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SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________
FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
___________________________
COST-U-LESS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1615590
- --------------------------------------------- --------------------------
(State of incorporation or organization) (I.R.S. employer
identification no.)
12410 SE 32/ND/ STREET, BELLEVUE, WASHINGTON 98005
- ---------------------------------------------- ---------------------------
(Address of principal executive offices) (zip code)
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If this form relates to the registration of a If this form relates to the registration of a
class of debt securities and is effective upon class of debt securities and is to become
filing pursuant to General Instruction A(c)(1) effective simultaneously with the effectiveness
please check the following box. [_] of a concurrent registration statement under the
Securities Act of 1933 pursuant to
General Instruction A(c)(2) please check the
following box. [_]
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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None
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Preferred Stock Purchase Rights
(Title of class)
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ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
On February 23, 1999, the Board of Directors (the "Board of Directors") of
Cost-U-Less, Inc. (the "Company") declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of common stock, par value
$.001 per share (the "Common Shares"), of the Company. The dividend was payable
on March 15, 1999 (the "Record Date") to the Company's stockholders of record on
that date. In addition, the Board of Directors has authorized the issuance of
one Right with respect to each additional Common Share that becomes outstanding
between the Record Date and the earliest of the Distribution Date, the
Expiration Date (as such terms are hereinafter defined), and the date, if any,
on which the Rights are redeemed. Each Right entitles its registered holder to
purchase from the Company one one-hundredth (1/100th) of a share of Cumulative
Preference Shares, First Series, par value $.001 per share, of the Company (the
"Preference Shares"), at a price of $40 per one one-hundredth (1/100th) of a
Preference Share (the "Purchase Price"), subject to adjustment. The description
and terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement") between the Company and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent.
Until the earlier of (i) the close of business on the tenth business day
after a public announcement that a person or group (including any affiliate or
associate of such person or group) has acquired beneficial ownership of 15% or
more of the outstanding Common Shares (such person or group being an "Acquiring
Person") and (ii) such date, if any, the Board of Directors may designate
following the commencement of, or first public disclosure of an intent to
commence, a tender or exchange offer for outstanding Common Shares which could
result in the offeror becoming the beneficial owner of 15% or more of the
outstanding Common Shares (the earlier of such dates being the "Distribution
Date"), the Rights will be evidenced by the certificates for the Common Shares
registered in the names of the holders thereof (which certificates for Common
Shares will also be deemed to be Right Certificates, as defined below) and not
by separate Right Certificates. Therefore, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Shares.
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date (and to each initial record holder of certain Common Shares
originally issued after the Distribution Date), and such separate Right
Certificates alone will thereafter evidence the Rights.
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The Rights are not exercisable until the Distribution Date and will expire
on March 15, 2009 (the "Expiration Date"), unless earlier redeemed or exchanged
by the Company as described below.
In order to preserve the actual or potential economic value of the Rights,
the number of Preferred Shares or other securities issuable upon exercise of a
Right, the Purchase Price, the Redemption Price (as hereinafter defined) and the
number of Rights associated with each outstanding Common Share are all subject
to adjustment by the Board of Directors in the event of any change in the Common
Shares or the Preference Shares, whether by reason of stock dividends, stock
splits, recapitalization, mergers, consolidations, combinations or exchanges of
securities, split-ups, split-offs, spin-offs, liquidations, other similar
changes in capitalization, any distribution or issuance of cash, assets,
evidences of indebtedness or subscription rights, options or warrants to holders
of Common Shares or Preference Shares, as the case may be, or otherwise.
In the event a person becomes an Acquiring Person, the Rights will entitle
each holder of a Right (other than an Acquiring Person (or any affiliate or
associate of such Acquiring Person)) to purchase, for the Purchase Price, that
number of Prefernece Shares equivalent to one one-hundredth (1/100) of the
number of Common Shares which at the time of the transaction would have a market
value of twice the Purchase Price. Any Rights that are at any time beneficially
owned by an Acquiring Person (or any affiliate or associate of an 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.
After there is an Acquiring Person, the Board of Directors may elect to
exchange each Right (other than Rights that have become null and void and
nontransferable as described above) for consideration per Right consisting of
one-half of the number of Preference Shares that would be issuable at such time
upon the exercise of one Right pursuant to the terms of the Rights Agreement
(or, if Common Shares are available, a number of Common Shares equivalent to 100
times such number of Preference Shares), and without payment of the Purchase
Price.
If the Company is acquired in a merger by, or other business combination
with, or 50% or more of its assets or assets accounting for 50% or more of its
net income or revenues are sold, leased, exchanged or otherwise transferred (in
one or more transactions) to, a publicly traded corporation, each Right will
entitle its holder (subject to the next paragraph) to purchase, for the Purchase
Price, that number of shares of common stock of such corporation which at the
time of the transaction would have a market value of twice the Purchase Price.
If the Company is acquired in a merger by, or other business combination with,
or 50% or more of its assets or
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assets accounting for 50% or more of its net income or revenues are sold,
leased, exchanged or otherwise transferred (in one or more transactions), to an
entity that is not a publicly traded corporation, each Right will entitle its
holder (subject to the next paragraph) to purchase, for the Purchase Price, at
such holder's option, (i) that number of shares of the surviving corporation in
the transaction (which surviving corporation could be the Company) which at the
time of the transaction would have a book value of twice the Purchase Price,
(ii) that number of shares of the ultimate parent entity of the surviving
corporation which at the time of the transaction would have a book value of
twice the Purchase Price, or (iii) if the acquiring entity has an affiliate
which has publicly traded common shares, that number of common shares of such
affiliate which at the time of the transaction would have a market value of
twice the Purchase Price.
At any time prior to any person or group becoming an Acquiring Person, the
Board of Directors may redeem the Rights in whole, but not in part, at a price
(in cash or Common Shares or other securities of the Company deemed by the Board
of Directors to be at least equivalent in value) of $.01 per Right, subject to
adjustment as provided in the Rights Agreement (the "Redemption Price").
At any time prior to the Distribution Date the Company may, without the
approval of any holder of the Rights, supplement or amend any provision of the
Rights Agreement (including the date on which the Distribution Date would occur,
the time during which the Rights may be redeemed or the terms of the Preference
Shares).
The Preference Shares issuable upon exercise of the Rights will not be
redeemable. The holders of the Preferred Shares will be entitled to a
preferential quarterly dividend payment equal to the greater of (a) $.01 per
share and (b) 100 times the dividend declared per Common Share, if any. In the
event of dissolution, liquidation or winding up of the Company, whether
voluntary or involuntary, the holders of Preference Shares will be entitled to a
preferential payment per share of all accrued and unpaid dividends and
distributions per share, plus 100 times the distribution to be made per Common
Share. Each Preference Share will entitle its holder to 100 votes, voting
together with the Common Shares. Finally, in the event of any merger, business
combination, consolidation or other transaction in which the Common Shares are
exchanged, the holders of the Preference Shares will be entitled to receive per
share 100 times the amount received per Common Share.
Because of the nature of the Preference Shares' dividend liquidation and
voting rights, the value of the one one-hundredth (1/100th) interest in a
Preference Share issuable upon exercise of each Right should approximate the
value of one Common Share. Customary antidilution provisions are designed to
protect that relationship in the event of certain changes in the Common Shares
and the Preference Shares. The Preference Shares are authorized to be issued in
fractions which are an integral
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multiple of one one-hundredth (1/100th) of a Peference Share. The Company may,
but is not required to, issue fractional shares upon the exercise of Rights and,
in lieu of fractional shares, the Company may utilize a depository arrangement
as provided by the terms of the Preference Shares and, in the case of fractions
other than one one-hundredth (1/100th) of a Preference Share or integral
multiples thereof, may make a cash payment based on the market price of such
shares.
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 receive dividends.
As of March 15, 1999, there were approximately 3,539,961 Common Shares of
the Company outstanding. Each Common Share of the Company outstanding at the
close of business on March 15, 1999, will receive one Right. The Board of
Directors of the Company has reserved sufficient Preference Shares for issuance
upon exercise of the Rights.
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors. The Rights should not affect
any prospective offeror willing to make an all-cash offer at a full and fair
price, or willing to negotiate with the Board of Directors of the Company. The
Rights will not interfere with any merger or other business combination approved
by the Board of Directors since the Board of Directors may, at its option,
redeem all but not less than all of the then outstanding Rights at the
Redemption Price.
A copy of the Rights Agreement is attached as Exhibit 2.1 hereto. 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 hereby
incorporated herein by reference.
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ITEM 2. EXHIBITS
1.1 Form of Right Certificate, incorporated by reference to Exhibit B
to Exhibit 2.1 filed herewith.
2.1 Rights Agreement dated as of March 15, 1999, between Cost-U-Less,
Inc. and ChaseMellon Shareholder Services, L.L.C..
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, as amended the registrant duly caused this registration statement to be
signed on its behalf by the undersigned, thereto duly authorized.
Date: March 15, 1999
Cost-U-Less, Inc..
By /s/ Allan C. Youngberg
---------------------------------------------
Allan C. Youngberg
Vice President-Chief Financial Officer, Secretary
and Treasurer
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EXHIBIT INDEX
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Exhibit Number Description
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1.1 Form of Right Certificate, incorporated by reference to
Exhibit B to Exhibit 2.1 filed herewith
2.1 Rights Agreement dated as of March 15, 1999, between
Cost-U-Less, Inc. and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent.
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EXHIBIT 2.1
RIGHTS AGREEMENT
DATED MARCH 15, 1999
BETWEEN
COST-U-LESS, INC.
AND
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.,
AS RIGHTS AGENT
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TABLE OF CONTENTS
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SECTION 1. Certain Definitions................................................................................ 1
SECTION 2. Appointment of Rights Agent........................................................................ 8
SECTION 3. Issue of Rights and Right Certificates............................................................. 8
SECTION 4. Form of Right Certificates......................................................................... 11
SECTION 5. Execution, Countersignature and Registration....................................................... 11
SECTION 6 Transfer, Split-Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or
Stolen Right Certificates; Uncertificated Rights................................................... 12
SECTION 7. Exercise of Rights; Expiration Date of Rights...................................................... 13
SECTION 8. Cancellation and Destruction of Right Certificates................................................. 15
SECTION 9. Reservation and Availability of Preference Shares.................................................. 15
SECTION 10. Preference Shares Record Date...................................................................... 17
SECTION 11. Adjustments in Rights After There Is an Acquiring Person; Exchange of Rights for Shares; Business
Combinations....................................................................................... 17
SECTION 12. Certain Adjustments................................................................................ 22
SECTION 13. Certificate of Adjustment.......................................................................... 23
SECTION 14. Additional Covenants............................................................................... 24
SECTION 15. Fractional Rights and Fractional Shares............................................................ 24
SECTION 16. Rights of Action................................................................................... 25
SECTION 17. Transfer and Ownership of Rights and Right Certificates............................................ 26
SECTION 18. Right Certificate Holder Not Deemed a Shareholder.................................................. 26
SECTION 19. Concerning the Rights Agent........................................................................ 27
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SECTION 20. Merger or Consolidation or Change of Rights Agent.................................................. 27
SECTION 21. Duties of Rights Agent............................................................................. 28
SECTION 22. Change of Rights Agent............................................................................. 31
SECTION 23. Issuance of Additional Rights and Right Certificates............................................... 33
SECTION 24. Redemption and Termination......................................................................... 33
SECTION 25. Notices............................................................................................ 34
SECTION 26. Supplements and Amendments......................................................................... 35
SECTION 27. Successors......................................................................................... 35
SECTION 28. Benefits of Rights Agreement; Determinations and Actions by the Board of Directors; etc............ 36
SECTION 29. Severability....................................................................................... 36
SECTION 30. Governing Law...................................................................................... 37
SECTION 31. Counterparts; Effectiveness........................................................................ 37
SECTION 32. Descriptive Headings............................................................................... 37
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RIGHTS AGREEMENT
RIGHTS AGREEMENT dated as of March 15, 1999, between COST-U-LESS, INC., a
Washington corporation (the "Company"), and CHASEMELLON SHAREHOLDER SERVICES,
L.L.C., a New Jersey limited liability company as Rights Agent (the "Rights
Agent").
