS");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "ACQUIRING PERSON" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner
of 15% or more of the shares of Common Stock then outstanding or, in the case
of Heartland Advisors, Inc. ("HEARTLAND") and its Affiliates and Associates,
shall be the Beneficial Owner of 20.3% or more of the shares of Common Stock
then outstanding, but shall not include (i) the Company, (ii) any Subsidiary
of the Company, (iii) any employee benefit plan of the Company or of any
Subsidiary of the Company, or (iv) any Person or entity organized, appointed
or established by the Company for or pursuant to the terms of any such plan
(each of (i) through (iv), an "EXEMPTED PERSON"). Notwithstanding the
foregoing, (i) no Person shall become an "Acquiring Person" as a result of an
acquisition of Common Stock by the Company which, by reducing the number of
such shares then outstanding, increases the proportionate number of shares
beneficially owned by such Person to 15% (or, in the case of Heartland,
20.3%) or more of the outstanding Common Stock, except that if such Person,
after such share purchases by the Company, becomes the Beneficial Owner
<PAGE>
of any additional shares of Common Stock, such Person shall be deemed to be an
"Acquiring Person;" and (ii) if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person" has become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of Common Stock so that such Person would no
longer be an Acquiring Person then such Person shall not be deemed to be an
"Acquiring Person." The term "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 issued and outstanding which such Person
would be deemed to beneficially own hereunder.
(b) "ACT" shall mean the Securities Act of 1933, as amended.
(c) "ADJUSTMENT SHARES" shall have the meaning set forth in Section
11(a)(ii) of this Agreement.
(d) "AFFILIATE" shall have the meaning set forth in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act.
(e) "ASSOCIATE" shall have the meaning set forth in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act.
(f) A Person shall be deemed the "BENEFICIAL OWNER" of, and shall be deemed
to "BENEFICIALLY OWN," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (whether or not in
writing) or upon the exercise of conversion rights, exchange rights,
rights, warrants or options, or otherwise; PROVIDED, HOWEVER, that a Person
shall not be deemed the "Beneficial Owner" of, or to "beneficially own,"
(A) securities tendered pursuant to a tender or exchange offer made by such
Person or any of such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange, or (B) securities
issuable upon exercise of Rights at any time prior to the occurrence of a
Triggering Event, or (C) securities issuable upon exercise of Rights from
and after the occurrence of a Triggering Event which Rights were acquired
by such Person or any of such Person's Affiliates or Associates prior to
the Distribution Date or pursuant to Section 3(a) or Section 22 hereof
("ORIGINAL RIGHTS") or pursuant to Section 11(i) hereof in connection with
an adjustment made with respect to any Original Rights;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or
has "beneficial ownership" of
-2-
<PAGE>
(as determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act), including pursuant to any agreement, arrangement
or understanding, whether or not in writing; PROVIDED, HOWEVER, that a
Person shall not be deemed the "Beneficial Owner" of, or to "beneficially
own," any security under this subparagraph (ii) as a result of an
agreement, arrangement or understanding to vote such security if such
agreement, arrangement or understanding: (A) arises solely from a
revocable proxy given in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable provisions of the General Rules and Regulations under the
Exchange Act, and (B) is not also then reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person
(or any of such Person's Affiliates or Associates) has any agreement,
arrangement or understanding (whether or not in writing), for the purpose
of acquiring, holding, voting (except pursuant to a revocable proxy as
described in the proviso to subparagraph (ii) of this paragraph (f)) or
disposing of any voting securities of the Company;
PROVIDED, HOWEVER, that nothing in this paragraph (f) shall cause a person
engaged in business as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired through such
person's participation in good faith in a firm commitment underwriting until
the expiration of forty days after the date of such acquisition.
Notwithstanding anything in this definition of Beneficial Owner to the
contrary, a Person who is a Continuing Director or officer of the Company or
who is an Affiliate or Associate of a Continuing Director or officer of the
Company (each, an "EXCLUDED PERSON") shall not be deemed to "beneficially
own" shares of Common Stock held by another Excluded Person solely by reason
of any agreement, arrangement or understanding, written or otherwise, entered
into in opposition to a transaction that, at the time such agreement,
arrangement or understanding was entered into, has not been approved or
recommended by the Board of Directors to the stockholders of the Company
(which approval or recommendation, if adopted following a Stock Acquisition
Date, includes the concurrence of a majority of the Continuing Directors and
only if the Continuing Directors constitute a majority of the number of
directors then in office).
(g) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in the State of California or the state in
which the principal office of the Rights Agent is located are authorized or
obligated by law or executive order to close.
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(h) "CLOSE OF BUSINESS" on any given date shall mean 5:00 P.M., California
time, on such date; PROVIDED, HOWEVER, that if such date is not a Business
Day it shall mean 5:00 P.M., California time, on the next succeeding Business
Day.
(i) "COMMON STOCK" shall mean the common stock, par value $.01 per share, of
the Company, except that "Common Stock" when used with reference to any
Person other than the Company shall mean the capital stock of such Person
with the greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such Person.
(j) "COMMON STOCK EQUIVALENTS" shall have the meaning set forth in Section
11(a)(iii) of this Agreement.
(k) "COMPANY" shall have the meaning set forth in the introductory
paragraph of this Agreement.
(l) "CONTINUING DIRECTOR" shall mean a member of the Board of Directors who
is not an Acquiring Person, an Affiliate or Associate of an Acquiring Person
or a representative or nominee of an Acquiring Person.
(m) "CURRENT MARKET PRICE" shall have the meaning set forth in Section
11(d)(i).
(n) "CURRENT VALUE" shall have the meaning set forth in Section 11(a)(iii)
of this Agreement.
(o) "DISTRIBUTION DATE" shall have the meaning set forth in Section 3(a) of
this Agreement.
(p) "EQUIVALENT PREFERRED STOCK" shall have the meaning set forth in
Section 11(b) of this Agreement.
(q) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934.
(r) "EXCLUDED PERSON" shall have the meaning set forth in Section 1(f)(iii)
of this Agreement.
(s) "EXEMPTED PERSON" shall have meaning set forth in Section 1(a) of this
Agreement.
(t) "EXPIRATION DATE" shall have the meaning set forth in Section 7(a) of
this Agreement.
(u) "FINAL EXPIRATION DATE" shall have the meaning set forth in Section
7(a) of this Agreement.
(v) "ORIGINAL RIGHTS" shall have the meaning set forth in Section 1(f)(i)
of this Agreement.
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(w) "PERSON" shall mean any individual, firm,
corporation, partnership or other entity.
(x) "PREFERRED STOCK" shall mean shares of Class A Preferred Stock, par
value $.01 per share, of the Company, and, to the extent that there are not a
sufficient number of shares of Class A Preferred Stock authorized to permit
the full exercise of the Rights, any other series of Preferred Stock, par
value $.01 per share, of the Company designated for such purpose containing
terms substantially similar to the terms of the Class A Preferred Stock.
(y) "PRINCIPAL PARTY" shall have the meaning set forth in Section 13(b) of
this Agreement.
(z) "PURCHASE PRICE" shall have the meaning set forth in Section 4(a) of
this Agreement.
(aa) "RECORD DATE" shall have the meaning set forth in the "Whereas" clause
of this Agreement.
(bb) "REDEMPTION PRICE" shall have the meaning set forth in Section 23 of
this Agreement.
(cc) "RIGHTS" shall have the meaning set forth in the "Whereas" clause of
this Agreement.
(dd) "RIGHTS AGENT" shall have the meaning set forth in the introductory
paragraph of this Agreement.
(ee) "RIGHTS CERTIFICATES" shall have the meaning set forth in Section 3(a)
of this Agreement.
(ff) "RIGHTS DIVIDEND DECLARATION DATE" shall have the meaning set forth in
the "Whereas" clause of this Agreement.
(gg) "SECTION 11(a)(ii) EVENT" shall mean any event described in Section
11(a)(ii) of this Agreement.
(hh) "SECTION 11(a)(ii) TRIGGER DATE" shall have the meaning set forth in
Section 11(a)(iii) of this Agreement.
(ii) "SECTION 13 EVENT" shall mean any event described in clause (x), (y) or
(z) of Section 13(a) of this Agreement.
(jj) "SPREAD" shall have the meaning set forth in Section 11(a)(iii) of this
Agreement.
(kk) "STOCK ACQUISITION DATE" shall mean the earlier of the date of (i) the
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the
Exchange Act) by the Company or an Acquiring Person that an Acquiring Person
has become such or (ii) the public disclosure of facts by the Company or an
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Acquiring Person indicating that an Acquiring Person has become an Acquiring
Person.
(ll) "SUBSIDIARY" shall mean, with reference to any Person, any corporation
of which an amount of voting securities sufficient to elect at least a
majority of the directors of such corporation is beneficially owned, directly
or indirectly, by such Person, or otherwise controlled by such Person.
(mm) "SUBSTITUTION PERIOD" shall have the meaning set forth in Section
11(a)(iii) of this Agreement.
(nn) "SUMMARY OF RIGHTS" shall have the meaning set forth in Section 3(b) of
this Agreement.
(oo) "TRADING DAY" shall have the meaning set forth in Section 11(d)(i) of
this Agreement.
(pp) "TRANSACTION" shall mean any merger, consolidation or sale of assets or
earning power described in Section 13(a) hereof or any acquisition of Common
Stock of the Company which, without regard to any required approval of the
Company, would result in a Person becoming an Acquiring Person.
(qq) "TRIGGERING EVENT" shall mean any Section 11(a)(ii) Event or any Section
13 Event.
(rr) "UNIT" shall have the meaning set forth in the "Whereas" clause of this
Agreement.
SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby
appoints the Rights Agent to act as agent for the Company in
accordance with the terms and conditions hereof, and the Rights Agent
hereby accepts such appointment. The Company may from time to time
appoint such co-Rights Agents as it may deem necessary or desirable.
SECTION 3. ISSUE OF RIGHTS CERTIFICATES.
