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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: APRIL 13, 1998
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VIDEO UPDATE, INC.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
0-24346 41-1461110
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(Commission File Number) (I.R.S. Employer Identification No.)
3100 WORLD TRADE CENTER, 30 EAST SEVENTH STREET, ST. PAUL, MINNESOTA 55101
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(Address of Principal Executive Offices) (Zip Code)
(612) 222-0006
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(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
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(Former Name or Former Address, if Changed Since Last Report)
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TABLE OF CONTENTS
FORM 8-K
April 13, 1998
ITEM PAGE
ITEM 5. OTHER EVENTS 1
SIGNATURE 7
EXHIBITS E-1
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ITEM 5. OTHER EVENTS
THE RIGHTS AGREEMENT
At the April 9, 1998 Board Meeting, the Board approved the declaration
of a dividend of one preferred share purchase right (a "Right") for each
outstanding share of the Company's Class A Common Stock, $.01 par value (a
"Share") and each outstanding Class B Warrant (a "Warrant"). The dividend is
payable on April 24, 1998 (the "Record Date") to the stockholders and
Warrantholders of record on that date. Each Right entitles the registered holder
thereof to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of the Company at a price of $20.00 per one one-hundredth of a
Preferred Share (the "Purchase Price"), subject to adjustment. The Rights will
be issued pursuant to a Rights Agreement, dated as of April 13, 1998 (the
"Rights Agreement"), between the Company and American Stock Transfer and Trust
Company, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons have
acquired beneficial ownership of 15% or more of the outstanding Shares (an
"Acquiring Person") or (ii) 10 business days (or such later date as may be
determined by action of the Board prior to such time as any person or group of
affiliated persons become an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of the outstanding Shares (the earlier of such dates being
called the "Distribution Date"), the Rights will be evidenced, with respect to
any of the Share or the Warrant certificates outstanding as of the Record Date,
by such Share certificate or such Warrant certificate, as the case may be, with
a copy of a "Summary of Rights" attached thereto.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights are not detachable
and will be transferred WITH and ONLY WITH the Shares or the Warrants, as the
case may be. Until the Distribution Date (or earlier redemption or expiration of
the Rights), new Share certificates or new Warrant certificates issued after the
Record Date upon transfer or new issuance of Shares or Warrants will contain a
notation incorporating the Rights Agreement by reference. Until the Distribution
Date (or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates for Shares or for Warrants outstanding as of the
Record Date, even without such notation or a copy of a Summary of Rights being
attached thereto, will also constitute the transfer of the Rights associated
with the Shares or Warrants represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Shares and Warrants as of the close of business on the Distribution Date and
such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The rights
will expire on April 24, 2008 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below,
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provided that prior to the Distribution Date, all Rights associated with any
Warrant shall expire on the date such Warrant is exercised or expires.
The Purchase Price payable, and the number of preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then-current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Shares or a stock dividend on
the Shares payable in Shares or subdivisions, consolidations or combinations of
the Shares occurring, in any such case, prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share, but will be entitled to an
aggregate dividend of 100 times the dividend declared per Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100.00 per share, but will be entitled to
an aggregate payment of 100 times the payment made per Share. Each Preferred
Share will have 100 votes, voting together with the Shares. Finally, in the
event of any merger, consolidation or other transaction in which Shares are
exchanged, each Preferred Share will be entitled to receive 100 times the amount
received per Share. These rights are protected by customary antidilution
provisions.
Because of the nature of the Preferred Shares' dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one Share.
In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, the Rights Agreement provides that proper
provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise -- in lieu of Preferred
Shares -- that number of Shares having a market value of two times the exercise
price of the Right. At any time after any person or group becomes an Acquiring
Person and prior to the acquisition by such person or group of 50% or more of
the outstanding Shares, the Board may exchange the Rights (other than Rights
owned by such person or group, which will have become void), in whole or in
part, at an exchange ratio of one Share, or one one-hundredth of a Preferred
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Share (or of a share of a class or series of the Company's preferred stock
having equivalent rights, preferences and privileges), per Right (subject to
adjustment).
The Rights Agreement provides that none of the Company's directors,
officers or financial advisors shall be deemed to beneficially own any Shares
owned by any other director, officer or financial advisor by virtue of such
persons acting in their capacities as such, including in connection with the
formulation and publication of the Board recommendation of its position, and
actions taken in furtherance thereof, with respect to an acquisition proposal
relating to the Company or a tender or exchange offer for the Shares.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the Right.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at the election of the Company, be evidenced by depository
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to the acquisition by a person or group of affiliated
or associated persons of beneficial ownership of 15% or more of the outstanding
Shares, the Board may redeem the Rights in whole, but not in part, at a price of
$.001 per Right (the "Redemption Price"). The redemption of the Rights may be
made effective at such time on such basis with such conditions as the Board in
its sole discretion may establish. Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board without the consent
of the holders of the Rights, including an amendment to (a) lower certain
thresholds described above to not less than the greater of (i) the sum of $.001%
and the largest percentage of the outstanding Shares then known to the Company
to be beneficially owned by any person or group of affiliated or associated
persons and (ii) 10%, (b) fix a Final Expiration Date later than April 24, 2008
or (c) increase the Purchase Price, except that from and after such time as any
person or group of affiliated or associated persons becomes an Acquiring Person
no such amendment may adversely affect the interests of the holders of the
Rights (other than the Acquiring Person and its affiliates and associates).