Subject to the terms and provisions hereof, the Board of Directors of the
Company has authorized and declared a dividend of one Right (as hereinafter
defined) for each share of Common Stock, par value $0.001 per share, of the
Company (the "Common Stock") outstanding at the Close of Business (as
hereinafter defined) on the date hereof (the "Record Date"), and has authorized
the issuance of one Right (as such number may hereafter be adjusted pursuant to
the provisions of this Rights Agreement) with respect to each share of Common
Stock that shall become outstanding between the Record Date and the earliest of
the Distribution Date, the Redemption Date or the Expiration Date (as such terms
are hereinafter defined); provided, however, that Rights may be issued with
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respect to shares of Common Stock that shall become outstanding after the
Distribution Date and prior to the earlier of the Redemption Date or the
Expiration Date in accordance with the provisions of Section 23. Each Right
shall initially represent the right to purchase one one-hundredth (1/100) of a
share of Cumulative Preference Shares, First Series, par value $0.001 per share,
of the Company (the "Preference Shares"), having the powers, rights and
preferences set forth in the form of Articles of Amendment attached hereto as
Exhibit A.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS
For purposes of this Rights Agreement, the following terms have the
meanings indicated:
"Acquiring Person" shall mean any Person who or which, alone or together
----------------
with all Affiliates and Associates of such Person, shall be the Beneficial Owner
of more than 15% of the Common Shares then outstanding, but shall not include
(a) the Company, any Subsidiary of the Company, Michael J. Rose, any employee
benefit or compensation plan of the Company or of any of its Subsidiaries, or
any Person holding Common Shares for or pursuant to the terms of any such
employee benefit or compensation plan or (b) any Person who has become and is
the Beneficial Owner of more than 15% of the Common Shares at the time
outstanding solely as the result of (i) a change in the aggregate number of
Common Shares outstanding since the last
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date on which such Person acquired Beneficial Ownership of any Common Shares,
(ii) the acquisition by such Person or one or more of its Affiliates or
Associates of Beneficial Ownership of additional Common Shares if such
acquisition was made in the good faith belief that such acquisition would not
(A) cause the Beneficial Ownership by such Person, together with its Affiliates
and Associates, to exceed 15% of the Common Shares outstanding at the time of
such acquisition and such good faith belief was based on the good faith reliance
on information contained in publicly filed reports or documents of the Company
that are inaccurate or out-of-date or (B) otherwise cause a Distribution Date or
the adjustment provided for in Section 11(a) to occur, or (iii) the acquisition
by such Person or one or more of its Affiliates or Associates of Beneficial
Ownership of additional Common Shares if the Board of Directors of the Company
determines that such acquisition was made in good faith without the knowledge by
such Person or Affiliates or Associates that such Person would thereby become an
Acquiring Person, which determination of the Board of Directors of the Company
shall be conclusive and binding on such Person, the Rights Agent, the holders of
the Rights and all other Persons). Notwithstanding clause (b)(ii) or (b)(iii) of
the prior sentence, if any Person that is not an Acquiring Person due to such
clause (b)(ii) or (b)(iii) does not reduce its percentage of Beneficial
Ownership of Common Shares to 15% or less by the Close of Business on the tenth
calendar day after notice from the Company (the date of notice being the first
day) that such Person's Beneficial Ownership of Common Shares would make it an
Acquiring Person, such Person shall, at the end of such ten calendar day period,
become an Acquiring Person (and such clause (b)(ii) or (b)(iii) shall no longer
apply to such Person). For purposes of this definition, the determination
whether any Person acted in "good faith" shall be conclusively determined by the
Board of Directors of the Company.
"Affiliate" and "Associate," when used with reference to any Person, shall
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have the respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act (as hereinafter defined), as in
effect on the date of this Rights Agreement.
A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to
----------------
"beneficially own," and shall be deemed to have "Beneficial Ownership" of, any
---------------- --------------------
securities:
(a) that such Person or any of such Person's Affiliates or Associates
is deemed to "beneficially own" within the meaning of Rule 13d-3 of the General
Rules and Regulations under the Exchange Act, as in effect on the date of this
Rights Agreement;
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(b) that such Person or any of such Person's Affiliates or Associates
has: (i) the right to acquire (whether such right is exercisable immediately or
only after the passage of time) pursuant to any agreement, arrangement or
understanding (written or oral), or upon the exercise of conversion rights,
exchange rights, rights (other than the Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed under clause (i)
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to be the Beneficial Owner of, or to beneficially own, or to have Beneficial
Ownership of, any securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or exchange
thereunder or cease to be subject to withdrawal by the tendering security
holder; or (ii) the right to vote pursuant to any agreement, arrangement or
understanding (written or oral); provided, however, that a Person shall not be
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deemed under this clause (ii) to be the Beneficial Owner of, or to beneficially
own, any security if (A) the agreement, arrangement or understanding (written or
oral) to vote such security arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent solicitation made
generally to all holders of Common Shares of the Company pursuant to, and in
accordance with, the applicable rules and regulations under the Exchange Act and
(B) the beneficial ownership of such security is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor report); or
(c) that are beneficially owned, directly or indirectly, by any other
Person with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding (written or oral) for the
purpose of acquiring, holding, voting (except pursuant to a revocable proxy as
described in the proviso to clause (b)(ii) of this definition) or disposing of
any securities of the Company.
Notwithstanding the foregoing, nothing contained in this definition shall cause
a Person ordinarily engaged in business as an underwriter of securities to be
deemed the "Beneficial Owner" of, or to "beneficially own," or to have
"Beneficial Ownership" of, any securities acquired in a bona fide firm
commitment underwriting pursuant to an underwriting agreement with the Company.
"Articles of Amendment" shall mean the Articles of Amendment relating to
---------------------
the Preference Shares setting forth the powers, preferences, rights,
qualifications, limitations and restrictions of such series of Preference Shares
of the Company, a form of which is attached hereto as Exhibit A.
"Book Value," when used with reference to Common Shares issued by any
----------
Person, shall mean the amount of equity of such Person applicable to each Common
Share, determined (a) in accordance with generally accepted accounting
principles in
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effect on the date as of which such Book Value is to be determined, (b) using
all the consolidated assets and all the consolidated liabilities of such Person
on the date as of which such Book Value is to be determined, except that no
value shall be included in such assets for goodwill arising from consummation of
a business combination, and (c) after giving effect to (i) the exercise of all
rights, options and warrants to purchase such Common Shares (other than the
Rights), and the conversion of all securities convertible into such Common
Shares, at an exercise or conversion price, per Common Share, which is less than
such Book Value before giving effect to such exercise or conversion (whether or
not exercisability or convertibility is conditioned upon occurrence of a future
event), (ii) all dividends and other distributions on the capital stock of such
Person declared prior to the date as of which such Book Value is to be
determined and to be paid or made after such date, and (iii) any other
agreement, arrangement or understanding (written or oral), or transaction or
other action contemplated prior to the date as of which such Book Value is to be
determined that would have the effect of thereafter reducing such Book Value.
"Business Combination" shall have the meaning set forth in Section
--------------------
11(c)(i).
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
------------
Friday that is not a day on which banking institutions in the Borough of
Manhattan, the City of New York, or the city in which the office of the Rights
Agent is located are authorized or obligated by law or executive order to close.
"Close of Business" on any given date shall mean 5:00 p.m., Eastern time,
-----------------
on such date; provided, however, that, if such date is not a Business Day,
-------- -------
"Close of Business" shall mean 5:00 p.m., Eastern time, on the next succeeding
Business Day.
"Common Shares," when used with reference to the Company prior to a
-------------
Business Combination, shall mean the shares of Common Stock of the Company or
any other shares of capital stock of the Company into which the Common Stock
shall be reclassified or changed. "Common Shares," when used with reference to
any Person (other than the Company prior to a Business Combination), shall mean
shares of capital stock of such Person (if such Person is a corporation) of any
class or series, or units of equity interests in such Person (if such Person is
not a corporation) of any class or series, the terms of which do not limit (as a
maximum amount and not merely in proportional terms) the amount of dividends or
income payable or distributable on such class or series or the amount of assets
distributable on such class or series upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person and do not provide that
such class or series is subject to redemption at the option of such Person, or
any shares of capital stock or units of equity interests into which the
foregoing shall be reclassified or changed.
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"Common Stock" shall have the meaning set forth in the second paragraph of
------------
this Rights Agreement.
"Company" shall have the meaning set forth in the introductory paragraph of
-------
this Rights Agreement; provided, however, that if there is a Business
-------- -------
Combination, "Company" shall have the meaning set forth in Section 11(c)(iii).
"Control" with respect to any Person shall mean the power to direct the
-------
management and policies of such Person, directly or indirectly, by or through
stock ownership, agency or otherwise, or pursuant to or in connection with an
agreement, arrangement or understanding (written or oral) with one or more other
Persons by or through stock ownership, agency or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
"Distribution Date" shall have the meaning set forth in Section 3(b).
-----------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as in effect
------------
on the date in question, unless otherwise specifically provided.
"Exchange Consideration" shall have the meaning set forth in Section
----------------------
11(b)(i).
"Expiration Date" shall have the meaning set forth in Section 7(a).
---------------
"Major Part," when used with reference to the assets of the Company and its
----------
Subsidiaries as of any date, shall mean assets (a) having a fair market value
aggregating 50% or more of the total fair market value of all the assets of the
Company and its Subsidiaries (taken as a whole) as of the date in question, (b)
accounting for 50% or more of the total value (net of depreciation and
amortization) of all the assets of the Company and its Subsidiaries (taken as a
whole) as would be shown on a consolidated or combined balance sheet of the
Company and its Subsidiaries as of the date in question, prepared in accordance
with generally accepted accounting principles then in effect, or (c) accounting
for 50% or more of the total amount of earnings before interest, taxes,
depreciation and amortization or of the revenues of the Company and its
Subsidiaries (taken as a whole) as would be shown on, or derived from, a
consolidated or combined statement of income or net earnings of the Company and
its Subsidiaries for the period of 12 months ending on the last day of the
Company's monthly accounting period next preceding the date in question,
prepared in accordance with generally accepted accounting principles then in
effect.
"Market Value," when used with reference to Common Shares on any date,
------------
shall mean the average of the daily closing prices, per share, of such Common
Shares for the period that is the shorter of (a) 30 consecutive Trading Days
ending on the Trading Day immediately prior to the date in question or (b) the
number of
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consecutive Trading Days beginning on the Trading Day immediately after the date
of the first public announcement of the event requiring a determination of the
Market Value of Common Shares and ending on the Trading Day immediately prior to
the record date of such event; provided, however, that, in the event that the
-------- -------
Market Value of such Common Shares is to be determined in whole or in part
during a period following the announcement by the issuer of such Common Shares
of any action of the type described in Section 12(a) that would require an
adjustment thereunder, then, and in each such case, the Market Value of such
Common Shares shall be appropriately adjusted to reflect the effect of such
action on the market price of such Common Shares. The closing price for each
Trading Day shall be the closing price quoted on the composite tape for
securities listed on the New York Stock Exchange, or, if such securities are not
quoted on such composite tape or if such securities are not listed on such
exchange, on the principal United States securities exchange registered under
the Exchange Act (or any recognized foreign stock exchange) on which such
securities are listed, or, if such securities are not listed on any such
exchange, the closing price quoted on The Nasdaq Stock Market or, if such
securities are not so quoted, the average of the closing bid and asked
quotations with respect to a share of such securities on any National
Association of Securities Dealers, Inc. quotations system or such other system
then in use, or if no such quotations are available, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in such securities selected by the Board of Directors of the Company, or if on
any such Trading Day no market maker is making a market in such securities, the
closing price of such securities on such Trading Day shall be deemed to be the
fair value of such securities 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, the
holders of Rights and all other Persons); provided, however, that for the
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purpose of determining the closing price of the Preference Shares for any
Trading Day on which there is no such market maker for the Preference Shares the
closing price on such Trading Day shall be deemed to be the Formula Number (as
defined in the Articles of Amendment) multiplied by the closing price of the
Common Shares of the Company on such Trading Day.
"Person" shall mean an individual, corporation, partnership, limited
------
liability company, joint venture, association, trust, unincorporated
organization or other entity and shall include any successor (by merger or
otherwise) of such entity.
"Preference Shares" shall have the meaning set forth in the introductory
-----------------
paragraph of this Rights Agreement. Any reference in this Rights Agreement to
Preference Shares shall be deemed to include any authorized fraction of a
Preference Share, unless the context otherwise requires.
PAGE 6
<PAGE>
"Principal Party" shall mean the Surviving Person (as hereinafter defined)
---------------
in a Business Combination; provided, however, that, (i) if such Surviving Person
-------- -------
is a direct or indirect Subsidiary of any other Person, "Principal Party" shall
mean the Person which is the ultimate parent of such Surviving Person and which
is not itself a Subsidiary of another Person, and (ii) in the event ultimate
control of such Surviving Person is shared by two or more Persons, "Principal
Party" shall mean that Person that is immediately controlled by such two or more
Persons.
"Purchase Price" with respect to each Right shall mean $40.00, as such
---------------
amount may from time to time be adjusted as provided herein, and shall be
payable in lawful money of the United States of America. All references herein
to the Purchase Price shall mean the Purchase Price as in effect at the time in
question.
"Record Date" shall have the meaning set forth in the introductory
-----------
paragraph of this Rights Agreement.
"Redemption Date" shall have the meaning set forth in Section 24(a).
---------------
"Redemption Price" with respect to each Right shall mean $.01, as such
----------------
amount may from time to time be adjusted in accordance with Section 12. All
references herein to the Redemption Price shall mean the Redemption Price as in
effect at the time in question.
"Registered Common Shares" shall mean Common Shares that are, as of the
------------------------
date of consummation of a Business Combination, and have continuously been for
the 12 months immediately preceding such date, registered under Section 12 of
the Exchange Act.
"Right" shall mean the right to purchase Preference Shares (or other
-----
securities) as provided in this Rights Agreement.
"Right Certificate" shall mean a certificate evidencing a Right in
-----------------
substantially the form attached as Exhibit B.
"Securities Act" shall mean the Securities Act of 1933, as in effect on the
--------------
date in question, unless otherwise specifically provided in this Rights
Agreement.
"Subsidiary" shall mean a Person, at least a majority of the total
----------
outstanding voting power (being the power under ordinary circumstances (and not
merely upon the happening of a contingency) to vote in the election of directors
of such Person (if such Person is a corporation) or to participate in the
management and control of such Person (if such Person is not a corporation)) of
which is owned, directly or indirectly,
PAGE 7
<PAGE>
by another Person or by one or more other Subsidiaries of such other Person or
by such other Person and one or more other Subsidiaries of such other Person.