(a) Until the earlier of (i) the close of business on the tenth day after
the Stock Acquisition Date (or, if the tenth day after the Stock Acquisition
Date occurs before the Record Date, the close of business on the Record
Date), (ii) the close of business on the tenth Business Day (or such later
date as the Board shall determine) after the date that a tender or exchange
offer by any Person is first published or sent or given within the meaning of
Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if
upon consummation thereof, such Person would become an Acquiring Person or
(iii) the Expiration Date (the earlier of (i) and (ii) being herein referred
to as the "DISTRIBUTION DATE"), (x) the Rights will be evidenced by the
certificates for the Common Stock registered in the names of the holders of
the Common Stock (which certificates for Common Stock shall be deemed also to
be certificates for Rights) and not by
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separate certificates, and (y) the Rights will be transferable only in
connection with the transfer of the underlying shares of Common Stock
(including a transfer to the Company). The Board of Directors of the Company
may defer the date set forth in clause (ii) of the preceding sentence to a
specified later date or to an unspecified later date, each to be determined,
(with the concurrence of a majority of the Continuing Directors following a
Stock Acquisition Date and only if the Continuing Directors constitute a
majority of the number of directors then in office) by action of the Board of
Directors of the Company. As soon as practicable after the Distribution
Date, the Rights Agent will, at the Company's expense, send by first-class,
insured, postage prepaid mail, to each record holder of the Common Stock as
of the close of business on the Distribution Date, at the address of such
holder shown on the records of the Company, one or more rights certificates,
in substantially the form of EXHIBIT B hereto (the "RIGHTS CERTIFICATES"),
evidencing one Right for each share of Common Stock so held, subject to
adjustment as provided herein. In the event that an adjustment in the number
of Rights per share of Common Stock has been made pursuant to Section 11(p)
hereof, at the time of distribution of the Rights Certificates, the Company
shall make the necessary and appropriate rounding adjustments (in accordance
with Section 14(a) hereof) so that Rights Certificates representing only
whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of and after the Distribution Date, the Rights will be
evidenced solely by such Rights Certificates.
(b) As promptly as practicable, the Company will send a copy of a Summary
of Rights, in substantially the form attached hereto as EXHIBIT C (the
"SUMMARY OF RIGHTS"), by first-class, postage prepaid mail, to each record
holder of the Common Stock as of the close of business on the Record Date, at
the address of such holder shown on the records of the Company.
(c) Rights shall be issued in respect of all shares of Common Stock which
are issued (whether originally issued or from the Company's treasury) after
the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date. Certificates representing such shares of Common Stock shall
also be deemed to be certificates for Rights and shall bear the following
legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement between Supercuts,
Inc. (the "Company") and U.S. Stock Transfer Corporation, as Rights
Agent, dated as of April 2, 1996, as it may from time to time be
supplemented or amended pursuant to its terms (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal offices of
the Company. Under certain circumstances, as set forth in the Rights
Agreement, such Rights may be redeemed, may expire, or
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may be evidenced by separate certificates and will no longer be evidenced
by this certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement without charge within ten
business days after receipt of a written request therefor. Under
certain circumstances, as set forth in the Rights Agreement, Rights
issued to, or held by, any Person who is, was or becomes an Acquiring
Person or any Affiliate or Associate thereof (as such terms are
defined in the Rights Agreement), whether currently held by or on
behalf of such Person or by any subsequent holder, may become null and
void.
With respect to such certificates containing the foregoing legend, until the
earlier of the Distribution Date or the Expiration Date, registered holders of
Common Stock shall also be the registered holders of the associated Rights, and
the transfer of any of such certificates shall also constitute the transfer of
the Rights associated with the Common Stock represented by such certificates.
SECTION 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to purchase and of
assignment to be printed on the reverse thereof) shall each be substantially
in the form set forth in 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 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 11 and Section 22 hereof, the Rights Certificates,
whenever distributed, shall be dated as of the Record Date and on their face
shall entitle the holders thereof to purchase such number of one
one-thousandths of a share of Preferred Stock as shall be set forth therein
at the price set forth therein (such exercise price per one one-thousandth of
a share, the "PURCHASE PRICE"), but the amount and the type of securities
purchasable upon the exercise of each Right and the Purchase Price thereof
shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights beneficially owned by: (i) an Acquiring Person
or any Affiliate or Associate of an Acquiring Person, (ii) a transferee of an
Acquiring Person (or of any such Affiliate or Associate) who becomes a
transferee after the Acquiring Person becomes such, or (iii) a transferee of
an Acquiring Person (or of any such Affiliate or Associate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such
and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the
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Acquiring Person to holders of equity interests in such Acquiring Person or
to any Person with whom such Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a
transfer which a majority of the Continuing Directors has determined is part
of a plan, arrangement or understanding which has as a primary purpose or
effect avoidance of Section 7(e) hereof, and any Rights Certificate issued
pursuant to Section 6 or Section 11 hereof upon transfer, exchange,
replacement or adjustment of any other Rights Certificate referred to in this
sentence, shall contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person
or an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights
Certificate and the Rights represented hereby may become null and void
in the circumstances specified in Section 7(e) of such Agreement.
SECTION 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of the Company by
its Chairman of the Board, its President or any Vice President, either
manually or by facsimile signature, and shall have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Rights Certificates shall be manually countersigned
by an authorized signatory of the Rights Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who
shall have signed any of the Rights Certificates shall cease to be such
officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Rights Certificates, nevertheless,
may be countersigned by an authorized signatory of the Rights Agent and
issued and delivered by the Company with the same force and effect as though
the person who signed such Rights Certificates had not ceased to be such
officer of the Company; and any Rights Certificates may be signed on behalf
of the Company by any person who, at the actual date of the execution of such
Rights Certificate, shall be a proper officer of the Company to sign such
Rights Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its office or offices designated as the appropriate place for
surrender of Rights Certificates upon exercise or transfer, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the
Rights Certificates, the number of Rights evidenced on its face by each
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of the Rights Certificates and the date of each of the Rights Certificates.
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS CERTIFICATES;
MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES.
(a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14
hereof, at any time after the close of business on the Distribution Date, and
at or prior to the close of business on the Expiration Date, any Rights
Certificate or Certificates may be transferred, split up, combined or
exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of one one-thousandths of a share
of Preferred Stock (or, following a Triggering Event, Common Stock, other
securities, cash or other assets, as the case may be) as the Rights
Certificate or Certificates surrendered then entitled such holder (or former
holder in the case of a transfer) to purchase. Any registered holder desiring
to transfer, split up, combine or exchange any Rights Certificate or
Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Rights Certificate or Certificates to be
transferred, split up, combined or exchanged at the office or offices of the
Rights Agent designated for such purpose. Neither the Rights Agent nor the
Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered
holder shall have completed and signed the certificate contained in the form
of assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall, subject to
Section 4(b), Section 7(e) and Section 14 hereof, countersign and deliver to
the Person entitled thereto a Rights Certificate or Rights Certificates, as
the case may be, as so requested. The Company may require payment by the
holder of a Rights Certificate of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a
Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate, if
mutilated, the Company will execute and deliver a new Rights Certificate of
like tenor to the Rights Agent for countersignature and delivery to the
registered owner in lieu of the Rights Certificate so lost, stolen, destroyed
or mutilated.
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SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.
(a) Subject to Section 7(e) hereof, the registered holder of any Rights
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section
23(a) hereof) in whole or in part at any time after the Distribution Date
upon surrender of the Rights Certificate, with the form of election to
purchase and the certificate on the reverse side thereof duly executed, to
the Rights Agent at the office or offices of the Rights Agent designated for
such purpose, along with a signature guarantee and such other and further
documentation as the Rights Agent may reasonably request, together with
payment of the aggregate Purchase Price with respect to the total number of
one one-thousandths of a share (or other securities, cash or other assets, as
the case may be) as to which such surrendered Rights are then exercisable, at
or prior to the earlier of (i) the close of business on April 15, 2006 (the
"FINAL EXPIRATION DATE"), or (ii) the time at which the Rights are redeemed
as provided in Section 23 hereof (the earlier of (i) and (ii) being herein
referred to as the "EXPIRATION DATE").
(b) The Purchase Price for each one one-thousandth of a share of Preferred
Stock pursuant to the exercise of a Right shall initially be $40.00, and
shall be subject to adjustment from time to time as provided in Sections 11
and 13(a) hereof and shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable Rights,
with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the
Purchase Price per one one-thousandth of a share of Preferred Stock (or other
securities, cash or other assets, as the case may be) to be purchased as set
forth below and an amount equal to any applicable transfer tax, the Rights
Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) (A)
requisition from any transfer agent of the shares of Preferred Stock (or make
available, if the Rights Agent is the transfer agent for such shares)
certificates for the total number of one one-thousandths of a share of
Preferred Stock to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, or (B) if the Company
shall have elected to deposit the total number of shares of Preferred Stock
issuable upon exercise of the Rights hereunder with a depositary agent,
requisition from the depositary agent depositary receipts representing such
number of one one-thousandths of a share of Preferred Stock as are to be
purchased (in which case certificates for the shares of Preferred Stock
represented by such receipts shall be deposited by the transfer agent with
the depositary agent) and the Company will direct the depositary agent to
comply with such request, (ii) requisition from the
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Company the amount of cash, if any, to be paid in lieu 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 Rights Certificate,
registered in such name or names as may be designated by such holder, and
(iv) after receipt thereof, deliver such cash, if any, to or upon the order
of the registered holder of such Rights Certificate. The payment of the
Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii)
hereof) shall be made in cash or by certified check or bank draft payable to
the order of the Company. In the event that the Company is obligated to issue
other securities (including Common Stock) of the Company, pay cash and/or
distribute other property pursuant to Section 11(a) hereof, the Company will
make all arrangements necessary so that such other securities, cash and/or
other property are available for distribution by the Rights Agent, if and
when appropriate. The Company reserves the right to require prior to the
occurrence of a Triggering Event that, upon any exercise of Rights, a number
of Rights be exercised so that only whole shares of Preferred Stock would be
issued.
(d) In case the registered holder of any Rights Certificate shall exercise
less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be
issued by the Rights Agent and delivered to, or upon the order of, the
registered holder of such Rights Certificate, registered in such name or
names as may be designated by such holder, subject to the provisions of
Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from and
after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of
an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Affiliate or Associate) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any such
Affiliate or Associate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights pursuant to
either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring Person or to any
Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a
transfer which a majority of the Continuing Directors has determined is part
of a plan, arrangement or understanding which has as a primary purpose or
effect the avoidance of this Section 7(e), shall become null and void without
any further action, and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under any provision of this
Agreement or otherwise. The Company shall use all reasonable efforts to
ensure that the provisions of this Section 7(e) and Section 4(b) hereof are
complied with, but shall have no
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liability to any holder of Rights Certificates or other Person as a result of
its failure to make any determinations with respect to an Acquiring Person or
its Affiliates, Associates or transferees hereunder.
(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 certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered
for such exercise, and (ii) provided such additional evidence of the identity
of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES.
All Rights Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to
the Company or any of its agents, be delivered to the Rights Agent for
cancellation or in cancelled form, or, if surrendered to the Rights
Agent, shall be cancelled by it, and no Rights Certificates shall be
issued in lieu thereof except as expressly permitted by any of the
provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Rights Certificate purchased or acquired
by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all cancelled Rights Certificates to the Company,
or shall, at the written request of the Company, destroy such
cancelled Rights Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
SECTION 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK.
(a) The Company covenants and agrees that it will cause to be reserved and
kept available out of its authorized and unissued shares of Preferred Stock
(and, following the occurrence of a Triggering Event, out of its authorized
and unissued shares of Common Stock and/or other securities or out of its
authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) that, as provided in this Agreement, including
Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full
of all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the occurrence
of a Triggering Event, Common Stock and/or other securities) issuable and
deliverable upon the exercise of the Rights may be listed on any national
securities exchange, the Company shall use its best efforts to cause, from
and after such time as the Rights become exercisable, all shares reserved for
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such issuance to be listed on such exchange upon official notice of issuance
upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a
Section 11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, a registration statement under the Act with
respect to the securities purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to become effective
as soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (A) the date as of which the
Rights are no longer exercisable for such securities, or (B) the date of the
expiration of the Rights. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection with the exercisability of the
Rights. The Company may temporarily suspend, for a period of time not to
exceed ninety (90) days after the date set forth in clause (i) of the first
sentence of this Section 9(c), the exercisability of the Rights in order to
prepare and file such registration statement and permit it to become
effective. Upon any such suspension, the Company shall issue a public
announcement, and shall give simultaneous written notice to the Rights Agent
stating that the exercisability of the Rights has been temporarily suspended,
as well as a public announcement at such time as the suspension is no longer
in effect. In addition, if the Company shall determine that a registration
statement is required following the Distribution Date, the Company may
temporarily suspend the exercisability of the Rights until such time as a
registration statement has been declared effective. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be
exercisable in any jurisdiction if the requisite qualification in such
jurisdiction shall not have been obtained, the exercise thereof shall not be
permitted under applicable law or a registration statement shall not have
been declared effective.
(d) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all one one-thousandths of a share of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) delivered upon exercise of Rights shall, at
the time of delivery of the certificates for such shares (subject to payment
of the Purchase Price), be duly and validly authorized and issued, and fully
paid and non-assessable.
(e) The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Rights Certificates and
of any certificates for a number of one one-thousandths of a share of
Preferred Stock (or
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Common Stock and/or other securities, as the case may be) upon the exercise
of the Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or the issuance or delivery of a
number of one one-thousandths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in respect of a name other than
that of, the registered holder of the Rights Certificates evidencing Rights
surrendered for exercise or to issue or deliver any certificates for a number
of one one-thousandths of a share of Preferred Stock (or Common Stock and/or
other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall have
been paid (any such tax being payable by the holder of such Rights
Certificate at the time of surrender) or until it has been established to the
Company's satisfaction that no such tax is due.
SECTION 10. PREFERRED STOCK RECORD DATE. Each person in whose name any
certificate for a number of one one-thousandths of a share of Preferred Stock
(or Common Stock and/or other securities, as the case may be) is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of such fractional shares of Preferred Stock (or Common
Stock and/or other securities, as the case may be) represented thereby on,
and such certificate shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and all applicable transfer taxes) was made; PROVIDED,
HOWEVER, that if the date of such surrender and payment is a date upon which
the Preferred Stock (or Common Stock and/or other securities, as the case may
be) transfer books of the Company are closed, such Person shall be deemed to
have become the record holder of such shares (fractional or otherwise) on,
and such certificate shall be dated, the next succeeding Business Day on
which the Preferred Stock (or Common Stock and/or other securities, as the
case may be) transfer books of the Company are open. Prior to the exercise
of the Rights evidenced thereby, the holder of a Rights Certificate shall not
be entitled to any rights of a stockholder of the Company with respect to
shares for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or
to exercise any preemptive rights, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided herein.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR
NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares covered
by each Right and the number of Rights outstanding are subject to adjustment
from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of this
Agreement (A) declare a dividend on the
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Preferred Stock payable in shares of Preferred Stock, (B) subdivide the
outstanding Preferred Stock, (C) combine the outstanding Preferred Stock
into a smaller number of shares, or (D) issue any shares of its capital
stock in a reclassification of the Preferred Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation), except as
otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such dividend
or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of Preferred Stock or
capital stock, as the case may be, issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after
such time shall be entitled to receive, upon payment of the Purchase Price
then in effect, the aggregate number and kind of shares of Preferred Stock
or capital stock, as the case may be, which, if such Right had been
exercised immediately prior to such date and at a time when the
Preferred Stock transfer books of the Company were open, he would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. If an event occurs
which would require an adjustment under both this Section 11(a)(i) and
Section 11(a)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event any Person, alone or together with its Affiliates
and Associates, shall, at any time after the Rights Dividend Declaration
Date, become an Acquiring Person, then, proper provision shall be promptly
made so that each holder of a Right (except as provided below and in
Section 7(e) hereof) shall thereafter have the right to receive, upon
exercise thereof at the then current Purchase Price in accordance with the
terms of this Agreement, in lieu of a number of one one-thousandths of a
share of Preferred Stock, such number of shares of Common Stock of the
Company as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the then number of one one-thousandths of a share
of Preferred Stock for which a Right was exercisable immediately prior to
the first occurrence of a Section 11(a)(ii) Event, and (y) dividing that
product (which, following such first occurrence, shall thereafter be
referred to as the "PURCHASE PRICE" for each Right and for all purposes of
this Agreement) by 50% of the Current Market Price (determined pursuant to
Section 11(d)(i) hereof) per share of Common Stock on the date of such
first occurrence (such number of shares being referred to as the
"ADJUSTMENT SHARES").
(iii) In the event that the number of shares of Common Stock which
are authorized by the Company's certificate of
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incorporation but not outstanding or reserved for issuance for purposes
other than upon exercise of the Rights are not sufficient to permit the
exercise in full of the Rights in accordance with the foregoing
subparagraph (ii) of this Section 11(a), the Company, acting by resolution
of its Board of Directors (which resolution shall be effective only with
the concurrence of a majority of the Continuing Directors), shall (A)
determine the value of the Adjustment Shares issuable upon the exercise of
a Right (the "CURRENT VALUE"), and (B) with respect to each Right (subject
to Section 7(e) hereof), make adequate provision to substitute for the
Adjustment Shares, upon the exercise of a Right and payment of the
applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price,
(3) Common Stock or other equity securities of the Company (including,
without limitation, shares, or units of shares, of preferred stock, such
as the Preferred Stock, which the Board has deemed to have essentially
the same value or economic rights as shares of Common Stock (such shares
of preferred stock being referred to as "COMMON STOCK EQUIVALENTS")),
(4) debt securities of the Company, (5) other assets, or (6) any
combination of the foregoing, having an aggregate value equal to the
Current Value (less the amount of any reduction in the Purchase Price),
where such aggregate value has been determined by the Board based upon
the advice of a nationally recognized investment banking firm selected
by the Board; PROVIDED, HOWEVER, that if the Company shall not have made
adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the later of (x) the first occurrence of a
Section 11(a)(ii) Event and (y) the date on which the Company's right
of redemption pursuant to Section 23(a) expires (the later of (x) and
(y) being referred to herein as the "SECTION 11(a)(ii) TRIGGER DATE"),
then the Company shall be obligated to deliver, upon the surrender
for exercise of a Right and without requiring payment of the Purchase
Price, shares of Common Stock (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value equal to
the Spread. For purposes of the preceding sentence, the term "SPREAD"
shall mean the excess of (i) the Current Value over (ii) the Purchase
Price. If the Board determines in good faith that it is likely that
sufficient additional shares of Common Stock could be authorized for
issuance upon exercise in full of the Rights, the thirty (30) day period
set forth above may be extended to the extent necessary, but not more than
ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that
the Company may seek shareholder approval for the authorization of such
additional shares (such thirty (30) day period, as it may be extended, is
herein called the "SUBSTITUTION PERIOD"). To the extent that action is to
be taken pursuant to the first and/or third sentences of this Section
11(a)(iii), the Company (1) shall provide, subject to Section 7(e) hereof,
that such action shall apply uniformly to all outstanding Rights, and
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(2) may suspend the exercisability of the Rights until the expiration of
the Substitution Period in order to seek such shareholder approval for such
authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such first sentence and to determine
the value thereof. In the event of any such suspension, the Company shall
issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect. For purposes of this
Section 11(a)(iii), the value of each Adjustment Share shall be the Current
Market Price (as determined pursuant to Section 11(d)(i) hereof) per share
of the Common Stock on the Section 11(a)(ii) Trigger Date and the per share
or per unit value of any Common Stock Equivalent shall be deemed to equal
the Current Market Price per share of the Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Preferred Stock entitling them to
subscribe for or purchase (for a period expiring within forty-five (45)
calendar days after such record date) Preferred Stock (or shares having the
same rights, privileges and preferences as the shares of Preferred Stock
("EQUIVALENT PREFERRED STOCK")) or securities convertible into Preferred
Stock or equivalent preferred stock at a price per share of Preferred Stock
or per share of equivalent preferred stock (or having a conversion price per
share, if a security convertible into Preferred Stock or equivalent preferred
stock) less than the Current Market Price per share of Preferred Stock on
such record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of shares of Preferred Stock outstanding on such record date, plus the
number of shares of Preferred Stock which the aggregate offering price of the
total number of shares of Preferred Stock and/or equivalent preferred stock
so to be offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such Current
Market Price, and the denominator of which shall be the number of shares of
Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock and/or equivalent preferred stock to be
offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible). In case such
subscription price may be paid by delivery of consideration part or all of
which may be in a form other than cash, the value of such consideration shall
be as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and the holders of the Rights.