"Surviving Person" shall mean (a) the Person which is the continuing or
----------------
surviving Person in a consolidation or merger specified in Section 11(c)(i)(A)
or 11(c)(i)(B) or (b) the Person to which the Major Part of the assets of the
Company and its Subsidiaries is sold, leased, exchanged or otherwise transferred
or disposed of in a transaction specified in Section 11(c)(i)(C); provided,
--------
however, that, if the Major Part of the assets of the Company and its
- -------
Subsidiaries is sold, leased, exchanged or otherwise transferred or disposed of
in one or more related transactions specified in Section 11(c)(i)(C) to more
than one Person, the "Surviving Person" in such case shall mean the Person that
acquired assets of the Company and/or its Subsidiaries with the greatest fair
market value in such transaction or transactions.
"Trading Day" shall mean a day on which the principal national securities
-----------
exchange (or principal recognized foreign stock exchange, as the case may be) on
which any securities or Rights, as the case may be, are listed or admitted to
trading is open for the transaction of business or, if the securities or Rights
in question are not listed or admitted to trading on any national securities
exchange (or recognized foreign stock exchange, as the case may be), a Business
Day.
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 one
or more co-Rights Agents as it may deem necessary or desirable (the term "Rights
Agent" being used herein to refer, collectively, to the Rights Agent together
with any such co-Rights Agents). In the event the Company appoints one or more
co-Rights Agents, the respective duties of the Rights Agent and any co-Rights
Agents shall be as the Company shall determine. The Rights Agent shall have no
duty to supervise, and in no event shall be liable for, the acts or omissions of
any such co-Rights Agent.
SECTION 3. ISSUE OF RIGHTS AND RIGHT CERTIFICATES
(a) One Right shall be associated with each Common Share outstanding on the
Record Date, each additional Common Share that shall become outstanding between
the Record Date and the earliest of the Distribution Date, the Redemption Date
or the Expiration Date and each additional Common Share with which Rights are
issued after the Distribution Date but prior to the earlier of the Redemption
Date and the Expiration Date as provided in Section 23; provided, however, that,
-------- -------
if the number of outstanding Rights are combined into a smaller number of
outstanding Rights
PAGE 8
<PAGE>
pursuant to Section 12(a), the appropriate fractional Right determined pursuant
to such Section shall thereafter be associated with each such Common Share.
(b) Until the earlier of (i) such time as the Company learns that a Person
has become an Acquiring Person or (ii) the Close of Business on such date, if
any, as may be designated by the Board of Directors of the Company following the
commencement of, or first public disclosure of an intent to commence, a tender
or exchange offer by any Person (other than the Company, any Subsidiary of the
Company, Michael J. Rose, any employee benefit or compensation plan of the
Company or of any of its Subsidiaries, or any Person holding Common Shares for
or pursuant to the terms of any such employee benefit or compensation plan) for
outstanding Common Shares, if upon consummation of such tender or exchange offer
such Person could be the Beneficial Owner of more than 15% of the outstanding
Common Shares (the Close of Business on the earlier of such dates being the
"Distribution Date"), (x) the Rights shall, except as otherwise provided in
Section 3(c), be evidenced by the certificates for Common Shares registered in
the names of the holders thereof and not by separate Right Certificates, (y) the
Rights, including the right to receive Right Certificates, shall be transferable
only in connection with the transfer of Common Shares and (z) the Company shall
notify the Rights Agent as promptly as practicable that the Distribution Date
has occurred. As soon as practicable after the Distribution Date and receipt by
the Rights Agent of all necessary information, the Rights Agent shall send, by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the Distribution Date, at the address of such holder shown on the records of the
Company, a Right Certificate evidencing one whole Right for each Common Share
(or for the number of Common Shares with which one whole Right is then
associated if the number of Rights per Common Share held by such record holder
has been adjusted in accordance with the proviso in Section 3(a)). If the
number of Rights associated with each Common Share has been adjusted in
accordance with the proviso in Section 3(a), at the time of distribution of the
Right Certificates the Company may make any necessary and appropriate rounding
adjustments so that Right Certificates representing only whole numbers of Rights
are distributed and cash is paid in lieu of any fractional Right in accordance
with Section 15(a). The Company shall notify the Rights Agent as promptly as
practicable of any such adjustments and the Rights Agent is authorized and
protected in relying on such adjustment. As of and after the Distribution Date,
the Rights shall be evidenced solely by such Right Certificates.
(c) As soon as practicable, and in any event no later than 30 days, after
the Record Date, the Company will send a copy of a Summary of Rights to Purchase
Cumulative Preference Shares, First Series, of Cost-U-Less, Inc., in
substantially the form attached hereto as Exhibit C (the "Summary of Rights"),
by first-class, postage prepaid mail, to each record holder of Common Shares as
of the Close of Business on
PAGE 9
<PAGE>
the Record Date at the address of such holder shown on the records of the
Company and to the Rights Agent. With respect to any certificate for Common
Shares outstanding as of the Record Date, until the earliest of the Distribution
Date, the Redemption Date or the Expiration Date, (i) the Rights associated with
the Common Shares represented by any such certificate shall be evidenced by such
certificates for the Common Shares with a copy of the Summary of Rights attached
thereto and the registered holders of the Common Shares shall also be the
registered holders of the associated Rights and (ii) the surrender for transfer
of any such certificate, even without a copy of the Summary of Rights attached
thereto, shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby.
(d) Certificates issued for Common Shares after the Record Date (including
upon transfer or exchange of outstanding Common Shares), but prior to the
earliest of the Distribution Date, the Redemption Date or the Expiration Date,
shall have printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in a Rights Agreement dated as of March 15, 1999 as it
may be amended from time to time (the "Rights Agreement"), between Cost-U-
Less, Inc. (the "Company") and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent (the "Rights Agent"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of the Company. Under certain circumstances,
as set forth in the Rights Agreement, such Rights shall be evidenced by
separate certificates and shall no longer be evidenced by this certificate.
The Company shall mail to the holder of this certificate a copy of the
Rights Agreement without charge after receipt of a written request
therefor. RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS OR THEIR
AFFILIATES OR ASSOCIATES (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) AND BY ANY SUBSEQUENT HOLDER OF SUCH RIGHTS ARE NULL AND VOID
AND NONTRANSFERABLE.
Notwithstanding this Section 3(d), neither the omission of a legend nor the
inclusion of a legend that makes reference to a rights agreement other than the
Rights Agreement shall affect the enforceability of any part of this Rights
Agreement or the rights of any holder of Rights.
SECTION 4. FORM OF RIGHT CERTIFICATES
The Right Certificates (and the form of election to purchase and form of
assignment to be printed on the reverse side thereof) shall be in substantially
the form set forth as Exhibit B and may have such marks of identification or
designation and
PAGE 10
<PAGE>
such legends, summaries or endorsements printed thereon as the Company may deem
appropriate (which do not affect the duties or responsibilties of the Rights
Agent) and as are not inconsistent with the provisions of this Rights 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 Sections 7, 11 and 23, the Right
Certificates, whenever issued, shall be dated as of the Distribution Date, and
on their face shall entitle the holders thereof to purchase such number of
Preference Shares as shall be set forth therein for the Purchase Price set forth
therein, subject to adjustment from time to time as herein provided.
SECTION 5. EXECUTION, COUNTERSIGNATURE AND REGISTRATION
(a) The Right Certificates shall be executed on behalf of the Company by
the Chairman of the Board, any Vice Chairman of the Board, the Chief Executive
Officer, the President, the Chief Financial Officer, the Treasurer or any Vice
President (whether preceded by any additional title) of the Company, either
manually or by facsimile signature, and have affixed thereto the Company's seal
or a facsimile thereof, which shall be attested by the Secretary, an Assistant
Secretary or a Vice President (whether preceded by any additional title,
provided that such Vice President shall not have also executed the Right
Certificates) of the Company, either manually or by facsimile signature. The
Right Certificates shall be manually countersigned by the Rights Agent and shall
not be valid or obligatory for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Right Certificates shall
cease to be such an officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates may
nevertheless be countersigned by the Rights Agent and issued and delivered by
the Company with the same force and effect as though the person who signed such
Right Certificates had not ceased to be such an officer of the Company; and any
Right Certificate may be signed on behalf of the Company by any person who, at
the actual date of execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
execution of this Rights Agreement any such person was not such an officer of
the Company.
(b) Following the Distribution Date, the Rights Agent shall keep or cause
to be kept, at its office designated for such purpose and receipt by the Rights
Agent of all necessary information, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced by each of the Right
PAGE 11
<PAGE>
Certificates, the certificate number of each of the Right Certificates and the
date of each of the Right Certificates.
SECTION 6 TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES;
MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES;
UNCERTIFICATED RIGHTS
(a) Subject to the provisions of Sections 7(e) and 15, at any time after
the Distribution Date, and at or prior to the Close of Business on the earlier
of the Redemption Date or the Expiration Date, any Right Certificate or Right
Certificates may be transferred, split-up, combined or exchanged for another
Right Certificate or Right Certificates representing, in the aggregate, the same
number of Rights as the Right Certificate or Right Certificates surrendered then
represented. Any registered holder desiring to transfer, split-up, combine or
exchange any Right Certificate shall make such request in writing delivered to
the Rights Agent and shall surrender the Right Certificate or Right Certificates
to be transferred, split-up, combined or exchanged at the office of the Rights
Agent designated for such purpose; provided, however, that neither the Rights
-------- -------
Agent nor the Company shall be obligated to take any action whatsoever with
respect to the transfer of any Right Certificate surrendered for transfer until
the registered holder shall have completed and signed the certification
contained in the form of assignment on the reverse side of such Right
Certificate and shall have provided such additional evidence of the identity of
the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company or the Rights Agent shall reasonably request. Thereupon
the Rights Agent shall, subject to Sections 7(e) and 15, countersign and deliver
to the Person entitled thereto a Right Certificate or Right Certificates, as the
case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or charge that may be imposed in connection with any
transfer, split-up, combination or exchange of Right Certificates. The Rights
Agent shall have no duty or obligation under this Section unless and until it is
satisfied that all such taxes and/or charges have been paid.
(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 valid
Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security satisfactory to them, and, at the Company's request, reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Right Certificate
if mutilated, the Company shall make a new Right Certificate of like tenor and
deliver such new Right Certificate to the Rights Agent for delivery to the
registered owner in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
PAGE 12
<PAGE>
(c) Notwithstanding any other provision hereof, the Company and the Rights
Agent may amend this Rights Agreement to provide for uncertificated Rights in
addition to or in place of Rights evidenced by Right Certificates.
SECTION 7. EXERCISE OF RIGHTS; EXPIRATION DATE OF RIGHTS
(a) Subject to Section 7(e) and except as otherwise provided herein
(including Section 11), each Right shall entitle the registered holder thereof,
upon exercise thereof as provided herein, to purchase for the Purchase Price, at
any time after the Distribution Date and at or prior to the earliest of (i) the
Close of Business on the 10th anniversary of the date of this Rights Agreement
(the Close of Business on such date being the "Expiration Date") or (ii) the
Redemption Date, one one-hundredth (1/100) of a Preference Share, subject to
adjustment from time to time as provided in Sections 11 and 12.
(b) The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date, upon surrender of the Right Certificate,
with the form of election to purchase on the reverse side thereof duly and
properly executed, to the Rights Agent at the office of the Rights Agent
designated for such purpose, together with payment of the Purchase Price for
each one one-hundredth (1/100) of a Preference Share as to which the Rights are
exercised, at or prior to the earlier of (i) the Expiration Date or (ii) the
Redemption Date.
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase duly and properly executed, accompanied by
payment of the Purchase Price for the Preference Shares to be purchased together
with an amount equal to any applicable tax or charge, in lawful money of the
United States of America, in cash or by certified check or money order payable
to the order of the Company, the Rights Agent shall thereupon (i) either (A)
promptly requisition from any transfer agent of the Preference Shares (or make
available, if the Rights Agent is the transfer agent) certificates for the
number of Preference Shares 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 Preference Shares with a depositary
agent under a depositary arrangement, promptly requisition from the depositary
agent depositary receipts representing the number of one one-hundredths (1/100s)
of a Preference Share to be purchased (in which case certificates for the
Preference Shares to be represented by such receipts shall be deposited by the
transfer agent with the depositary agent) and the Company shall direct the
depositary agent to comply with all such requests, (ii) when appropriate,
promptly requisition from the Company the amount of cash to be paid in lieu of
issuance of fractional shares in accordance with Section 15, (iii) promptly
after receipt
PAGE 13
<PAGE>
of such certificates or depositary receipts, cause the same to be delivered to
or upon the order of the registered holder of such Right Certificate, registered
in such name or names as may be designated by such holder, and (iv) when
appropriate, after receipt promptly deliver such cash to or upon the order of
the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall exercise
fewer than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent and delivered to the registered holder of such Right Certificate or
to his duly authorized assigns, subject to the provisions of Section 15.
(e) Notwithstanding anything in this Rights Agreement to the contrary, any
Rights that are at any time 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 Associate or Affiliate) who becomes a transferee after
the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person
(or of any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Board of Directors of the Company has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 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 Rights Agreement or
otherwise. The Company shall use all reasonable efforts to ensure that the
provisions of this Section 7(e) are complied with, but the Company and the
Rights Agent shall have no liability to any holder of any Right Certificate or
any other Person as a result of the Company's failure to make any determinations
with respect to an Acquiring Person or its Affiliate or Associate, or any
transferee thereof, hereunder.