Shares of Preferred Stock owned by or held for the account of the Company
shall not be deemed outstanding for the purpose of any such computation. Such
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adjustment shall be made successively whenever such a record date is fixed,
and in the event that such rights or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution to all
holders of Preferred Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the
continuing corporation), of evidences of indebtedness, cash (other than a
regular quarterly cash dividend out of the earnings or retained earnings of
the Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
subscription rights or warrants (excluding those referred to in Section 11(b)
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 current
market price (as determined pursuant to Section 11(d)(i) hereof) per share of
Preferred Stock 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 cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a share
of Preferred Stock and the denominator of which shall be such Current Market
Price per share of Preferred Stock. Such adjustments shall be made
successively whenever such a record date is fixed, and in the event that such
distribution is not so made, the Purchase Price shall be adjusted to be the
Purchase Price which would have been in effect if such record date had not
been fixed.
(d)(i) For the purpose of any computation hereunder, other than computations
made pursuant to Section 11(a)(iii) hereof, the "CURRENT MARKET PRICE" per
share of Common Stock on any date shall be deemed to be the average of the
daily closing prices per share of such Common Stock for the thirty (30)
consecutive Trading Days immediately prior to such date, and for purposes
of computations made pursuant to Section 11(a)(iii) hereof, the Current
Market Price per share of Common Stock on any date shall be deemed to be
the average of the daily closing prices per share of such Common Stock for
the ten (10) consecutive Trading Days immediately following such date;
PROVIDED, HOWEVER, that in the event that the Current Market Price per
share of the Common Stock is determined during a period following the
announcement by the issuer of such Common Stock of (A) a dividend or
distribution on such Common Stock payable in shares of such Common Stock or
securities convertible into shares of such Common Stock (other than the
Rights), or (B) any subdivision, combination or reclassification of such
Common Stock, and the ex-dividend date for such dividend or
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distribution, or the record date for such subdivision, combination or
reclassification shall not have occurred prior to the commencement of the
requisite thirty (30) Trading Day or ten (10) Trading Day period, as set
forth above, then, and in each such case, the Current Market Price shall
be properly adjusted to take into account ex-dividend trading. The
closing price for each day shall be the last sale price, regular way, or,
in case no such sale takes place on such day, the average of the closing
bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange
or, if the shares of Common Stock are not listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading or, if the shares of Common Stock are
not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and
low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation
System or such other system then in use, or, if on any such date the
shares of Common Stock are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Common Stock selected by the Board.
If on any such date no market maker is making a market in the Common
Stock, the fair value of such shares on such date as determined in good
faith by the Board shall be used. The term "TRADING DAY" shall mean
a day on which the principal national securities exchange on which the
shares of Common Stock are listed or admitted to trading is open for the
transaction of business or, if the shares of Common Stock are not listed or
admitted to trading on any national securities exchange, a Business Day.
If the Common Stock is not publicly held or not so listed or traded,
Current Market Price per share shall mean the fair value per share as
determined in good faith by the Board, whose determination shall be
described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the Current Market
Price per share of Preferred Stock shall be determined in the same manner
as set forth above for the Common Stock in clause (i) of this Section 11(d)
(other than the last sentence thereof). If the Current Market Price per
share of Preferred Stock cannot be determined in the manner provided above
or if the Preferred Stock is not publicly held or listed or traded in a
manner described in clause (i) of this Section 11(d), the Current Market
Price per share of Preferred Stock shall be conclusively deemed to be an
amount
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equal to 1000 (as such number may be appropriately adjusted for such
events as stock splits, stock dividends and recapitalizations with respect
to the Common Stock occurring after the date of this Agreement) multiplied
by the Current Market Price per share of the Common Stock. If neither the
Common Stock nor the Preferred Stock is publicly held or so listed or
traded, Current Market Price per share of the Preferred Stock shall mean
the fair value per share as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights Agent
and shall be conclusive for all purposes. For all purposes of this
Agreement, the Current Market Price of a Unit shall be equal to the Current
Market Price of one share of Preferred Stock divided by 1000.
(e) Anything herein to the contrary notwithstanding, no adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (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 hundred-thousandth of a share
of Common Stock or other share or one-ten-millionth of a share of Preferred
Stock, as the case may be. Notwithstanding the first sentence of this Section
11(e), any adjustment required by this Section 11 shall be made no later than
the earlier of (i) three (3) years from the date of the transaction which
mandates such adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or
Section 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock other than Preferred
Stock, thereafter the number of such other shares so receivable upon exercise
of any Right and the Purchase Price thereof shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained
in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the
Preferred Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths
of a share of Preferred Stock 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 Sections 11(b) and
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(c), each Right outstanding immediately prior to the making of such
adjustment shall thereafter evidence the right to purchase, at the adjusted
Purchase Price, that number of one one-thousandths of a share of Preferred
Stock (calculated to the nearest one-ten-millionth) obtained by (i)
multiplying (x) the number of one one-thousandths of a 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 lieu of any adjustment in
the number of one one-thousandths of a share of Preferred Stock purchasable
upon the exercise of a Right. Each of the Rights outstanding after the
adjustment in the number of Rights shall be exercisable for the number of one
one-thousandths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights 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 Rights Certificates have been
issued, shall be at least ten (10) days later than the date of the public
announcement. If Rights Certificates have been issued, upon each adjustment
of the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of
Rights Certificates on such record date Rights Certificates evidencing,
subject to Section 14 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 Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by
the Company, new Rights Certificates evidencing all the Rights to which such
holders shall be entitled after such adjustment. Rights Certificates so to
be distributed shall be issued, executed and countersigned in the manner
provided for herein (and may bear, at the option of the Company, the adjusted
Purchase Price) and shall be registered in the names of the holders of record
of Rights Certificates on the record date specified in the public
announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-thousandths of a share of Preferred Stock issuable upon the
exercise of the Rights, the
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Rights Certificates theretofore and thereafter issued may continue to express
the Purchase Price per one one-thousandth of a share and the number of one
one-thousandths of a share which were expressed in the initial Rights
Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then stated value, if any, of the number of one
one-thousandths of a share of Preferred Stock 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 non-assessable such number of one
one-thousandths of a share of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment in
the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuance to the holder of any Right exercised after such record date the
number of one one-thousandths of a share of Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise over
and above the number of one one-thousandths of a share of Preferred Stock and
other capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such
adjustment; PROVIDED, HOWEVER, that the Company shall deliver to such holder
a due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares (fractional or otherwise) or securities upon
the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and
to the extent that in their good faith judgment the Board of Directors of the
Company shall determine to be advisable in order that any (i) consolidation
or subdivision of the Preferred Stock, (ii) issuance wholly for cash of any
shares of Preferred Stock at less than the Current Market Price thereof,
(iii) issuance wholly for cash of shares of Preferred Stock or securities
which by their terms are convertible into or exchangeable for shares of
Preferred Stock, (iv) stock dividends, or (v) issuance of rights, options or
warrants referred to in this Section 11, hereafter made by the Company to
holders of its Preferred Stock shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any time after
the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), (ii) merge with or into any other Person (other than a Subsidiary of
the Company in
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a transaction which complies with Section 11(o) hereof), or (iii) sell or
transfer (or permit any Subsidiary to sell or transfer), in one transaction,
or a series of related transactions, assets or earning power aggregating more
than 50% of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the Company
and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately
after such consolidation, merger or sale there are any rights, warrants or
other instruments or securities outstanding or agreements in effect which
would substantially diminish or otherwise eliminate the benefits intended to
be afforded by the Rights or (y) prior to, simultaneously with or immediately
after such consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the Principal Party for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the Distribution Date, it
will not, except as permitted by Section 23 or Section 26 hereof, take (or
permit any Subsidiary to take) any action if at the time such action is taken
it is reasonably foreseeable that such action will diminish substantially or
otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding, in the
event that the Company shall at any time after the Rights Dividend
Declaration Date and prior to the Distribution Date (i) declare a dividend on
the outstanding shares of Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding shares of Common Stock, or (iii) combine the
outstanding shares of Common Stock into a smaller number of shares, the
number of Rights associated with each share of Common Stock then outstanding,
or issued or delivered thereafter but prior to the Distribution Date, shall
be proportionately adjusted so that the number of Rights thereafter
associated with each share of Common Stock following any such event shall
equal the result obtained by multiplying the number of Rights associated with
each share of Common Stock immediately prior to such event by a fraction the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Section 11 and Section 13
hereof, the Company shall (a) promptly prepare a certificate setting forth
such adjustment, the adjusted Purchase Price and a brief statement of the
facts accounting for such adjustment, (b) promptly file with the Rights
Agent, and with each transfer agent for the Preferred Stock and the Common
Stock,
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a copy of such certificate, and (c) mail a brief summary thereof to
each holder of a Rights Certificate (or, if prior to the Distribution Date,
to each holder of a certificate representing shares of Common Stock) in
accordance with Section 25 hereof. The Rights Agent shall be fully protected
in relying on any such certificate and on any adjustment therein contained.
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS
OR EARNING POWER.
(a) In the event that, following the Stock Acquisition Date, directly or
indirectly, (x) the Company shall consolidate with, or merge with and into,
any other Person (other than a Subsidiary of the Company in a transaction
which complies with Section 11(o) hereof), and the Company shall not be the
continuing or surviving corporation of such consolidation or merger, (y) any
Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof) shall consolidate with, or merge with or
into, the Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with such
consolidation or merger, all or part of the outstanding shares of Common
Stock shall be changed into or exchanged for stock or other securities of any
other Person or cash or any other property, or (z) the Company shall sell,
mortgage or otherwise transfer (or one or more of its Subsidiaries shall
sell, mortgage or otherwise transfer), in one transaction or a series of
related transactions, assets or earning power aggregating more than 50% of
the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any Person or Persons (other than the Company or any Subsidiary of
the Company in one or more transactions each of which complies with Section
11(o) hereof), then, and in each such case, proper provision shall be made so
that: (i) each holder of a Right, except as provided in Section 7(e) hereof,
shall thereafter have the right to receive, upon the exercise thereof at the
then current Purchase Price in accordance with the terms of this Agreement,
such number of validly authorized and issued, fully paid, non-assessable and
freely tradeable shares of Common Stock of the Principal Party, not subject
to any liens, encumbrances, rights of first refusal or other adverse claims,
as shall be equal to the result obtained by (1) multiplying the then current
Purchase Price by the number of one one-thousandths of a share of Preferred
Stock for which a Right is exercisable immediately prior to the first
occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has
occurred prior to the first occurrence of a Section 13 Event, multiplying the
number of such one one-thousandths of a share for which a Right was
exercisable immediately prior to the first occurrence of a Section 11(a)(ii)
Event by the Purchase Price in effect immediately prior to such first
occurrence), and dividing that product (which, following the first occurrence
of a Section 13 Event, shall be referred to as the "PURCHASE PRICE" for each
Right and for all purposes of this Agreement) by (2) 50% of the Current
Market Price (determined pursuant to Section 11(d)(i) hereof) per share of the
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Common Stock of such Principal Party on the date of consummation of such
Section 13 Event; (ii) such Principal Party shall thereafter be liable for,
and shall assume, by virtue of such Section 13 Event, all the obligations and
duties of the Company pursuant to this Agreement; (iii) the term "COMPANY"
shall thereafter be deemed to refer to such Principal Party, it being
specifically intended that the provisions of Section 11 hereof shall apply
only to such Principal Party following the first occurrence of a Section 13
Event; (iv) such Principal Party shall take such steps (including, but not
limited to, the reservation of a sufficient number of shares of its Common
Stock) in connection with the consummation of any such transaction as may be
necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its shares of
Common Stock thereafter deliverable upon the exercise of the Rights; and (v)
the provisions of Section 11(a)(ii) hereof shall be of no effect following
the first occurrence of any Section 13 Event.
(b) "PRINCIPAL PARTY" shall mean
(i) in the case of any transaction described in clause (x) or (y) of
the first sentence of Section 13(a), the Person that is the issuer of any
securities into which shares of Common Stock of the Company are converted
in such merger or consolidation, and if no securities are so issued, the
Person that is the other party to such merger or consolidation; and
(ii) in the case of any transaction described in clause (z) of the
first sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to
such transaction or transactions;
PROVIDED, HOWEVER, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "PRINCIPAL PARTY" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stocks of two or more of which are and have been so
registered, "PRINCIPAL PARTY" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(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 Stock which have not been issued or reserved
for issuance to permit the exercise in full of the Rights in accordance with
this Section 13 and unless prior thereto the Company and such Principal Party
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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 or sale of assets mentioned in paragraph (a) of
this Section 13, the Principal Party will
(i) prepare and file a registration statement under the Act, with
respect to the Rights and the securities purchasable upon exercise of the
Rights on an appropriate form, and will use its best efforts to cause such
registration statement to (A) become effective as soon as practicable after
such filing and (B) remain effective (with a prospectus at all times
meeting the requirements of the Act) until the Expiration Date; and
(ii) deliver to holders of the Rights historical financial statements
for the Principal Party and each of its Affiliates which comply in all
respects with the requirements for registration on Form 10 under the
Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13
Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event,
the Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights, except
prior to the Distribution Date as provided in Section 11(p) hereof, or to
distribute Rights Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price of
the Rights for any 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 if the Rights are not
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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.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights or
to distribute certificates which evidence fractional shares of Preferred
Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock). In lieu of fractional shares
of Preferred Stock that are not integral multiples of one one-thousandth of a
share of Preferred Stock, the Company may pay to the registered holders of
Rights Certificates at the time such Rights are exercised as herein provided
an amount in cash equal to the same fraction of the current market value of
one one-thousandth of a share of Preferred Stock. For purposes of this
Section 14(b), the current market value of one one-thousandth of a share of
Preferred Stock shall be one one-thousandth of the closing price of a share
of Preferred Stock (as determined pursuant to Section 11(d)(ii) hereof) for
the Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the Company shall not
be required to issue fractions of shares of Common Stock upon exercise of the
Rights or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company may
pay to the registered holders of Rights Certificates at the time such Rights
are exercised as herein provided an amount in cash equal to the same fraction
of the Current Market Value of one (1) share of Common Stock. For purposes
of this Section 14(c), the Current Market Value of one share of Common Stock
shall be the closing price of one share of Common Stock (as determined
pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
(d) The holder of a Right by the acceptance of the Rights expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.
SECTION 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent, are
vested in the respective registered holders of
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the Rights Certificates (and, prior to the Distribution Date, the registered
holders of the Common Stock); and any registered holder of any Rights
Certificate (or, prior to the Distribution Date, of the Common Stock),
without the consent of the Rights Agent or of the holder of any other Rights
Certificate (or, prior to the Distribution Date, of the Common Stock), may,
in his 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 Rights Certificate in the manner provided in such Rights Certificate and
in this Agreement. Without limiting the foregoing or any remedies available
to the holders of Rights, it is specifically acknowledged that the holders of
Rights would not have an adequate remedy at law for any breach of this
Agreement and shall be entitled to specific performance of the obligations
hereunder and injunctive relief against actual or threatened violations of
the obligations hereunder of any Person subject to this Agreement.
SECTION 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the office
or offices of the Rights Agent designated for such purposes, duly endorsed or
accompanied by a proper instrument of transfer and with the appropriate forms
and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company and the
Rights Agent may deem and treat the person in whose name a Rights Certificate
(or, prior to the Distribution Date, the associated Common Stock certificate)
is registered as the absolute owner thereof and of the Rights evidenced
thereby (notwithstanding any notations of ownership or writing on the Rights
Certificates or the associated Common Stock certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary, neither the
Company nor the Rights Agent shall have any liability to any holder of a
Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or
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executive order promulgated or enacted by any governmental authority,
prohibiting or otherwise restraining performance of such obligations;
PROVIDED, HOWEVER, the Company must use its best efforts to have any such
order, decree or ruling lifted or otherwise overturned as soon as possible.
SECTION 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder,
as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of one
one-thousandths of a share of Preferred Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate,
as such, any of the rights of a stockholder of the Company or any right to
vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 24 hereof), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificate shall have been exercised in accordance
with the provisions hereof.
SECTION 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent such compensation as
shall be agreed to in writing between the Company and the Rights Agent for
all services rendered by it hereunder and, from time to time, on demand of
the Rights Agent, its reasonable expenses and counsel fees and disbursements
and other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. 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, without
limitation, the costs and expenses of defending against any claim of
liability in the premises.
(b) The Rights Agent shall be protected and shall incur no liability for or
in respect of any action taken, suffered or omitted by it in connection with
its administration of this Agreement in reliance upon any Rights Certificate
or certificate for Common Stock or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or
other paper or document believed by it to be genuine and to be signed and
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.
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SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF
RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
corporate trust or shareholder services business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on
the part of any of the parties hereto; PROVIDED, HOWEVER, 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 Rights Certificates shall have been countersigned but not delivered, any
such successor Rights Agent may adopt the countersignature of a predecessor
Rights Agent and deliver such Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor or in the name of the
successor Rights Agent; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and
at such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at
that time any of the Rights Certificates shall not have been countersigned,
the Rights Agent may countersign such Rights Certificates either in its prior
name or in its changed name; and in all such cases such Rights Certificates
shall have the full force provided in the Rights Certificates and in this
Agreement.
SECTION 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties
and obligations expressly imposed by this Agreement, and no implied duties or
obligations shall be read into this Agreement against the Rights Agent, upon
the following terms and conditions, by all of which the Company and the
holders of Rights Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel of its selection (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
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that any fact or matter (including, without limitation, the identity of any
Acquiring Person and the determination of "Current Market Price") be proved
or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman of the Board, the
President, any Vice President, the Treasurer, any Assistant Treasurer, the
Secretary or any Assistant Secretary of the Company and delivered to the
Rights Agent; and such certificate 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 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 Rights
Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity
or execution of any Rights Certificate (except its countersignature thereof);
nor shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall
it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 7(e) hereof); nor
shall it be responsible for any adjustment required under the provisions of
Section 11 or Section 13 hereof or responsible for the manner, method or
amount of any such adjustment or the ascertaining of the existence of facts
that would require any such adjustment (except with respect to the exercise
of Rights evidenced by Rights Certificates after actual notice of any such
adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
shares of Common Stock or Preferred Stock to be issued pursuant to this
Agreement or any Rights Certificate or as to whether any shares of Common
Stock or Preferred Stock will, when so issued, be validly authorized 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.
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(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with
its duties, and it shall not be liable for any action taken or suffered to be
taken by it in good faith in accordance with instructions of any such officer
or for any delay in acting while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction
in which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not 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.
(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, HOWEVER, reasonable care was
exercised in the selection 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 Rights Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to
such requested exercise or transfer without first consulting with the Company.
SECTION 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company.
The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common
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Stock and Preferred Stock, by registered or certified mail, and to the
holders of the Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of thirty (30) days after
giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent
or by the holder of a Rights Certificate (who shall, with such notice, submit
his Rights Certificate for inspection by the Company), then the Company shall
become the Rights Agent until a successor Rights Agent has been appointed,
and any registered holder of any Rights Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the
United States or of any state of the United States, in good standing, which
is authorized under such laws to exercise corporate trust or shareholder
services 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 $100,000,000. After appointment,
the successor Rights Agent shall be vested with the same powers, rights,
duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time
held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the
effective date of any such appointment, the Company shall file notice thereof
in writing with the predecessor Rights Agent and each transfer agent of the
Common Stock and the Preferred Stock, and mail a notice thereof in writing to
the registered holders of the Rights Certificates. Failure to give any
notice provided for in this Section 21, 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 RIGHTS CERTIFICATES. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, subject to Section 4 hereof, issue new Rights
Certificates evidencing Rights in such form as may be approved by its Board
of Directors to reflect any adjustment or change in the Purchase Price and
the number or kind or class of shares or other securities or property
purchasable under the Rights Certificates made in accordance with the
provisions of this Agreement.
SECTION 23. REDEMPTION AND TERMINATION.