(f) Notwithstanding anything in this Rights Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of any Right Certificates 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 Right
Certificate surrendered for such exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company or the Rights Agent shall
reasonably request.
PAGE 14
<PAGE>
(g) The Company may temporarily suspend, for a period of time not to exceed
90 calendar days after the Distribution Date, the exercisability of the Rights
in order to prepare and file a registration statement under the Securities Act,
on an appropriate form, with respect to the Preference Shares purchasable upon
exercise of the Rights and permit such registration statement to become
effective; provided, however, that no such suspension shall remain effective
-------- -------
after, and the Rights shall without any further action by the Company or any
other Person become exercisable immediately upon, the effectiveness of such
registration statement. Upon any such suspension, the Company shall issue a
public announcement with prompt notice to the Rights Agent stating that the
exercisability of the Rights has been temporarily suspended and shall issue a
further public announcement with prompt notice to the Rights Agent at such time
as the suspension is no longer in effect. Notwithstanding any provision herein
to the contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification under the "Blue Sky" or securities laws of such
jurisdiction shall not have been obtained or the exercise of the Rights shall
not be permitted under applicable law.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES
All Right Certificates surrendered or presented for the purpose of
exercise, transfer, split-up, combination or exchange shall, and any Right
Certificate representing Rights that have become null and void and
nontransferable pursuant to Section 7(e) surrendered or presented for any
purpose shall, if surrendered or presented to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered or presented to the Rights Agent, shall be canceled by it,
and no Right Certificates shall be issued in lieu thereof except as expressly
permitted by this Rights Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any Right Certificate purchased or acquired by the Company. The Rights
Agent shall deliver all canceled Right Certificates to the Company, or shall, at
the written request of the Company, destroy such canceled Right Certificates,
and in such case shall deliver a certificate of destruction thereof to the
Company.
SECTION 9. RESERVATION AND AVAILABILITY OF PREFERENCE SHARES
(a) The Company covenants and agrees that it shall cause to be reserved and
kept available out of its authorized and unissued Preference Shares, free from
preemptive rights or any right of first refusal, a number of Preference Shares
sufficient to permit the exercise in full of all outstanding Rights.
(b) In the event that there shall not be sufficient Preference Shares
issued but not outstanding or authorized but unissued to permit the exercise or
exchange of Rights in accordance with Section 11, the Company covenants and
agrees that it shall
PAGE 15
<PAGE>
take all such action as may be necessary to authorize additional Preference
Shares for issuance upon the exercise or exchange of Rights pursuant to Section
11; provided, however, that if the Company is unable to cause the authorization
-------- -------
of additional Preference Shares, then the Company shall, or if action by the
Company's shareholders is necessary to cause such authorization in lieu of
seeking any such authorization, the Company may, to the extent necessary and
permitted by applicable law and any agreements or instruments in effect prior to
the Distribution Date to which it is a party, (i) upon surrender of a Right, pay
cash equal to the Purchase Price in lieu of issuing Preference Shares and
requiring payment therefor, (ii) upon due exercise of a Right and payment of the
Purchase Price for each Preference Share as to which such Right is exercised,
issue equity securities having a value equal to the value of the Preference
Shares that otherwise would have been issuable pursuant to Section 11, which
value shall be determined by a nationally recognized investment banking firm
selected by the Board of Directors of the Company, or (iii) upon due exercise of
a Right and payment of the Purchase Price for each Preference Share as to which
such Right is exercised, distribute a combination of Preference Shares, cash
and/or other equity and/or debt securities having an aggregate value equal to
the value of the Preference Shares that otherwise would have been issuable
pursuant to Section 11, which value shall be determined by a nationally
recognized investment banking firm selected by the Board of Directors of the
Company. To the extent that any legal or contractual restrictions (pursuant to
agreements or instruments in effect prior to the Distribution Date to which it
is party) prevent the Company from paying the full amount payable in accordance
with the foregoing sentence, the Company shall pay to holders of the Rights as
to which such payments are being made all amounts that are not then restricted
on a pro rata basis as such payments become permissible under such legal or
contractual restrictions until such payments have been paid in full.
(c) The Company covenants and agrees that it shall take all such action as
may be necessary to ensure that all Preference Shares delivered upon exercise or
exchange of Rights shall, at the time of delivery of the certificates for such
Preference Shares (subject to payment of the Purchase Price), be duly and
validly authorized and issued and fully paid and nonassessable shares.
(d) So long as the Preference Shares issuable upon the exercise or exchange
of Rights are to be listed on any national securities exchange, the Company
covenants and agrees to use its best efforts to cause, from and after such time
as the Rights become exercisable or exchangeable, all Preference Shares reserved
for such issuance to be listed on such securities exchange upon official notice
of issuance upon such exercise or exchange.
(e) The Company further covenants and agrees that it shall pay when due and
payable any and all taxes and charges which may be payable in respect of the
PAGE 16
<PAGE>
issuance or delivery of Right Certificates or of any Preference Shares or Common
Shares or other securities upon the exercise or exchange of the Rights. The
Company shall not, however, be required to pay any tax or charge which may be
payable in respect of any transfer or delivery of Right Certificates to a Person
other than, or in respect of the issuance or delivery of certificates for the
Preference Shares or Common Shares or other securities, as the case may be, in a
name other than that of, the registered holder of the Right Certificate
evidencing Rights surrendered for exercise or exchange or to issue or deliver
any certificates for Preference Shares or Common Shares or other securities, as
the case may be, upon the exercise or exchange of any Rights until any such tax
or charge shall have been paid (any such tax or charge being payable by the
holder of such Right Certificate at the time of surrender) or until it has been
established to the Company's satisfaction that no such tax or charge is due.
SECTION 10. PREFERENCE SHARES RECORD DATE
Each Person in whose name any certificate for Preference Shares or Common
Shares or other securities is issued upon the exercise or exchange of Rights
shall for all purposes be deemed to have become the holder of record of the
Preference Shares or Common Shares or other securities, as the case may be,
represented thereby on, and such certificate shall be dated, the date on which
the Right Certificate evidencing such Rights was duly surrendered and payment of
any Purchase Price (and any applicable taxes or charges) was made; provided,
--------
however, that, if the date of such surrender and payment is a date upon which
- -------
the transfer books of the Company for the Preference Shares or Common Shares or
other securities, as the case may be, are closed, such Person shall be deemed to
have become the record holder of such Preference Shares or Common Shares or
other securities, as the case may be, on, and such certificate shall be dated,
the next succeeding Business Day on which the transfer books of the Company for
the Preference Shares or Common Shares or other securities, as the case may be,
are open.
SECTION 11. ADJUSTMENTS IN RIGHTS AFTER THERE IS AN ACQUIRING PERSON; EXCHANGE
OF RIGHTS FOR SHARES; BUSINESS COMBINATIONS
(a) Upon a Person's becoming an Acquiring Person, each holder of a Right,
except as provided in Section 7(e), shall thereafter have a right to receive,
upon exercise thereof for the Purchase Price in accordance with the terms of
this Rights Agreement, such number of one one-hundredths (1/100s) of a
Preference Share as shall equal the result obtained by multiplying the Purchase
Price by a fraction, the numerator of which is the number of one one-hundredths
(1/100s) of a Preference Share for which such Right is then exercisable and the
denominator of which is 50% of the Market Value of the Common Shares on the date
on which such Person became
PAGE 17
<PAGE>
an Acquiring Person. As soon as practicable after a Person becomes an Acquiring
Person (provided the Company shall not have elected to make the exchange
permitted by Section 11(b)(i) for all outstanding Rights), the Company covenants
and agrees to use its best efforts to:
(i) prepare and file a registration statement under the Securities
Act, on an appropriate form, with respect to the Preference Shares purchasable
upon exercise of the Rights;
(ii) cause such registration statement to become effective as soon
as practicable after such filing;
(iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act) until
the Expiration Date; and
(iv) qualify or register the Preference Shares purchasable upon
exercise of the Rights under the "Blue Sky" or securities laws of such
jurisdictions as may be necessary or appropriate.
(b) (i) The Board of Directors of the Company may, at its option, at
any time after a Person becomes an Acquiring Person, mandatory exchange all or
part of the then outstanding and exercisable Rights (which shall not include
Rights that shall have become null and void and nontransferable pursuant to the
provisions of Section 7(e)) for consideration per Right consisting of either (A)
one-half of the securities that would be issuable at such time upon the exercise
of one Right in accordance with Section 11(a) or, if applicable, Section
9(b)(ii) or 9(b)(iii) or (B) if applicable, the cash consideration specified in
Section 9(b)(i) (the consideration issuable per Right pursuant to this Section
11(b)(i) being the "Exchange Consideration"). The Board of Directors of the
Company may, at its option, issue, in substitution for Preference Shares, Common
Shares in an amount per Preference Share equal to the Formula Number (as defined
in the Articles of Amendment) if there are sufficient Common Shares issued but
not outstanding or authorized but unissued. If the Board of Directors of the
Company elects to exchange all the Rights for Exchange Consideration pursuant to
this Section 11(b)(i) prior to the physical distribution of the Rights
Certificates, the Company may distribute the Exchange Consideration in lieu of
distributing Right Certificates, in which case for purposes of this Rights
Agreement holders of Rights shall be deemed to have simultaneously received and
surrendered for exchange Right Certificates on the date of such distribution.
Notwithstanding the foregoing, the Board of Directors of the Company shall not
be empowered to effect such exchange at any time after any Person (other than
the Company, any Subsidiary of the Company, Michael J. Rose, any employee
benefit plan of the Company or any such Subsidiary, or any Person holding Common
Shares for or pursuant to the terms
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of any such plan), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of more than 50% of the Common Shares then
outstanding.
(ii) Any action of the Board of Directors of the Company ordering the
exchange of any Rights pursuant to Section 11(b)(i) shall be irrevocable and,
immediately upon the taking of such action and without any further action and
without any notice, the right to exercise any such Right so exchanged pursuant
to Section 11(a) shall terminate and the only right thereafter of a holder of
such Right shall be to receive the Exchange Consideration in exchange for each
such Right held by such holder or, if the Exchange Consideration shall not have
been paid or issued, to exercise any such Right pursuant to Section 11(c)(i).
The Company shall promptly give public notice and prompt notice to the Rights
Agent of any such exchange; provided, however, that the failure to give, or any
-------- -------
defect in, such notice shall not affect the validity of such exchange. The
Company promptly shall mail a notice of any such exchange to all holders of the
Rights to be exchanged at their last addresses as they appear upon the registry
books of the Rights Agent. Any notice that is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of exchange shall state the method by which the exchange of the
Rights for the Exchange Consideration will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which shall have become null and void and nontransferable pursuant to the
provisions of Section 7(e)) held by each holder of Rights.
(c) (i) In the event that, directly or indirectly, any transactions
specified in the following clause (A), (B) or (C) of this Section 11(c)(i) (each
such transaction being a "Business Combination") shall be consummated:
(A) the Company shall consolidate with, or merge with and into,
any Acquiring Person or any Affiliate or Associate of an Acquiring Person;
(B) any Acquiring Person or any Affiliate or Associate of an
Acquiring Person shall merge with and into the Company and, in connection with
such merger, all or part of the Common Shares shall be changed into or exchanged
for capital stock or other securities of the Company or of any Acquiring Person
or Affiliate or Associate of an Acquiring Person or cash or any other property;
or
(C) the Company shall sell, lease, exchange or otherwise
transfer or dispose of (or one or more of its Subsidiaries shall sell, lease,
exchange or otherwise transfer or dispose of), in one or more transactions, the
Major Part of the assets of the Company and its Subsidiaries (taken as a whole)
to any Acquiring Person or any Affiliate or Associate of an Acquiring Person,
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then, in each such case, proper provision shall be made so that each holder of a
Right, except as provided in Section 7(e), shall thereafter have the right to
receive, upon the exercise thereof for the Purchase Price in accordance with the
terms of this Rights Agreement, the securities specified below (or, at such
holder's option, the securities specified in Section 11(a) if the Company is the
surviving corporation in such Business Combination):
(1) if the Principal Party in such Business Combination has
Registered Common Shares outstanding, each Right shall thereafter represent the
right to receive, upon the exercise thereof for the Purchase Price in accordance
with the terms of this Rights Agreement, such number of Registered Common Shares
of such Principal Party, free and clear of all liens, encumbrances or other
adverse claims, as shall have an aggregate Market Value as of the time of
exercise thereof equal to the result obtained by multiplying the Purchase Price
by two;
(2) if the Principal Party involved in such Business
Combination does not have Registered Common Shares outstanding, each Right shall
thereafter represent the right to receive, upon the exercise thereof for the
Purchase Price in accordance with the terms of this Rights Agreement, at the
election of the holder of such Right at the time of the exercise thereof, any
of:
(x) such number of Common Shares of the Surviving
Person in such Business Combination as shall have an aggregate Book Value
immediately after giving effect to such Business Combination equal to the
result obtained by multiplying the Purchase Price by two;
(y) such number of Common Shares of the Principal Party
in such Business Combination (if the Principal Party is not also the
Surviving Person in such Business Combination) as shall have an aggregate
Book Value immediately after giving effect to such Business Combination
equal to the result obtained by multiplying the Purchase Price by two; or
(z) if the Principal Party in such Business Combination
is an Affiliate of one or more Persons that has Registered Common Shares
outstanding, such number of Registered Common Shares of whichever of such
Affiliates of the Principal Party has Registered Common Shares with the
greatest aggregate Market Value on the date of consummation of such
Business Combination as shall have an aggregate Market Value on the date of
such Business Combination equal to the result obtained by multiplying the
Purchase Price by two.