(a) The Company may, by a resolution of its Board of Directors (which
resolution shall, if adopted following the Stock
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Acquisition Date, be effective only with the concurrence of a majority of the
Continuing Directors and only if the Continuing Directors constitute a
majority of the number of directors then in office), at its option, at any
time prior to the earlier of (i) the close of business on the tenth day
following the Stock Acquisition Date (or, if the Stock Acquisition Date shall
have occurred prior to the Record Date, the close of business on the tenth
day following the Record Date), or (ii) the Final Expiration Date, redeem all
but not less than all the then outstanding Rights at a redemption price of
$.01 per Right, as such amount may be appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the
"REDEMPTION PRICE"); provided, however, that, in addition to any other
limitations contained herein on the right to redeem outstanding Rights
(including the occurrence of any event or the expiration of any period after
which the Rights may no longer be redeemed), for the 120-day period after any
date of the change (resulting from a proxy or consent solicitation) in a
majority of the Board of Directors of the Company in office at the
commencement of such solicitation, the Rights may only be redeemed if (A)
there are directors then in office who were in office at the commencement of
such solicitation and (B) the Board of Directors of the Company, with the
concurrence of a majority of such directors then in office, determines that
such redemption is, in their judgment, in the best interests of the Company
and its stockholders. Notwithstanding anything contained in this Agreement
to the contrary, the Rights shall not be exercisable after the first
occurrence of a Section 11(a)(ii) Event until such time as the Company's
right of redemption hereunder has expired. The Company may, at its option,
pay the Redemption Price in cash, shares of Common Stock (based on the
Current Market Price of the Common Stock at the time of redemption) or any
other form of consideration deemed appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price
for each Right so held. Promptly after the action of the Board of Directors
ordering the redemption of the Rights, the Company shall give notice of such
redemption to the Rights Agent and the holders of the then outstanding Rights
by mailing such notice to all such holders at each holder's last address as
it appears upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the Transfer Agent for the Common
Stock. Any notice 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.
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SECTION 24. EXCHANGE.
(a) The Board of Directors of the Company may, at its option, at any time
and from time to time after the first occurrence of a Section 11(a)(ii)
Event, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the
provisions of Section 7(e) hereof) for shares of Common Stock or Common Stock
Equivalents or any combination thereof, at an exchange ratio of one share of
Common Stock, or such number of Common Stock Equivalents or units
representing fractions thereof as would be deemed to have the same value as
one share of Common Stock, per Right, appropriately adjusted, if necessary,
to reflect any stock split, stock dividend or similar transaction occurring
after the Rights Dividend Declaration Date (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the
foregoing, the Board of Directors may not affect such exchange at any time
after any Person (other than an Exempted Person), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50%
or more of the shares of Common Stock then outstanding.
(b) Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to and
in accordance with subsection (a) of this Section 24 (which action may be
conditioned on the occurrence of one or more events or on the existence of
one or more facts or may be effective at some future time) 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 shares of Common Stock and/or Common Stock
Equivalents 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
shares of Common Stock and/or Common Stock Equivalents for Rights will be
effected and, in the event of any partial exchange, the number of Rights that
will be exchanged. Any partial exchange shall be effected as nearly pro rata
as possible based on the number of Rights (other than Rights which have
become void pursuant to the provisions of Section 7(e) hereof) held by each
holder of Rights.
(c) In the event that the number of shares of Common Stock that is
authorized by the Company's Articles of Incorporation but not outstanding or
reserved for issuance for purposes other than upon
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exercise of the Rights, is not sufficient to permit an exchange of Rights as
contemplated in accordance with this Section 24, the Company may, at its
option, take all such actions as may be necessary to authorize additional
shares of Common Stock or for issuance upon exchange of the Rights.
(d) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates or scrip evidencing fractional
shares of Common Stock. In lieu of such fractional shares of Common Stock,
the Company shall pay to the registered holders of Rights with regard to
which such fractional shares of Common Stock would otherwise be issuable an
amount in cash equal to the same fraction of the value of a whole share of
Common Stock. For purposes of this Section 24, the value of a whole share of
Common Stock shall be the closing price per share of Common Stock for the
Trading Day immediately prior to the date of exchange pursuant to this
Section 24.
SECTION 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose, at any time after the Distribution
Date, (i) to pay any dividend payable in stock of any class to the holders of
Preferred Stock or to make any other distribution to the holders of Preferred
Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of
Preferred Stock rights or warrants to subscribe for or to purchase any
additional shares of Preferred Stock or shares of stock of any class or any
other securities, rights or options, or (iii) to effect any reclassification
of its Preferred Stock (other than a reclassification involving only the
subdivision of outstanding shares of Preferred Stock), or (iv) to effect any
consolidation or merger into or with any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), or to effect any sale or other transfer (or to permit one or more of
its Subsidiaries to effect any sale or other transfer), in one transaction or
a series of related transactions, of more than 50% of the assets or earning
power of the Company and its Subsidiaries (taken as a whole) to any other
Person or Persons (other than the Company and/or any of its Subsidiaries in
one or more transactions each of which complies with Section 11(o) hereof),
or (v) to effect the liquidation, dissolution or winding up of the Company,
then, in each such case, the Company shall give to each holder of a Rights
Certificate and to the Rights Agent, to the extent feasible and in accordance
with Section 26 hereof, a notice of such proposed action, which shall specify
the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution, or winding
up is to take place and the date of participation therein by the holders of
the shares of Preferred Stock, if any such date is to be fixed, and such
notice shall be so given in the case of any action covered by clause (i) or
(ii) above at least twenty (20) days prior to
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the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action,
at least twenty (20) days prior to the date of the taking of such proposed
action or the date of participation therein by the holders of the shares of
Preferred Stock whichever shall be the earlier.
(b) In the event that a Section 11(a)(ii) Event shall occur, then (i) the
Company shall as soon as practicable thereafter give to each holder of a
Rights Certificate, to the extent feasible and in accordance with Section 26
hereof, a notice of the occurrence of such event, which shall specify the
event and the consequences of the event to holders of Rights under Section
11(a)(ii) hereof, and (ii) all references in the preceding paragraph to
Preferred Stock shall be deemed thereafter to refer to Common Stock and/or,
if appropriate, other securities.
SECTION 26. NOTICES. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed
in writing with the Rights Agent) as follows:
Supercuts, Inc.
550 California Street
San Francisco, California 94104
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent 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:
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, California 91204
Attention: Shareholders Services Division
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
SECTION 27. SUPPLEMENTS AND AMENDMENTS. Prior to the
Distribution Date and subject to the penultimate sentence of this
Section 27, the Company may by resolution of its Board of Directors
(which resolution, if adopted following the Stock Acquisition Date,
shall be effective only with the concurrence of
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<PAGE>
a majority of the Continuing Directors and only if the Continuing Directors
constitute a majority of the number of directors then in office) and the
Rights Agent shall, if the Company so directs, supplement or amend any
provision of this Agreement without the approval of any holders of
certificates representing shares of Common Stock. From and after the
Distribution Date and subject to the penultimate sentence of this Section 27,
the Company may by resolution of its Board of Directors (which resolution, if
adopted following the Stock Acquisition Date, shall be effective only with
the concurrence of a majority of the Continuing Directors and only if the
Continuing Directors constitute a majority of the number of directors then in
office) and the Rights Agent shall, if the Company so directs, supplement or
amend this Agreement without the approval of any holders of Rights
Certificates in order (i) to cure any ambiguity, (ii) to correct or
supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) to shorten or lengthen
any time period hereunder, or (iv) to change or supplement the provisions
hereunder in any manner which the Company may deem necessary or desirable and
which, in the case of this clause (iv), shall not adversely affect the
interests of the holders of Rights Certificates (other than an Acquiring
Person or an Affiliate or Associate of an Acquiring Person); PROVIDED,
HOWEVER, that this Agreement may not be supplemented or amended to lengthen,
pursuant to clause (iii) of this sentence, (A) a time period relating to when
the Rights may be redeemed at such time as the Rights are not then
redeemable, or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Upon the delivery of a certificate from
an appropriate officer of the Company which states that the proposed
supplement or amendment is in compliance with the terms of this Section 27,
the Rights Agent shall execute such supplement or amendment. Notwithstanding
anything contained in this Agreement to the contrary, no supplement or
amendment shall be made which changes the Redemption Price, the Final
Expiration Date, the Purchase Price or the number of one one-thousandths of a
share of Preferred Stock for which a Right is exercisable. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock.
SECTION 28. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure
to the benefit of their respective successors and assigns hereunder.
SECTION 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF
DIRECTORS, ETC. For all purposes of this Agreement, any calculation
of the number of shares of Common Stock outstanding at any particular
time, including for purposes of determining the particular percentage
of such outstanding shares of Common Stock of which any Person is the
Beneficial Owner, shall be made in accordance with the last sentence
of Rule 13d-3(d)(1)(i) of the
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<PAGE>
General Rules and Regulations under the Exchange Act. The Board of Directors
of the Company (with, where specifically provided for herein, the concurrence
of a majority of the Continuing Directors and only if the Continuing
Directors constitute a majority of the number of directors then in office)
shall have the exclusive power and authority to administer this Agreement and
to exercise all rights and powers specifically granted to the Board or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Agreement, and (ii) make all determinations
deemed necessary or advisable for the administration of this Agreement
(including a determination to redeem or not redeem the Rights or to amend the
Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions
with respect to the foregoing) which are done or made by the Board of
Directors (with, where specifically provided for herein, the concurrence of a
majority of the Continuing Directors and only if the Continuing Directors
constitute a majority of the number of directors then in office) in good
faith, shall (x) be final, conclusive and binding on the Company, the Rights
Agent, the holders of the Rights and all other parties, and (y) not subject
the Board or the Continuing Directors to any liability to the holders of the
Rights.
SECTION 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Rights Agent
and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock).
SECTION 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no
way be affected, impaired or invalidated; PROVIDED, HOWEVER, that
notwithstanding anything in this Agreement to the contrary, if any
such term, provision, covenant or restriction is held by such court or
authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that
severing the invalid language from this Agreement would adversely
affect the purpose or effect of this Agreement, the right of
redemption set forth in Section 23 hereof shall be reinstated and
shall not expire until the close of business on the tenth day
following the date of such determination by the Board of Directors.
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<PAGE>
SECTION 32. GOVERNING LAW. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts
made and to be performed entirely within such State.
SECTION 33. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but
one and the same instrument.
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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
SUPERCUTS, INC.