(ii) The Company shall not consummate any Business Combination unless
each issuer of Common Shares for which Rights may be exercised, as set forth
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in this Section 11(c), shall have sufficient authorized Common Shares that have
not been issued or reserved for issuance (and which shall, when issued upon
exercise thereof in accordance with this Rights Agreement, be validly issued,
fully paid and nonassessable and free of preemptive rights, rights of first
refusal or any other restrictions or limitations on the transfer or ownership
thereof) to permit the exercise in full of the Rights in accordance with this
Section 11(c) and unless prior thereto:
(A) a registration statement under the Securities Act on an
appropriate form, with respect to the Rights and the Common Shares of such
issuer purchasable upon exercise of the Rights, shall be effective under the
Securities Act and
(B) the Company and each such issuer shall have:
(1) executed and delivered to the Rights Agent a supplemental
agreement providing for the assumption by such issuer of the obligations set
forth in this Section 11(c) and the Rights Agent is authorized and protected in
relying on such agreement (including the obligation of such issuer to issue
Common Shares upon the exercise of Rights in accordance with the terms set forth
in Sections 11(c)(i) and 11(c)(iii)) and further providing that such issuer, at
its own expense, shall use its best efforts to:
(x) cause a registration statement under the Securities
Act on an appropriate form, with respect to the Rights and the Common
Shares of such issuer purchasable upon exercise of the Rights, to remain
effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the Expiration Date;
(y) qualify or register the Rights and the Common
Shares of such issuer purchasable upon exercise of the Rights under the
"Blue Sky" or securities laws of such jurisdictions as may be necessary or
appropriate; and
(z) list the Rights and the Common Shares of such
issuer purchasable upon exercise of the Rights on each national securities
exchange on which the Common Shares were listed prior to the consummation
of the Business Combination or, if the Common Shares were not listed on a
national securities exchange prior to the consummation of the Business
Combination, on a national securities exchange;
(2) furnished to the Rights Agent a written opinion of
independent counsel stating that such supplemental agreement is a valid, binding
and
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enforceable agreement of such issuer and such opinion shall be conclusive or all
purposes; and
(3) filed with the Rights Agent a certificate of a nationally
recognized firm of independent accountants setting forth the number of Common
Shares of such issuer that may be purchased upon the exercise of each Right
after the consummation of such Business Combination and such certificate shall
be conclusive for all purposes.
(iii) After consummation of any Business Combination and subject to
the provisions of Section 11(c)(ii), (A) each issuer of Common Shares for which
Rights may be exercised as set forth in this Section 11(c) shall be liable for,
and shall assume, by virtue of such Business Combination, all the obligations
and duties of the Company pursuant to this Rights Agreement, (B) the term
"Company" shall thereafter be deemed to refer to such issuer, (C) each such
issuer shall take such steps in connection with such consummation as may be
necessary to assure that the provisions hereof (including the provisions of
Sections 11(a) and 11(c)) shall thereafter be applicable, as nearly as
reasonably may be, in relation to its Common Shares thereafter deliverable upon
the exercise of the Rights, and (D) the number of Common Shares of each such
issuer thereafter receivable upon exercise of any Right shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions of Sections 11 and 12 and the provisions of
Section 7, 9 and 10 with respect to the Preference Shares shall apply, as nearly
as reasonably may be, on like terms to any such Common Shares.
SECTION 12. CERTAIN ADJUSTMENTS
(a) To preserve the actual or potential economic value of the Rights, if
at any time after the date of this Rights Agreement there shall be any change in
the Common Shares or the Preference Shares, whether by reason of stock
dividends, stock splits, reclassifications, recapitalizations, mergers,
consolidations, combinations or exchanges of securities, split-ups, split-offs,
spin-offs, liquidations, other similar changes in capitalization, any
distribution or issuance of cash, assets, evidences of indebtedness or
subscription rights, options or warrants to holders of Common Shares or
Preference Shares, as the case may be (other than distribution of the Rights or
regular quarterly cash dividends), or otherwise, then, in each such event the
Board of Directors of the Company shall make such appropriate adjustments in the
number of Preference Shares (or the number and kind of other securities)
issuable upon exercise of each Right, the Purchase Price and Redemption Price in
effect at such time and the number of Rights outstanding at such time (including
the number of Rights or fractional Rights associated with each Common Share)
such that following such
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<PAGE>
adjustment such event shall not have had the effect of reducing or limiting the
benefits the holders of the Rights would have had absent such event.
(b) If, as a result of an adjustment made pursuant to Section 12(a), the
holder of any Right thereafter exercised shall become entitled to receive any
securities other than Preference Shares, thereafter the number of such
securities so receivable upon exercise of any Right shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions of Sections 11 and 12 and the provisions of
Sections 7, 9 and 10 with respect to the Preference Shares shall apply, as
nearly as reasonably may be, on like terms to any such other securities.
(c) All Rights originally issued by the Company subsequent to any
adjustment made to the amount of Preference Shares or other securities relating
to a Right shall evidence the right to purchase, for the Purchase Price, the
adjusted number and kind of securities purchasable from time to time hereunder
upon exercise of the Rights, all subject to further adjustment as provided
herein.
(d) Irrespective of any adjustment or change in the Purchase Price or the
number of Preference Shares or number or kind of other securities issuable upon
the exercise of the Rights, the Right Certificates theretofore and thereafter
issued may continue to express the terms that were expressed in the initial
Right Certificates issued hereunder.
(e) In any case in which action taken pursuant to Section 12(a) requires
that an adjustment be made effective as of a record date for a specified event,
the Company may elect to defer with prompt notice thereof to the Rights Agent
until the occurrence of such event the issuing to the holder of any Right
exercised after such record date the Preference Shares and/or other securities,
if any, issuable upon such exercise over and above the Preference Shares and/or
other securities, if any, issuable before giving effect to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
- -------- -------
other appropriate instrument evidencing such holder's right to receive such
additional securities upon the occurrence of the event requiring such
adjustment.
SECTION 13. CERTIFICATE OF ADJUSTMENT
Whenever an adjustment is made as provided in Section 11 or 12, the Company
shall (a) promptly prepare a certificate setting forth such adjustment and a
brief statement of the facts and comparisons accounting for such adjustment, (b)
promptly file with the Rights Agent and with each transfer agent for the
Preference Shares a copy of such certificate, and (c) mail a brief summary
thereof to each holder of a Right Certificate (or, prior to the Distribution
Date, of the Common Shares) in
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<PAGE>
accordance with Section 25. The Rights Agent shall be fully protected in relying
on any such certificate and on any adjustment therein contained and shall have
no duty with respect to and shall not be deemed to have knowledge of any such
adjustment unless and until it shall have received such certificate.
SECTION 14. ADDITIONAL COVENANTS
(a) Notwithstanding any other provision of this Rights Agreement, no
adjustment to the number of Preference Shares (or fractions of a share) or other
securities for which a Right is exercisable or the number of Rights outstanding
or associated with each Common Share or any similar or other adjustment shall be
made or be effective if such adjustment would have the effect of reducing or
limiting the benefits the holders of the Rights would have had absent such
adjustment, including the benefits under Sections 11 and 12, unless the terms of
this Rights Agreement are amended so as to preserve such benefits.
(b) The Company covenants and agrees that, after the Distribution Date,
except as permitted by Section 26, it shall not take (or permit any Subsidiary
of the Company to take) any action if at the time such action is taken it is
intended or reasonably foreseeable that such action will reduce or otherwise
limit the benefits the holders of the Rights would have had absent such action,
including the benefits under Sections 11 and 12. Any action taken by the
Company during any period after any Person becomes an Acquiring Person but prior
to the Distribution Date shall be null and void unless such action could be
taken under this Section 14(b) from and after the Distribution Date. The
Company shall not consummate any Business Combination if any issuer of Common
Shares for which Rights may be exercised after such Business Combination in
accordance with Section 11(c) shall have taken any action that reduces or
otherwise limits the benefits the holders of the Rights would have had absent
such action, including the benefits under Sections 11 and 12.
SECTION 15. FRACTIONAL RIGHTS AND FRACTIONAL SHARES
(a) The Company may, but shall not be required to, issue fractions of
Rights or distribute Right Certificates that evidence fractional Rights. In
lieu of such fractional Rights, the Company may pay to the registered holders of
the Right Certificates with regard to which such fractional Rights would
otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this Section 15(a), the
current market value of a whole Right shall be the closing price of the Rights
(as determined pursuant to the second and third sentences of the definition of
Market Value contained in Section 1) for the Trading Day immediately prior to
the date on which such fractional Rights would have been otherwise issuable.
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(b) The Company may, but shall not be required to, issue fractions of
Preference Shares upon exercise of the Rights or distribute certificates that
evidence fractional Preference Shares. In lieu of fractional Preference Shares,
the Company may elect to (i) utilize a depository arrangement as provided by the
terms of the Preference Shares or (ii) in the case of a fraction of a Preference
Share (other than one one-hundredths (1/100s) of a Preference Share or any
integral multiple thereof), pay to the registered holders of Right Certificates
at the time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of one Preference Share, if any
are outstanding and publicly traded (or the same fraction of the current market
value of one Common Share times the Formula Number if the Preference Shares are
not outstanding and publicly traded). For purposes of this Section 15(b), the
current market value of a Preference Share (or Common Share) shall be the
closing price of a Preference Share (or Common Share) (as determined pursuant to
the second and third sentences of the definition of Market Value contained in
Section 1) for the Trading Day immediately prior to the date of such exercise.
If, as a result of an adjustment made pursuant to Section 12(a), the holder of
any Right thereafter exercised shall become entitled to receive any securities
other than Preference Shares, the provisions of this Section 15(b) shall apply,
as nearly as reasonably may be, on like terms to such other securities.
(c) The Company may, but shall not be required to, issue fractions of
Common Shares upon exchange of Rights pursuant to Section 11(b), or to
distribute certificates that evidence fractional Common Shares. In lieu of such
fractional Common Shares, the Company may pay to the registered holders of the
Right Certificates with regard to which such fractional Common Shares would
otherwise be issuable an amount in cash equal to the same fraction of the
current Market Value of one Common Share as of the date on which a Person became
an Acquiring Person.
(d) The holder of Rights 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 provided in this Section 15.
SECTION 16. RIGHTS OF ACTION
(a) All rights of action in respect of this Rights Agreement are vested in
the respective registered holders of the Right Certificates (and, prior to the
Distribution Date, the registered holders of the Common Shares); and any
registered holder of any Right Certificate (or, prior to the Distribution Date,
of the Common Shares), without the consent of the Rights Agent or of the holder
of any other Right Certificate (or, prior to the Distribution Date, of the
Common Shares) may, in his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his right to exercise
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<PAGE>
the Rights evidenced by such Right Certificate in the manner provided in such
Right Certificate and in this Rights Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Rights Agreement and shall be entitled to specific
performance of the obligations of any Person under, and injunctive relief
against actual or threatened violations of the obligations of any Person subject
to, this Rights Agreement.
(b) Any holder of Rights who prevails in an action to enforce the
provisions of this Rights Agreement shall be entitled to recover from the
Company the reasonable costs and expenses, including attorneys' fees, incurred
in such action.
SECTION 17. TRANSFER AND OWNERSHIP OF RIGHTS AND RIGHT CERTIFICATES
(a) Prior to the Distribution Date, the Rights shall be transferable only
in connection with the transfer of the Common Shares and the Right associated
with each Common Share shall be automatically transferred upon the transfer of
each Common Share.
(b) After the Distribution Date, the Right Certificates shall be
transferable, subject to Section 7(e), only on the registry books of the Rights
Agent if surrendered at the office of the Rights Agent designated for such
purpose, duly endorsed or accompanied by a proper instrument of transfer.
(c) The Company and the Rights Agent may deem and treat the Person in whose
name a Right Certificate (or, prior to the Distribution Date, the associated
Common Shares certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the associated certificate for Common
Shares made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
SECTION 18. RIGHT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER
No holder, as such, of any Right Certificate shall be entitled to vote or
receive dividends or be deemed, for any purpose, the holder of the Preference
Shares or of any other securities of the Company which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything
contained herein or in any Right Certificate be construed to confer upon the
holder of any Right Certificate, as such, any of the rights of a shareholder of
the Company, including any right to vote for the election of directors or upon
any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive
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notice of meetings or other actions affecting shareholders, or to receive
dividends or other distributions or subscription rights, or otherwise, until the
Right or Rights evidenced by such Right Certificate shall have been exercised in
accordance with the provisions hereof.
SECTION 19. CONCERNING THE RIGHTS AGENT
(a) The Company agrees to pay to the Rights Agent reasonable compensation
for all services rendered by it hereunder and from time to time, on demand of
the Rights Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the administration preparation, delivery, amendment
and execution of this Rights Agreement and the exercise and performance of its
duties hereunder, including any taxes or charges imposed as a result of the
action taken by it hereunder (other than any taxes on the fees payable to it.