By: _________________________
Name:
Title:
U.S. STOCK TRANSFER CORPORATION
as Rights Agent
By: _________________________
Name:
Title:
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
SUPERCUTS, INC.
By: /S/ STEVE PRICE
Title: Chief Executive Officer
U.S. STOCK TRANSFER CORPORATION
as Rights Agent
By: /S/ CARTER MCINTYRE
Title: Vice President
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<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF CLASS A PREFERRED STOCK
OF
SUPERCUTS, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
I, Lawrence D. Imber, Secretary of Supercuts, Inc., a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY
CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation, as amended, of this Corporation, the Board
of Directors on March 28, 1996, adopted the following resolution creating a
series of 12,000 shares of Preferred Stock designated as Class A Preferred
Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its
Certificate of Incorporation, as amended, a series of Preferred Stock of the
Corporation be and it hereby is created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof are as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as "Class A Preferred Stock" and the number of shares constituting
such series shall be 12,000.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Class A Preferred Stock with respect to dividends, the holders of shares of
Class A Preferred 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 January, April, July and
October in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Class A Preferred
Stock, in an amount per share (rounded to the nearest
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<PAGE>
cent), subject to the provision for adjustment hereinafter set forth, equal
to 1000 times the aggregate per share amount of all cash dividends, and 1000
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, par value $.01
per share, of the Corporation (the "Common Stock") since the immediately
preceding Quarterly Dividend Payment Date, or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Class A Preferred Stock. In the event the Corporation
shall at any time (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Class A 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
Class A Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Class A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Class A Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Class A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Class A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Class A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than thirty (30) days prior to the
date fixed for the payment thereof.
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Section 3. VOTING RIGHTS. The holders of shares of Class A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Class A Preferred Stock shall entitle the holder thereof to 1000
votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock, or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the number of votes
per share to which holders of shares of Class A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such number
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Class A Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) (i) If at any time dividends on any Class A Preferred Stock
shall be in arrears in an amount equal to six (6) quarterly dividends thereon,
the occurrence of such contingency shall mark the beginning of a period (herein
called a "default period") which shall extend until such time when all accrued
and unpaid dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all shares of Class A Preferred Stock then
outstanding shall have been declared and paid or set apart for payment. During
each default period, all holders of Preferred Stock (including holders of the
Class A Preferred Stock) with dividends in arrears in an amount equal to six (6)
quarterly dividends thereon, voting as a class, irrespective of series, shall
have the right to elect two (2) Directors.
(ii) During any default period, such voting right of the holders of
Class A Preferred Stock may be exercised initially at a special meeting called
pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders, provided that
neither such voting right nor the right of the holders of any other series of
Preferred Stock, if any, to increase, in certain cases, the authorized number of
Directors shall be exercised unless the holders of ten percent (10%) in number
of shares of Preferred Stock outstanding shall be present in person or by
proxy. The absence of a quorum of the holders of Common Stock shall not affect
the exercise by the holders of Preferred Stock of such voting right. At any
meeting at which the holders of Preferred Stock shall exercise such voting
right initially during
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an existing default period, they shall have the right, voting as a
class, to elect Directors to fill such vacancies, if any, in the Board of
Directors as may then exist up to two (2) Directors or, if such right is
exercised at an annual meeting, to elect two (2) Directors. If the number which
may be so elected at any special meeting does not amount to the required number,
the holders of the Preferred Stock shall have the right to make such increase in
the number of Directors as shall be necessary to permit the election by them of
the required number. After the holders of the Preferred Stock shall have
exercised their right to elect Directors in any default period and during the
continuance of such period, the number of Directors shall not be increased or
decreased except by vote of the holders of Preferred Stock as herein provided or
pursuant to the rights of any equity securities ranking senior to or PARI PASSU
with the Class A Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect Directors, the
Board of Directors may order, or any stockholder or stockholders owning in the
aggregate not less than ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series, may request, the calling of
a special meeting of the holders of Preferred Stock, which meeting shall
thereupon be called by the President, a Vice-President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at which holders
of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii)
shall be given to each holder of record of Preferred Stock by mailing a copy of
such notice to him at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than twenty
(20) days and not later than sixty (60) days after such order or request or in
default of the calling of such meeting within sixty (60) days after such order
or request, such meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of the
total number of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this paragraph (C)(iii), no such special meeting shall be called
during the period within sixty (60) days immediately preceding the date fixed
for the next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation if applicable, shall continue to be entitled
to elect the whole number of Directors until the holders of Preferred Stock
shall have exercised their right to elect two (2) Directors voting as a class,
after the exercise of which right (x) the Directors so elected by the holders of
Preferred Stock shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period, and (y)
any vacancy in the Board of Directors may (except as provided in paragraph
(C)(ii) of this Section 3) be filled by vote of a
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majority of the remaining Directors theretofore elected by the holders of
the class of stock which elected the Director whose office shall have become
vacant. References in this paragraph (C) to Directors elected by the holders
of a particular class of stock shall include Directors elected by such
Directors to fill vacancies as provided in clause (y) of the foregoing
sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect Directors shall
cease, (y) the term of any Directors elected by the holders of Preferred Stock
as a class shall terminate, and (z) the number of Directors shall be such number
as may be provided for in the certificate of incorporation or by-laws
irrespective of any increase made pursuant to the provisions of paragraph
(C)(ii) of this Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the certificate of incorporation
or by-laws). Any vacancies in the Board of Directors effected by the provisions
of clauses (y) and (z) in the preceding sentence may be filled by a majority of
the remaining Directors.
(D) Except as set forth herein, holders of Class A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Class A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Class A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Class A Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Class A Preferred Stock,
except dividends paid ratably on the Class A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or
A-5
<PAGE>
winding up) with the Class A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares
of any such parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Class A Preferred Stock;
(iv) purchase or otherwise acquire for consideration any shares of
Class A Preferred Stock, or any shares of stock ranking on a parity with
the Class A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Class A 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
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (A) Upon any
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Class A Preferred Stock unless, prior thereto, the holders of
shares of Class A Preferred Stock shall have received $10.00 per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment. Thereafter, the holders of the
Class A Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
1000 times the aggregate amount to be distributed per share to holders of shares
of Common Stock. Following the payment of the foregoing, holders of Class A
Preferred Stock and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed.
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<PAGE>
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Class A Preferred Stock Liquidation
Preference and the liquidation preferences of all other series of preferred
stock, if any, which rank on a parity with the Class A Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences.
(C) In the event the Corporation shall at any time (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock (by reclassification or otherwise), or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each such
case the aggregate amount to which holders of shares of the Class A Preferred
Stock were entitled immediately prior to such event 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 the shares of
Class A Preferred Stock shall at the same time be similarly exchanged or changed
in an amount per share (subject to the provision for adjustment hereinafter set
forth) equal to 1000 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 (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock (by
reclassification or otherwise), or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of shares of Class
A 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 Class A Preferred Stock
shall not be redeemable.
Section 9. RANKING. The Class A Preferred Stock shall rank junior to
all other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
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Section 10. AMENDMENT. The Certificate of Incorporation, as amended,
of the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Class A Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of a majority or more of the outstanding shares of Class A
Preferred Stock voting separately as a class.
Section 11. FRACTIONAL SHARES. Class A Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Class A Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury this ____ day
of _________________, 1996.
__________________________
Secretary
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EXHIBIT B
FORM OF RIGHTS CERTIFICATE
Certificate No. R- _______ Rights
NOT EXERCISABLE AFTER April __, 2006 OR EARLIER IF REDEEMED BY THE COMPANY. THE
RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER
RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR
WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH AGREEMENT.]
RIGHTS CERTIFICATE
SUPERCUTS, INC.
This certifies that _______________________, or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of March __, 1996 (the "Rights Agreement"),
between Supercuts, Inc., a Delaware corporation (the "Company"), and
______________________, a __________________ (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 at any time prior to 5:00 P.M. (New York
City time) on April __, 2006 at the office or offices of the Rights Agent
designated for such purpose, or its successors as Rights Agent, one
one-thousandth of a fully paid, nonassessable share of Class A Preferred Stock
(the "Preferred Stock") of the Company, at a purchase price of $[__] per one
one-thousandth of a share (the "Purchase Price"), upon presentation and
surrender of this Rights Certificate with the Form of Election to Purchase and
<PAGE>
related Certification duly executed. The number of Rights evidenced by this
Rights Certificate (and the number of one one-thousandths of a share of
Preferred Stock which may be purchased upon exercise thereof) set forth above,
and the Purchase Price per share set forth above, are the number and Purchase
Price as of March __, 1996, based on the Preferred Stock as constituted at such
date. As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities, which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain events.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Affiliate or
Associate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-thousandths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Rights Certificate or Rights Certificates for the
number of whole Rights not exercised.
B-2
<PAGE>
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $.01 per Right. No fractional shares of Preferred Stock
will be issued upon the exercise of any Right or Rights evidenced hereby (other
than fractions which are integral multiples of one one-thousandth of a share of
Preferred Stock, 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 Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
B-3
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of April 2, 1996
SUPERCUTS, INC.
By_________________________
Name:
Title:
Countersigned:
U.S. STOCK TRANSFER CORPORATION,
as Rights Agent
By________________________________
Authorized Representative
B-4
<PAGE>
Form of Reverse Side of Rights Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED_______________________________________________
_________________________________________________________________
hereby sells, assigns and transfers unto_________________________
_________________________________________________________________
_________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney,
to transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated: , 199
_____________________________
Signature
Signature Guaranteed:
Signature must be guaranteed by a commercial bank or trust company, broker,
dealer, or other eligible institution which is a member in good standing of a
medallion guaranty program approved by the Securities Transfer Association, Inc.
B-5
<PAGE>
Form of Reverse Side of Rights Certificate (continued)
CERTIFICATION
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned
and transferred by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
the undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: , 199 __________________________________
Signature
Signature Guaranteed:
Signature must be guaranteed by a commercial bank or trust company, broker,
dealer, or other eligible institution which is a member in good standing of a
medallion guaranty program approved by the Securities Transfer Association, Inc.
NOTICE
The signature to the foregoing Assignment and Certification must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
In the event the certification set forth above is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Rights Certificate to be an Acquiring Person or an Affiliate
or Associate thereof (as defined in the Rights Certificate) and such Assignment
will not be honored.