The indemnity provided herein shall survive the termination of this Agreement
and the termination and the expiration of the Rights. The costs and expenses
incurred in enforcing this right of indemnification shall be paid by the
Company. Anything to the contrary notwithstanding, in no event shall the Rights
Agent be liable for special, punitive, indirect, consequential or incidental
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if the Rights Agent has been advised of the likelihood of such
loss or damage. Any liability of the Rights Agent under this Rights Agreement
will be limited to the amount of fees paid by the Company to the Rights Agent.
(b) The Rights Agent shall be authorized and 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 Rights Agreement in reliance upon any
Right Certificate or certificate for the Common Shares or for other securities
of the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons or otherwise upon the advice of counsel as set forth in
Section 21 hereof.
SECTION 20. MERGER OR CONSOLIDATION OR CHANGE OF RIGHTS AGENT
(a) Any Person into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any Person resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any Person succeeding to the shareholder service
business of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Rights Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto; provided, however, that such
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<PAGE>
Person would be eligible for appointment as a successor Rights Agent under the
provisions of Section 22. In case, at the time such successor Rights Agent shall
succeed to the agency created by this Rights Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and, in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Rights Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and, in case at that time any
of the Right Certificates shall not have been countersigned, the Rights Agent
may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Rights Agreement.
SECTION 21. DUTIES OF RIGHTS AGENT
The Rights Agent undertakes only the duties and obligations expressly
imposed by this Rights Agreement upon the following terms and conditions, by all
of which the Company and the holders of Right Certificates (or, prior to the
Distribution Date, of the Common Shares), by their acceptance thereof, shall be
bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the advice or opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken, suffered or omitted by it in good faith and in accordance with
such advice or opinion.
(b) Whenever in the performance of its duties under this Rights
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including without limitation the identity of any Acquiring Person and
the determination of current per share market price) be proved or established by
the Company prior to taking, refraining from taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, any
Vice Chairman of the Board, the Chief Executive Officer, the President, the
Chief Financial Officer, a Vice President (whether preceded by any additional
title), the Treasurer or the Secretary of the
PAGE 28
<PAGE>
Company and delivered to the Rights Agent; and such certificate shall be full
authorization and protection to the Rights Agent and the Rights Agent shall
incure no liability for or in respect of any action taken, suffered or omitted
in good faith by it under the provisions of this Rights Agreement in reliance
upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Rights Agreement or in the
Right Certificates (except as to its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any liability or
responsibility in respect of the validity of this Rights Agreement or the
execution and delivery hereof (except the due execution hereof by the Rights
Agent) or in respect of the validity or execution of any Right Certificate
(except its countersignature thereof); nor shall it be responsible or liable for
any breach by the Company of any covenant or condition contained in this Rights
Agreement or in any Right Certificate; nor shall it be responsible for any
adjustment required under the provisions of Section 11 or 12 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 Right Certificates after actual notice of
any such adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Preference Shares or Common Shares to be issued pursuant to this Rights
Agreement or any Right Certificate or as to whether any Preference Shares or
Common Shares will, when so issued, be validly authorized and issued, fully paid
and nonassessable.
(f) The Company agrees that it shall perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, any Vice Chairman of the Board, the Chief
Executive Officer, the President, the Chief Financial Officer, a Vice President
(whether preceded by any additional title), the Secretary or the Treasurer of
the Company, in connection with its duties and it shall not be liable for any
action taken, suffered or omitted to be taken by it in good faith in accordance
with instructions of any such
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officer or for any delay in acting while waiting for those instructions. Any
application by the Rights Agent for written instructions from the Corporation
may, at the option of the Rights Agent, set forth in writing any action proposed
to be taken, suffered or omitted by the Rights Agent under this Agreement and
the date on and/or after which such action shall be taken or suffered or such
omission shall be effective. The Rights Agent shall not be liable for any action
taken or suffered by, or omission of, the Rights Agent in accordance with a
proposal included in any such application on or after the date specified in such
application (which date shall not be less than five Business Days after the date
of any officer of the Corporation actually receives such application unless any
such officer shall have consented in writing to an earlier date) unless, prior
to taking any such action (or the effective date in the case of an omission),
the Rights Agent shall have received written instructions in response to such
application specifying the action to be taken, suffered or omitted.
(h) The Rights Agent and any shareholder, director, affiliate officer
or employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
the Rights Agent under this Rights Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Company or for any other
Person.
(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 absent gross negligence, bad faith or willful misconduct
in the selection and continued employment thereof.
(j) The Company agrees to indemnify and to hold the Rights Agent
harmless against any loss, liability, damage judgment, fine, penalty, demand,
settlement, cost or expense which the Rights Agent may incur resulting from its
actions taken, suffered or omitted by it pursuant to this Rights Agreement
including without limitation to the costs and expenses of defending against any
claim of liability arising therefrom, directly or indirectly; provided, however,
-------- -------
that the Rights Agent shall not be indemnified or held harmless with respect to
any such loss, liability, damage or expense incurred by the Rights Agent as a
result of, or arising out of, its own gross negligence, bad faith or willful
misconduct. The Company shall be entitled to participate at its own expense in
the defense of any such action, proceeding, suit or claim, and, if the Company
so elects, the Company shall assume the defense of any such action, proceeding,
suit or claim, provided however, that if in the written
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<PAGE>
judgment of counsel for the Rights Agent, the use of such counsel retained by
the Company to represent both the Company and the Rights Agent would present a
conflict of interest, then the Rights Agent shall be permitted to retain
additional counsel, the fees and expenses of which shall be payable by the
Company. The Rights Agent agrees not to settle any litigation in connection with
any action, proceeding, suit or claim with respect to which it may seek
indemnification from the Company without the prior written consent of the
Company which consent shall not be unreasonably withheld.
(k) 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
it believes that repayment of such funds or adequate indemnification against
such risk or liability is not reasonably assured to it.
(l) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate contained in the form of
assignment or the form of election to purchase set forth on the reverse thereof,
as the case may be, has not been completed to certify the holder is not an
Acquiring Person (or an Affiliate or Associate 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 22. CHANGE OF RIGHTS AGENT
The Rights Agent or any successor Rights Agent may resign and be discharged
from its duties under this Rights Agreement upon 30 days' notice in writing
mailed to the Company and to each transfer agent of the Common Shares and the
Preference Shares by registered or certified mail, and to the holders of the
Right Certificates (or, prior to the Distribution Date, of the Common Shares) by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Shares and the Preference Shares by registered or certified mail, and to
the holders of the Right Certificates (or, prior to the Distribution Date, of
the Common Shares) by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(or, prior to the Distribution Date, of the Common Shares) (who shall, with such
notice, submit his Right Certificate or, prior to the Distribution Date, the
certificate
PAGE 31
<PAGE>
representing his Common Shares, for inspection by the Company), then the
registered holder of any Right Certificate (or, prior to the Distribution Date,
of the Common Shares) 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 (A) be a corporation organized and
doing business under the laws of the United States or of the State of Washington
(or of any other state of the United States or the District of Columbia so long
as such corporation is authorized to do business and is subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (B) be an affiliate of a Person described in clause (A) of this
sentence. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Shares
and the Preference Shares, and mail a notice thereof in writing to the
registered holders of the Right Certificates (or, prior to the Distribution
Date, of the Common Shares). Failure to give any notice provided for in this
Section 22, 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 23. ISSUANCE OF ADDITIONAL RIGHTS AND RIGHT CERTIFICATES
Notwithstanding any of the provisions of this Rights Agreement or of the
Rights to the contrary, the Company may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by its Board of
Directors to reflect any adjustment or change made in accordance with the
provisions of this Rights Agreement. In addition, in connection with the
issuance or sale of Common Shares following the Distribution Date and prior to
the earlier of the Redemption Date and the Expiration Date, the Company (a)
shall, with respect to Common Shares so issued or sold pursuant to the exercise
of stock options or under any employee plan or arrangement, or upon the
exercise, conversion or exchange of securities, notes or debentures issued by
the Company, and (b) may, in any other case, if deemed necessary or appropriate
by the Board of Directors of the Company and with prompt notice thereof to the
Rights Agent, issue Right Certificates representing the appropriate number of
Rights in connection with such issuance or sale; provided, however, that (i) no
-------- -------
such Right Certificate shall be issued if, and to the extent that, the Company
shall be advised by counsel that such issuance would create a significant risk
of material adverse tax consequences to the Company or the Person to whom such
PAGE 32
<PAGE>
Right Certificate would be issued, (ii) no such Right Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof, and (iii) no such Right Certificate
shall be issued to an Acquiring Person or an Affiliate or Associate of an
Acquiring Person.
SECTION 24. REDEMPTION AND TERMINATION
(a) The Board of Directors of the Company may, at its option, at any time
prior to the earlier of (i) such time as a Person becomes an Acquiring Person
and (ii) the Expiration Date, order the redemption of all, but not fewer than
all, the then outstanding Rights at the Redemption Price (the date of such
redemption being the "Redemption Date"), and the Company, at its option, may pay
the Redemption Price either in cash or Common Shares or other securities of the
Company deemed by the Board of Directors of the Company, in the exercise of its
sole discretion, to be at least equivalent in value to the Redemption Price.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights, and without any further action and
without any notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price. Within 10 Business Days after the action of the Board of Directors of
the Company ordering the redemption of the Rights, the Company shall give notice
of such redemption to the holders of the then outstanding Rights by mailing such
notice to the Rights Agent and to all such holders at their last addresses as
they appear upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the Common
Shares. Each such notice of redemption shall state the method by which payment
of the Redemption Price will be made. The notice, if mailed in the manner
herein provided, shall be conclusively presumed to have been duly given, whether
or not the holder of Rights receives such notice. In any case, failure to give
such notice by mail, or any defect in the notice, to any particular holder of
Rights shall not affect the sufficiency of the notice to other holders of
Rights.
SECTION 25. NOTICES
Notices or demands authorized by this Rights Agreement to be given or made
by the Rights Agent or by the holder of a Right Certificate (or, prior to the
Distribution Date, of the Common Shares) 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:
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<PAGE>
Cost-U-Less, Inc.
12410 S.E. 32/nd/ Street
Bellevue, WA 98005
Attention: Corporate Secretary
Subject to the provisions of Section 22, any notice, demand or delivery
authorized by this Rights Agreement to be given or made by the Company or by the
holder of a Right Certificate (or, prior to the Distribution Date, of the Common
Shares) 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:
ChaseMellon Shareholder Services, L.L.C.
520 Pike Street, Suite 1220
Seattle, Washington 98101
Attention: Thomas L. Cooper
Notices, demands or deliveries authorized by this Rights Agreement to be
given or made by the Company or the Rights Agent to any holder of a Right
Certificate (or, prior to the Distribution Date, of the Common Shares) 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 Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Shares.
SECTION 26. SUPPLEMENTS AND AMENDMENTS
At any time prior to the time any person becomes an Acquiring Person, and
subject to the last sentence of this Section 26, the Company may, and the Rights
Agent shall if the Company so directs, supplement or amend any provision of this
Rights Agreement (including the date on which the Expiration Date or the
Distribution Date shall occur, the amount of the Purchase Price, the definition
of "Acquiring Person" or the time during which the Rights may be redeemed
pursuant to Section 24) without the approval of any holder of the Rights. From
and after the time any Person becomes an Acquiring Person, and subject to
applicable law, the Company may, and the Rights Agent shall if the Company so
directs, amend this Rights Agreement without the approval of any holders of
Right Certificates (a) to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provision of this Rights Agreement or (b) to make any other provisions in regard
to matters or questions arising hereunder which the Company may deem necessary
or desirable and which shall not adversely affect the interests of the holders
of Right Certificates (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person). Any supplement or amendment
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<PAGE>
adopted during any period after any Person has become an Acquiring Person but
prior to the Distribution Date shall be null and void unless such supplement or
amendment could have been adopted under the prior sentence from and after the
Distribution Date. 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 26, and such supplement or
amendment does not change or increase the Rights Agent's duties, liabilities or
obligations, the Rights Agent shall execute such supplement or amendment. In
addition, notwithstanding anything to the contrary contained in this Rights
Agreement, no supplement or amendment to this Rights Agreement shall be made
which reduces the Redemption Price (except as required by Section 12(a)).
SECTION 27. SUCCESSORS
All the covenants and provisions of this Rights Agreement by or for the
benefit of the Company or the Rights Agent shall bind and inure to the benefit
of their respective successors and assigns hereunder.
SECTION 28. BENEFITS OF RIGHTS AGREEMENT; DETERMINATIONS AND ACTIONS BY THE
BOARD OF DIRECTORS; ETC.
(a) Nothing in this Rights Agreement shall be construed to give to any
Person other than the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, of the Common
Shares) any legal or equitable right, remedy or claim under this Rights
Agreement; but this Rights Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, of the Common Shares).
(b) Except as explicitly otherwise provided in this Rights Agreement, the
Board of Directors of the Company shall have the exclusive power and authority
to administer this Rights Agreement and to exercise all rights and powers
specifically granted to the Board of Directors of the Company or to the Company,
or as may be necessary or advisable in the administration of this Rights
Agreement, including the right and power to (i) interpret the provisions of this
Rights Agreement and (ii) make all determinations deemed necessary or advisable
for the administration of this Rights Agreement (including a determination to
redeem or not redeem the Rights or to amend this Rights Agreement and a
determination of whether there is an Acquiring Person) and each shall be
conclusive for all purposes.
(c) Nothing contained in this Rights Agreement shall be deemed to be in
derogation of the obligation of the Board of Directors of the Company to
exercise its fiduciary duty. Without limiting the foregoing, nothing contained
herein shall be
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<PAGE>
construed to suggest or imply that the Board of Directors shall not be entitled
to reject any tender offer or other acquisition proposal, or to recommend that
holders of Common Shares reject any tender offer, or to take any other action
(including the commencement, prosecution, defense or settlement of any
litigation and the submission of additional or alternative offers or other
proposals) with respect to any tender offer or other acquisition proposal that
the Board of Directors believes is necessary or appropriate in the exercise of
such fiduciary duty.
SECTION 29. SEVERABILITY
If any term, provision, covenant or restriction of this Rights Agreement is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Rights Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
SECTION 30. GOVERNING LAW
This Rights Agreement and each Right Certificate issued hereunder shall be
deemed to be a contract made under the law of the State of Washington and for
all purposes shall be governed by and construed in accordance with the law of
such State applicable to contracts to be made and performed entirely within such
State, provided, however, that all provisions regarding the rights, duties and
obligations of the Rights Agent shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed entirely within such State.
SECTION 31. COUNTERPARTS; EFFECTIVENESS
This Rights Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and all such counterparts shall together constitute but one and the same
instrument. This Rights Agreement shall be effective as of the Close of
Business on the date hereof.
SECTION 32. DESCRIPTIVE HEADINGS
Descriptive headings of the several Sections of this Rights Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions of this Rights Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement to
be duly executed as of the day and year first above written.
Cost-U-Less, Inc.,
by /s/ Allan C. Youngberg
----------------------------------------------
Name: Allan C. Youngberg
Title: Chief Executive Officer and President
ChaseMellon Shareholder Services, L.L.C., as Rights
Agent
by /s/ Thomas L. Cooper
----------------------------------------------
Name: Thomas L. Cooper
Title: Assistant Vice President
PAGE 37
<PAGE>
EXHIBIT A
[FORM OF]
ARTICLES OF AMENDMENT
PURSUANT TO RCW SECTION 23B.06.020
Pursuant to RCW Section 23B.06.020, Cost-U-Less, Inc., a corporation
organized and existing under the laws of the State of Washington, hereby states
that the Designation of Rights and Preferences of Cumulative Preference Shares,
First Series attached hereto as Exhibit A was duly adopted by the Board of
Directors of the corporation on February 23, 1999.
These Articles of Amendment are executed by said corporation by its duly
authorized officer.
DATED: March 15, 1999.
Cost U-Less, Inc.
By /s/
------------------------------------------
Allan C. Youngberg, Vice President-Chief
Financial Officer, Secretary and Treasurer
PAGE 38
<PAGE>
DESIGNATION OF RIGHTS AND PREFERENCES
OF
CUMULATIVE PREFERENCE SHARES, FIRST SERIES
OF
COST-U-LESS, INC.
A series of preferred shares shall be designated Cumulative Preference
Shares, First Series ("First Series Preference Shares"). The number of shares
and the preferences, limitations and relative rights of the First Series
Preference Shares shall be as follows:
1. NUMBER OF SHARES.
----------------
The First Series Preference Shares shall initially consist of 100,000
shares; provided, however, that, if more than a total of 100,000 shares of the
-------- -------
First Series Preference Shares shall be issuable upon the exercise of Rights
(the "Rights") issued pursuant to the Rights Agreement dated as of March 15,
1999, between this corporation and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent (the "Rights Agreement"), the Board of Directors of this
corporation shall direct by resolution that the total number of shares of the
First Series Preference Shares authorized to be issued shall be increased (to
the extent that the Articles then permit) to the largest number of whole shares
(rounded up to the nearest whole number) issuable upon exercise of such Rights.
2. DIVIDENDS OR DISTRIBUTIONS.
--------------------------
(a) Subject to the prior and superior rights of the holders of shares
of any other series of preferred stock or other class of capital stock of the
corporation ranking prior and superior to the shares of the First Series
Preference Shares with respect to dividends, the holders of shares of the First
Series Preference Shares shall be entitled to receive, when, as and if declared
by the Board of Directors, out of the assets of this corporation legally
available therefor, (i) quarterly dividends payable in cash on the last day of
each fiscal quarter in each year, or such other dates as the Board of Directors
of this corporation shall approve (each such date being referred to in this
Designation as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or a
fraction of a share of the First Series Preference Shares, in an amount per
share (rounded to the nearest cent) equal to the greater of (i) $.01 and (ii)
the Formula Number (as hereinafter defined) then in effect times the cash
dividends then to be paid on each share of Common stock. In addition, if this
corporation shall pay any dividend or make any distribution on the Common Stock
payable in assets, securities or other forms of noncash consideration (other
than dividends or distributions solely in shares
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<PAGE>
of Common Stock), then, in each such case, this corporation shall simultaneously
pay or make on each outstanding whole share of the First Series Preference
Shares a dividend or distribution in like kind equal to the Formula Number then
in effect times such dividend or distribution on each share of the Common Stock.
As used herein, the "Formula Number" shall be 100; provided, however, that, if
-------- -------
at any time after the Close of Business on March 15, 1999, this corporation
shall (A) declare or pay any dividend on the Common Stock payable in shares of
Common Stock or make any distribution on the Common Stock in shares of Common
Stock, (B) subdivide (by a stock split or otherwise) the outstanding shares of
Common Stock into a larger number of shares of Common Stock, or (C) combine (by
a reverse stock split or otherwise) the outstanding shares of Common Stock into
a smaller number of shares of Common Stock, then in each such event the Formula
Number shall be adjusted to a number determined by multiplying the Formula
Number in effect immediately prior to such event by a fraction, the numerator of
which is the number of shares of Common Stock that are outstanding immediately
after such event and the denominator of which is the number of shares of Common
Stock that are outstanding immediately prior to such event (and rounding the
result to the nearest whole number); and provided, further, that, if at any time
-------- -------
after __________, this corporation shall issue any shares of its capital stock
in a merger, reclassification, or change of the outstanding shares of Common
Stock, then in each such event the Formula Number shall be appropriately
adjusted to reflect such merger, reclassification or change so that each share
of Preference Shares continues to be the economic equivalent of a Formula Number
of shares of Common Stock prior to such merger, reclassification or change.
(b) This corporation shall declare a dividend or distribution on the
First Series Preference Shares as provided in Section 2(a) immediately prior to
or at the same time it declares a dividend or distribution on the Common Stock
(other than a dividend or distribution solely in shares of Common Stock);
provided, however, that, in the event no dividend or distribution (other than a
- -------- -------
dividend or distribution in shares of Common Stock) shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment Date
and the next subsequent Quarterly Dividend Payment Date, a dividend of $0.01 per
share on the First Series Preference Shares shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date. The Board of Directors may fix
a record date for the determination of holders of shares of the First Series
Preference Shares entitled to receive a dividend or distribution declared
thereon, which record date shall be the same as the record date for any
corresponding dividend or distribution on the Common Stock.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of the First Series Preference Shares from and after the Quarterly
Dividend Payment Date next preceding the date of original issue of such shares
of the First
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Series Preference Shares; provided, however, that dividends on such shares which
-------- -------
are originally issued after the record date for the determination of holders of
shares of the First Series Preference Shares entitled to receive a quarterly
dividend and on or prior to the next succeeding Quarterly Dividend Payment Date
shall begin to accrue and be cumulative from and after such Quarterly Dividend
Payment Date. Notwithstanding the foregoing, dividends on shares of the First
Series Preference Shares which are originally issued prior to the record date
for the determination of holders of shares of the First Series Preference Shares
entitled to receive a quarterly dividend on the first Quarterly Dividend Payment
Date shall be calculated as if cumulative from and after the last day of the
fiscal quarter next preceding the date of original issuance of such shares.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of the First Series Preference Shares 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.
(d) So long as any shares of the First Series Preference Shares are
outstanding, no dividends or other distributions shall be declared, paid or
distributed, or set aside for payment or distribution, on the Common Stock
unless, in each case, the dividend required by this Section 2 to be declared on
the First Series Preference Shares shall have been declared.
(e) The holders of the shares of the First Series Preference Shares
shall not be entitled to receive any dividends or other distributions except as
provided herein.
3. VOTING RIGHTS.
-------------
The holders of shares of the First Series Preference Shares shall have
the following voting rights:
(a) Each holder of the First Series Preference Shares shall be
entitled to a number of votes equal to the Formula Number then in effect, for
each share of the First Series Preference Shares held of record on each matter
on which holders of the Common Stock or shareholders generally are entitled to
vote, multiplied by the maximum number of votes per share which any holder of
the Common Stock or shareholders generally then have with respect to such matter
(assuming any holding period or other requirement to vote a greater number of
shares is satisfied).
(b) Except as otherwise provided herein or by applicable law, the
holders of shares of the First Series Preference Shares and the holders of
shares of Common Stock shall vote together as one class for the election of
directors of this corporation and on all other matters submitted to a vote of
shareholders of this corporation.
PAGE 3
<PAGE>
(c) Except as provided herein or by applicable law, holders of the
First Series Preference Shares 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 authorizing or taking any
corporate action.
4. CERTAIN RESTRICTIONS.
--------------------
(a) Whenever quarterly dividends or other dividends or distributions
payable on the First Series Preference Shares 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 the First Series Preference
Shares outstanding shall have been paid in full, this 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 First Series Preference Shares;
(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 First Series Preference Shares,
except dividends paid ratably on the First Series Preference Shares and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) with the First Series Preference Shares; provided
that this corporation may at any time redeem, purchase or otherwise acquire
shares of any such junior stock in exchange for shares of any stock of this
corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the First Series Preference Shares; or
(iv) purchase or otherwise acquire for consideration any shares
of the First Series Preference Shares, or any shares of stock ranking on a
parity with the First Series Preference Shares, 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.
PAGE 4
<PAGE>
(b) This corporation shall not permit any subsidiary of this
corporation to purchase or otherwise acquire for consideration any shares of
stock of this corporation unless this corporation could, under this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
5. LIQUIDATION RIGHTS.
------------------
In the event of voluntary or involuntary liquidation, dissolution or
winding up of this corporation, no distribution shall be made (a) to the holders
of shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the First Series Preference Shares unless, prior
thereto, the holders of shares of the First Series Preference Shares shall have
received an amount equal to the greater of (i) $.01 per share and (ii) the
accrued and umpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, plus an aggregate amount per share equal to the
Formula Number then in effect times the aggregate amount to be distributed per
share to holders of Common Stock or (b) to the holders of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the First Series Preference Shares, except distributions made ratably on
the First Series Preference Shares and all other such parity stock in proportion
to the total amounts to which the holders of all such shares are entitled upon
such liquidation, dissolution or winding up.
6. CONSOLIDATION; MERGER; ETC.
--------------------------
In case this 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 or any other
property, then in any such case the then outstanding shares of the First Series
Preference Shares shall at the same time be similarly exchanged or changed into
an amount per share equal to the Formula Number then in effect times the
aggregate amount of stock, securities, cash or any other property (payable in
kind), as the case may be, into which or for which each share of Common Stock is
exchanged or changed. In the event both this Section 6 and Section 2 appear to
apply to a transaction, this Section 6 will control.
7. NO REDEMPTION; NO SINKING FUND.
------------------------------
(a) The shares of the First Series Preference Shares shall not be
subject to redemption by this corporation or at the option of any holder of the
First Series Preference Shares; provided, however, that this corporation may
-------- -------
purchase or otherwise acquire outstanding shares of the First Series Preference
Shares in the open market or by offer to any holder or holders of shares of the
First Series Preference Shares.
PAGE 5
<PAGE>
(b) The shares of the First Series Preference Shares shall not be
subject to or entitled to the operation of a retirement or sinking fund.
8. RANKING.
-------
The First Series Preference Shares shall rank junior to all series of
Preferred Shares of this corporation and to all other series of Preference
Shares of this corporation, unless the Board of Directors shall specifically
determine otherwise in fixing the preferences, limitations and relative rights
of the shares of any such series of Preferred Shares or Preference Shares.
9. FRACTIONAL SHARES.
-----------------
The First Series Preference Shares shall be issuable upon exercise of
the Rights issued pursuant to the Rights Agreement in whole shares or in any
fraction of a share that is one one-hundredth of a share or any integral
multiple of such fraction which shall entitle the holder, in proportion to such
holder's fractional shares, to receive dividends, exercise voting rights,
participate in distributions and to have the benefit of all other rights of
holders of the First Series Preference Shares. In lieu of fractional shares,
this corporation, prior to the first issuance of a share or a fraction of a
share of the First Series Preference Shares, may elect (i) to make a cash
payment as provided in the Rights Agreement for fractions of a share other than
one one-hundredths of a share or any integral multiple thereof or (ii) to issue
depository receipts evidencing such authorized fraction of a share of the First
Series Preference Shares pursuant to an appropriate agreement between this
corporation and a depository selected by this corporation; provided that such
--------
agreement shall provide that the holders of such depository receipts shall have
all the rights, privileges and preferences to which they are entitled as holders
of the First Series Preference Shares.
10. REACQUIRED SHARES.
-----------------
Any shares of the First Series Preference Shares purchased or
otherwise acquired by this corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preference Shares,
without designation as to series until such shares are once more designated as
part of a particular series by the Board of Directors pursuant to the provisions
of the Articles.
11. AMENDMENT.
---------
None of the powers, preferences and relative, participating, optional
and other special rights of the First Series Preference Shares as provided
herein shall be amended in any manner which would alter or change the
preferences or rights of the
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holders of the First Series Preference Shares so as to affect them adversely
without the affirmative vote of the holders of at least 66-2/3% of the
outstanding shares of the First Series Preference Shares, voting as a separate
class.