B-6
<PAGE>
Form of Reverse Side of Rights Certificate (continued)
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights
represented by the Rights Certificate.)
To: Supercuts, Inc.:
The undersigned hereby irrevocably elects to exercise __________________
represented by this Rights Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such 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
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
______________________________________________________________
(Please print name and address)
______________________________________________________________
Dated: , 199_
___________________________
Signature
Signature Guaranteed:
Signature must be guaranteed by a commercial bank or trust company, broker,
dealer, or other eligible institution which is a member in good standing of a
medallion guaranty program approved by the Securities Transfer Association, Inc.
B-7
<PAGE>
Form of Reverse Side of Rights Certificate (continued)
CERTIFICATION
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
the undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: , 199 ________________________________
Signature
Signature Guaranteed:
Signature must be guaranteed by a commercial bank or trust company, broker,
dealer, or other eligible institution which is a member in good standing of a
medallion guaranty program approved by the Securities Transfer Association, Inc.
NOTICE
The signature to the foregoing Election to Purchase and Certification must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
In the event the certification set forth above is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Rights Certificate to be an Acquiring Person or an Affiliate
or Associate thereof (as defined in the Rights Certificate) and such Election to
Purchase will not be honored.
B-8
<PAGE>
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On March 28, 1996, the Board of Directors of Supercuts, Inc. (the
"Company") declared a dividend distribution of one Right for each outstanding
share of the Company's common stock, par value $.01 per share (the "Common
Stock"), payable to stockholders of record at the close of business on April 15,
1996 (the "Record Date") and with respect to the Common Stock issued thereafter
until the Distribution Date (defined below) and, in certain circumstances, with
respect to the Common Stock issued after the Distribution Date. Each Right,
when it becomes exercisable, generally entitles the registered holder to
purchase from the Company a unit consisting initially of one one-thousandth of a
share (a "Unit") of Class A Preferred Stock, par value $.01 per share (the
"Preferred Stock"), of the Company, at a Purchase Price of $40.00 per Unit,
subject to adjustment (the "Purchase Price"). The description and terms of the
Rights are set forth in a Rights Agreement (the "Rights Agreement"), dated as of
April 2, 1996, between the Company and U.S. Stock Transfer Corporation, as
Rights Agent.
Initially, the Rights will be attached to all certificates representing
shares of Common Stock then outstanding, and no separate certificates evidencing
the Rights ("Rights Certificates") will be distributed. The Rights will
separate from the Common Stock and a Distribution Date will occur upon the
earlier of (i) ten (10) days (or such later date as the Board of Directors shall
determine) following public disclosure that a person or group of affiliated or
associated persons has become an "Acquiring Person" (as defined below), or (ii)
ten (10) business days (or such later date as the Board shall determine)
following the commencement of a tender offer or exchange offer that would result
in a person or group becoming an "Acquiring Person". Except as set forth below,
an "Acquiring Person" is a person or group of affiliated or associated persons
who has acquired beneficial ownership of 15% or more of the outstanding shares
of Common Stock. The term "Acquiring Person" excludes (i) the Company, (ii) any
subsidiary of the Company, (iii) any employee benefit plan of the Company or any
subsidiary of the Company, and (iv) any person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan.
Heartland Advisors, Inc. ("Heartland") and its affiliates and associates, whose
current level of beneficial ownership is understood to exceed 15%, will become
an Acquiring Person only if his level of beneficial ownership exceeds 20.3%.
Until the occurrence of the Distribution Date, (i) the Rights will be
evidenced by the Common Stock certificates and will be transferred with and only
with such Common Stock certificates, (ii) new Common Stock certificates issued
after the Record Date will contain a notation incorporating the Rights Agreement
by reference, and (iii) the surrender for transfer of
<PAGE>
any certificates for Common Stock outstanding will also constitute the transfer
of the Rights associated with the Common Stock represented by such certificate.
Pursuant to the Rights Agreement, the Company reserves the right to require
prior to the occurrence of a Triggering Event (as defined below) that, upon any
exercise of Rights, a number of Rights be exercised so that only whole shares
of Preferred Stock will be issued.
As soon as practicable after the occurrence of the Distribution Date,
Rights Certificates will be mailed to holders of record of the Common Stock as
of the close of business on the Distribution Date and, thereafter, the separate
Rights Certificates alone will represent the Rights. Except in certain
circumstances specified in the Rights Agreement or as otherwise determined by
the Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
The Rights are not exercisable until the occurrence of the Distribution
Date and until the Rights no longer are redeemable. The Rights will expire at
the close of business on April 15, 2000, unless extended or earlier redeemed by
the Company as described below.
In the event that, at any time following the Distribution Date, a person
becomes an Acquiring Person, each holder of a Right will thereafter have the
right to receive, upon exercise of the Right, Common Stock (or, in certain
circumstances, cash, property or other securities of the Company) having a value
equal to two times the exercise price of the Right. Notwithstanding any of the
foregoing, following the occurrence of the event set forth in this paragraph,
all Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person will be null and
void and nontransferable and any holder of any such right (including any
purported transferee or subsequent holder) will be unable to exercise or
transfer any such right. For example, at an exercise price of $30 per Right,
each Right not owned by an Acquiring Person (or by certain related parties)
following an event set forth in the preceding paragraph would entitle its holder
to purchase $60 worth of Common Stock (or other consideration, as noted above)
for $30. Assuming that the Common Stock had a per share value of $10 at such
time, the holder of each valid Right would be entitled to purchase 6 (six)
shares of Common Stock for $30.
In the event that, at any time following the date on which there has been
public disclosure that, or of facts indicating that, a person has become an
Acquiring Person (the "Stock Acquisition Date"), (i) the Company is acquired in
a merger or other business combination transaction in which the Company is not
the surviving corporation, or (ii) 50% or more of the Company's assets or
earning power is sold, mortgaged or transferred, each holder of a Right (except
Rights which previously have been voided as set forth above) shall thereafter
<PAGE>
have the right to receive, upon exercise, common stock of the acquiring company
having a value equal to two times the exercise price of the Right. The events
set forth in this paragraph and in the preceding paragraph are referred to as
the "Triggering Events."
The Purchase Price payable, and the number of Units of Preferred Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock, (ii) if holders of the Preferred Stock are granted certain rights or
warrants to subscribe for Preferred Stock or convertible securities at less than
the current market price of the Preferred Stock, or (iii) upon the distribution
to holders of the Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment
in cash will be made based on the market price of the Preferred Stock on the
last trading date prior to the date of exercise.
Because of the nature of the Preferred Stock's dividend, liquidation and
voting rights, the value of the one one-thousandth interest in a share of
Preferred Stock purchasable upon exercise of each Right should approximate the
value of one share of Common Stock. Shares of Preferred Stock purchasable upon
exercise of the Rights will not be redeemable. Each share of Preferred Stock
will be entitled to a quarterly dividend payment of 1000 times the dividend
declared per share of Common Stock. In the event of liquidation, each share of
Preferred Stock will be entitled to a $10.00 preference, and thereafter the
holders of the shares of Preferred Stock will be entitled to an aggregate
payment of 1000 times the aggregate payment made per share of Common Stock.
Each share of Preferred Stock will have 1000 votes, voting together with the
shares of Common Stock. These rights are protected by customary antidilution
provisions.
At any time until ten days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price (the
"Redemption Price") of $.01 per Right (payable in cash, Common Stock or other
consideration deemed appropriate by the Board of Directors) by resolution of the
Board of Directors (provided that following a Stock Acquisition Date such
resolution is approved by a majority of the Continuing Directors and only if the
Continuing Directors constitute a majority of the directors then in office and
further provided that for the 120-day period after any date of a change
(resulting from a proxy or consent solicitation) in a majority of the Board
<PAGE>
of Directors in office at the commencement of such solicitation, the Rights may
only be redeemed if there are Directors then in office who were in office at the
commencement of such solicitation and with the concurrence of a majority of such
Directors then in office). A "Continuing Director" is a member of the Board of
Directors who is not an Acquiring Person, an affiliate or associate of an
Acquiring Person or a representative or nominee of an Acquiring Person. The
redemption of the Rights may be made effective at such time on such basis with
such conditions as the Board of Directors in its sole discretion may establish.
Immediately upon such action of the Board of Directors ordering redemption of
the Rights, the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.
At any time after the Rights become exercisable for Common Stock or other
consideration of the Company, the Board of Directors may exchange the Rights, in
whole or in part, at an exchange ratio of one share of Common Stock, and/or
equity securities deemed to have the same value as one share of Common Stock,
per Right, subject to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for
common stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by
resolution of the Company's Board of Directors (provided that following a Stock
Acquisition Date such resolution is approved by a majority of the Continuing
Directors and only if the Continuing Directors constitute a majority of the
directors then in office) prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by
resolution of the Company's Board of Directors (provided that following a Stock
Acquisition Date such resolution is approved by a majority of the Continuing
Directors and only if the Continuing Directors constitute a majority of the
directors then in office) in order to cure any ambiguity, to make changes which
do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person or its affiliates or associates), or to
shorten or lengthen any time period under the Rights Agreement; provided,
however, that no amendment to adjust the time period governing redemption shall
be made at such time as the Rights are not redeemable.
<PAGE>
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
April 15, 1996. A copy of the Rights Agreement is available free of charge from
the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is incorporated herein by reference.
April 15, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SUPERCUTS, INC. AND
SUBSIDIARIES AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,634
<SECURITIES> 0
<RECEIVABLES> 3,310
<ALLOWANCES> 52
<INVENTORY> 1,808
<CURRENT-ASSETS> 22,069
<PP&E> 42,267
<DEPRECIATION> 13,920
<TOTAL-ASSETS> 102,217
<CURRENT-LIABILITIES> 52,376
<BONDS> 0
0
0
<COMMON> 120
<OTHER-SE> 39,771
<TOTAL-LIABILITY-AND-EQUITY> 102,217
<SALES> 2,154
<TOTAL-REVENUES> 25,722
<CGS> 1,076
<TOTAL-COSTS> 20,660
<OTHER-EXPENSES> 3,186
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 575
<INCOME-PRETAX> 1,876
<INCOME-TAX> 663
<INCOME-CONTINUING> 1,214
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,214
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