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EXHIBIT B
[Form of Right Certificate]
Certificate No. [R]
_________ Rights
NOT EXERCISABLE AFTER THE CLOSE OF BUSINESS ON ________________, 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. RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) AND BY ANY SUBSEQUENT HOLDER OF SUCH RIGHTS ARE NULL AND VOID AND
NONTRANSFERABLE.
Right Certificate
COST-U-LESS, 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 15, 1999 as it may be
amended from time to time (the "Rights Agreement"), between Cost-U-Less, Inc., a
Washington corporation (the "Company"), and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent (the "Rights Agent"), unless the Rights evidenced hereby
shall have been previously redeemed or exchanged by the Company, to purchase
from the Company at any time after the Distribution Date (as defined in the
Rights Agreement) and prior to 5:00 p.m., Eastern time, on March 15, 2009 (the
"Expiration Date"), at the principal office or offices of the Rights Agent
designated for such purpose, or its successors as Rights Agent, one one-
hundredth (1/100th) of a fully paid, nonassessable share of Cumulative
Preference Shares, First Series, par value $0.001 per share, of the Company (the
"Preference Shares"), at a purchase price per one one-hundredth (1/100th) of a
share equal to $40.00 (the "Purchase Price") payable in cash, upon presentation
and surrender of this Right Certificate with the Form of Election to Purchase
duly executed.
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The Purchase Price and the number and kind of shares which may be purchased
upon exercise of each Right evidenced by this Right Certificate, as set forth
above, are the Purchase Price and the number and kind of shares which may be so
purchased as of the Close of Business on March 15, 1999. As provided in the
Rights Agreement, the Purchase Price and the number and kind of shares which may
be purchased upon the exercise of each Right evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain events.
If the Rights evidenced by this Right Certificate are at any time
beneficially owned by an Acquiring Person or an Affiliate or Associate of an
Acquiring Person (as such terms are defined in the Rights Agreement), such
Rights shall be null and void and nontransferable and the holder of any such
Right (including any purported transferee or subsequent holder) shall not have
any right to exercise or transfer any such Right.
This Right Certificate is subject to all 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
reference to the Rights Agreement is hereby made for a full description of the
rights, limitations of rights, obligations, duties and immunities hereunder of
the Rights Agent, the Company and the holders of the Right Certificates. Copies
of the Rights Agreement are on file at the above-mentioned office of the Rights
Agent and are also available from the Company upon written request.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal stock transfer or corporate trust office of the
Rights Agent, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number and kind of shares as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Right Certificate may be redeemed by the Company at its option at a
redemption price (in cash or shares of Common Stock or other securities of the
Company deemed by the Board of Directors to be at least equivalent in value) of
$.01 per Right (which amount shall be subject to adjustment as provided in the
Rights Agreement) at any time prior to the earlier of (i) such time as a Person
becomes an Acquiring Person and (ii) the Expiration Date.
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The Company may, but shall not be required to, issue fractions of
Preference Shares or distribute certificates which evidence fractions of
Preference Shares upon the exercise of any Right or Rights evidenced hereby. In
lieu of issuing fractional shares, the Company may elect to make a cash payment
as provided in the Rights Agreement for fractions of a share other than one one-
hundredth (1/100th) of a share or any integral multiple thereof or to issue
certificates or utilize a depository arrangement as provided in the terms of the
Rights Agreement and the Preference Shares.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preference Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
shareholder of the Company, including, without limitation, any right to vote for
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or other
distributions or subscription rights, or otherwise, until the Right or Rights
evidenced by this Right Certificate shall have been exercised as provided in
accordance with the provisions of the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by an authorized signatory of the Rights
Agent.
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<PAGE>
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.
Dated as of ____________
Cost-U-Less, Inc.,
by _______________________________________
Name:
Title:
Attest:
_________________________
Name:
Title:
Date of countersignature:
Countersigned:
ChaseMellon Shareholders Services, L.L.C.
as Rights Agent,
by_______________________
Authorized Signatory
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<PAGE>
[On Reverse Side of Right Certificate]
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed by the registered holder if such holder desires to
exercise the Rights represented by this Right Certificate.)
To the Rights Agent:
The undersigned hereby irrevocably elects to exercise ________________
Rights represented by this Right Certificate to purchase the Preference Shares
(or other shares) issuable upon the exercise of such 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
Right Certificate, a new Right Certificate for the balance remaining of such
Rights shall be registered in the name of and delivered to:
Please insert social security or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated:__________
________________________________________
Signature
Signature Guaranteed:
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FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the Right Certificate.)
FOR VALUE RECEIVED ________________________________________________________
hereby sells, assigns and transfer unto ________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ________ Attorney, to transfer
the within Right Certificate on the books of the within-named Corporation, with
full power of substitution.
Dated:___________
_____________________________________
Signature
Signature Guaranteed:
The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not being sold, assigned or transferred by or on behalf of
a Person who is or was an Acquiring Person or an Affiliate or Associate thereof
(as such terms are defined in the Rights Agreement), (2) this Rights Certificate
is not being sold, assigned or transferred to or on behalf of any such Acquiring
Person, Affiliate or Associate, and (3) after inquiry and to the best knowledge
of the undersigned, the undersigned did not acquire the Rights evidenced by this
Right Certificate from any Person who is or was an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement).
_____________________________________
Signature
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<PAGE>
NOTICE
The signature on the foregoing Form of Election to Purchase or Form of
Assignment must correspond to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
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EXHIBIT C
RIGHTS BENEFICIALLY OWNED BY ANY ACQUIRING PERSONS
OR THEIR AFFILIATES OR ASSOCIATES AND BY ANY
SUBSEQUENT HOLDER OF SUCH RIGHTS ARE
NULL AND VOID AND NONTRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE
CUMULATIVE PREFERENCE SHARES, FIRST SERIES,
OF COST-U-LESS, INC.
On February 23, 1999 the Board of Directors of Cost-U-Less, Inc. (the
"Company") declared a dividend of one Right for each outstanding share of Common
Stock, par value $0.001 per share, of the Company (together with certain other
equity securities described in the Rights Agreement (as defined below), the
"Common Shares"). The Rights will be issued to the holders of record of Common
Shares outstanding at the Close of Business on March 15, 1999 (the "Record
Date") and with respect to Common Shares issued thereafter until the
Distribution Date (as defined below). Each Right, when it becomes exercisable
as described below, will entitle the registered holder to purchase from the
Company one one-hundredth (1/100th) of a share of Cumulative Preference Shares,
First Series, par value $0.001 per share, of the Company (the "Preference
Shares") at a price of $40.00 (the "Purchase Price"). The description and terms
of the Rights are set forth in a Rights Agreement dated as of March 15, 1999 as
it may be amended from time to time (the "Rights Agreement"), between the
Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the
"Rights Agent").
Until the earlier of (i) such time as the Company learns that a person or
group (including any affiliate or associate of such person or group) has
acquired, or obtained the right to acquire, beneficial ownership of more than
15% of the outstanding Common Shares (such person or group being called an
"Acquiring Person") and (ii) such date, if any, as may be designated by the
Board of Directors of the Company following the commencement of, or first public
disclosure of an intention to commence, a tender or exchange offer for
outstanding Common Shares which could result in such person or group becoming
the beneficial owner of more than 15% of the outstanding Common Shares (the
earlier of such dates being called the "Distribution Date"), the Rights will be
evidenced by certificates for Common Shares registered in the names of the
holders thereof (which certificates for Common Shares shall also be deemed to be
Right Certificates (as defined below)) and not by separate Right Certificates.
With respect to any certificate for Common Shares outstanding as of the
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Record Date, until the Distribution Date the Rights associated with the Common
Shares represented by such certificates shall be evidenced by such certificates
along with a copy of this Summary of Rights, and the surrender for transfer of
any such certificate shall also constitute the transfer of the Rights associated
with the Common Shares represented thereby. Therefore, until the Distribution
Date, the Rights will be transferred with and only with the Common Shares.
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date, and such separate Right Certificates alone will thereafter
evidence the Rights.
The Rights are not exercisable until the Distribution Date and will expire
----------------------------------------------------------
at the Close of Business on March 15, 2009 (the "Expiration Date"), unless
earlier redeemed or exchanged by the Company as described below.
The number of Preference Shares or other securities issuable upon exercise
of the Rights is subject to adjustment by the Board of Directors of the Company
in the event of any change in the Common Shares or Preference Shares, whether by
reason of stock dividends, stock splits, recapitalizations, reclassifications,
mergers, consolidations, combinations or exchanges of securities, split-ups,
split-offs, spin-offs, liquidations, other similar changes in capitalization,
any distribution or issuance of assets, evidences of indebtedness or
subscription rights, options or warrants to holders of Common Shares or
Preference Shares or otherwise. The Purchase Price and the number of Preference
Shares or other securities issuable upon exercise of the Rights are subject to
adjustment from time to time in the event of the declaration of a stock dividend
on the Common Shares payable in Common Shares or a subdivision or combination of
the Common Shares prior to the Distribution Date.
The Preference Shares are authorized to be issued in fractions which are an
integral multiple of one one-hundredth (1/100th) of a Preference Share. The
Company may, but is not required to, issue fractions of shares upon the exercise
of Rights, and in lieu of fractional shares, the Company may make a cash payment
based on the market price of such shares on the first trading date prior to the
date of exercise or utilize a depositary arrangement as provided by the terms of
the Preference Shares.
Subject to the right of the Board of Directors of the Company to redeem or
exchange the Rights as described below, at such time as there is an Acquiring
Person, the holder of each Right will thereafter have the right to receive, upon
exercise thereof, for the Purchase Price, that number of one one-hundredths of a
Preference Share equal to the number of Common Shares which at the time of such
transaction would have a market value of twice the Purchase Price. Any Rights
that are or were
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beneficially owned by an Acquiring Person on or after the Distribution Date will
become null and void and will not be subject to this "flip-in" provision.
In the event the Company is acquired in a merger or other business
combination by an Acquiring Person that is a publicly traded corporation or 50%
or more of the Company's assets or assets representing 50% or more of the
Company's earning power are sold, leased, exchanged or otherwise transferred (in
one or more transactions) to an Acquiring Person that is a publicly traded
corporation, proper provision must be made so that each Right will entitle its
holder to purchase, for the Purchase Price, that number of common shares of such
corporation which at the time of the transaction would have a market value of
twice the Purchase Price. In the event the Company is acquired in a merger or
other business combination by an Acquiring Person that is not a publicly traded
entity or 50% or more of the Company's assets or assets representing 50% or more
of the earning power of the Company are sold, leased, exchanged or otherwise
transferred (in one or more transactions) to an Acquiring Person that is not a
publicly traded entity, proper provision must be made so that each Right will
entitle its holder to purchase, for the Purchase Price, at such holder's option,
(i) that number of shares of the surviving corporation in the transaction with
such entity (or, at such holder's option, of the surviving corporation in such
acquisition, which could be the Company) which at the time of the transaction
would have a book value of twice the Purchase Price or (ii) that number of
shares of such entity which at the time of the transaction would have a book
value of twice the Purchase Price or (iii) if such entity has an affiliate which
has publicly traded common shares, that number of common shares of such
affiliate which at the time of the transaction would have a market value of
twice the Purchase Price. This "flip-over" provision only applies to a merger
or similar business combination with an Acquiring Person.
ANY RIGHTS THAT ARE OR WERE, AT ANY TIME ON OR AFTER THE DATE AN ACQUIRING
PERSON BECOMES SUCH, BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR ANY AFFILIATE
OR ASSOCIATE OF AN ACQUIRING PERSON (OR A TRANSFEREE THEREOF) WILL BECOME NULL
AND VOID AND ANY HOLDER OF ANY SUCH RIGHT (INCLUDING ANY SUBSEQUENT HOLDER) WILL
BE UNABLE TO EXERCISE ANY SUCH RIGHT.
The Rights are redeemable by the Board of Directors at a redemption price
of $.01 per Right (the "Redemption Price") any time prior to the earlier of (i)
such time as there is an Acquiring Person and (ii) the Expiration Date.
Immediately upon the action of the Board electing to redeem the Rights, and
without any further action and without any notice, the right to exercise the
Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
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After there is an Acquiring Person the Board of Directors may elect to
exchange each Right (other than Rights owned by an Acquiring Person) for
consideration per Right consisting of one-half of the securities that would be
issuable at such time upon the exercise of one Right pursuant to the terms of
the Rights Agreement. Notwithstanding the foregoing, the Board of Directors of
the Company shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, Michael J. Rose,
any employee benefit plan of the Company or any such Subsidiary, or any entity
holding Common Shares for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such person, becomes the Beneficial Owner
of 50% or more of the Common Shares then outstanding.
At any time prior to such time as there shall be an Acquiring Person, the
Company may, without the approval of any holder of the Rights, supplement or
amend any provision of the Rights Agreement (including the date on which the
Expiration Date or the Distribution Date shall occur, the amount of the Purchase
Price or the definition of "Acquiring Person"), except that no supplement or
amendment shall be made that reduces the Redemption Price of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends.
A copy of the Rights Agreement, including the terms of the Preference
Shares, will be filed with the Securities and Exchange Commission as an Exhibit
to a Registration Statement on Form 8-A. A copy of the Rights Agreement is
available free of charge from the Company upon written request. 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.
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