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
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A copy of the Rights Agreement is filed as Exhibit 4 hereto, and is
incorporated herein by reference. The foregoing description of the Rights is
qualified in its entirety by reference to the text of the Rights Agreement.
BY-LAWS
The Board of Directors of Video Update, Inc. amended the By-laws
of the Company in the form attached hereto as Exhibit 3.
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Exhibit
NO. TITLE
3 By-laws of Video Update, Inc., as
amended April 9, 1998.
4 Rights Agreement by and between
Video Update, Inc. and American
Stock Transfer & Trust Company, as
Rights Agent, dated April 13, 1998.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Video Update, Inc.
Dated: April 13, 1998 By:/S/ DANIEL A. POTTER
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Daniel A. Potter
Chairman and Chief Executive Officer
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EXHIBIT INDEX
Exhibit
NO. TITLE
3 Amended By-laws of Video Update, Inc.
4 Rights Agreement by and between Video Update,
Inc. and American Stock Transfer & Trust
Company, as Rights Agent, dated April 13,
1998.
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EXHIBIT NO. 3
BYLAWS
OF
VIDEO UPDATE, INC.
ARTICLE I. OFFICES.
SECTION 1. REGISTERED OFFICE. The registered office of
the Corporation shall be at The Corporation Trust Company, 1209 Orange
Street, in the City of Wilmington, County of New Castle, State of Delaware
19801.
SECTION 2. ADDITIONAL OFFICES. The Corporation may also have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II. MEETINGS OF STOCKHOLDERS.
SECTION 1. TIME AND PLACE. A meeting of stockholders for any purpose
may be held at such time and place within or without the State of Delaware as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
SECTION 2. ANNUAL MEETING. Annual meetings of stockholders, commencing
with the year 1996, shall be held on the first Monday in September if not a
legal holiday, or, if a legal holiday, then on the next secular day following,
at 10:00 a.m., or at such other date and time as shall, from time to time, be
designated by the Board of Directors and stated in the notice of the meeting. At
such annual meetings, the stockholders shall elect a Board of Directors and
transact such other business as may properly be brought before the meetings.
SECTION 3. NOTICE OF ANNUAL MEETING. Written notice of the annual
meeting, stating the place, date, and time thereof, shall be given to each
stockholder entitled to vote at such meeting not less than ten (unless a longer
period is required by law) nor more than sixty days prior to the meeting.
SECTION 4. SPECIAL MEETINGS. Special meetings of the stockholders may
be called at any time only by the Chairman of the Board and Chief Executive
Officer, if any, or the President. Such request shall state the purpose of the
proposed meeting. Upon the call of a special meeting by the Chairman and Chief
Executive Officer, if any, or the President, which call shall set forth the
purpose for which the meeting is desired, it shall be the duty of the Secretary
to give prompt
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written notice of such meeting to be held at such time and place as stipulated
by the Chairman and Chief Executive Officer, if any, or the President in the
call of the meeting.
SECTION 5. NOTICE OF SPECIAL MEETING. Written notice of a special
meeting, stating the place, date, and time thereof and the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting not less than ten (unless a longer period is required by
law) nor more than sixty days prior to the meeting.
SECTION 6. LIST OF STOCKHOLDERS. The transfer agent or the officer in
charge of the stock ledger of the Corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, at a
place within the city where the meeting is to be held, which place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present in
person thereat.
SECTION 7. PRESIDING OFFICER AND ORDER OF BUSINESS.
(a) Meetings of stockholders shall be presided over by the Chairman of
the Board. If he is not present or there is none, they shall be presided over by
the President, or, if he is not present or there is none, by a Vice President,
or, if he is not present or there is none, by a person chosen by the Board of
Directors, or, if no such person is present or has been chosen, by a chairman to
be chosen by the stockholders owning a majority of the shares of capital stock
of the Corporation issued and outstanding and entitled to vote at the meeting
and who are present in person or represented by proxy. The Secretary of the
Corporation, or, if he is not present, an Assistant Secretary, or, if he is not
present, a person chosen by the Board of Directors, shall act as Secretary at
meetings of stockholders; if no such person is present or has been chosen, the
stockholders owning a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote at the meeting who are present in
person or represented by proxy shall choose any person present to act as
secretary of the meeting.
(b) The following order of business, unless otherwise determined at the
meeting, shall be observed as far as practicable and consistent with the
purposes of the meeting:
(1) Call of the meeting to order.
(2) Presentation of proof of mailing of the notice of the
meeting and, if the meeting is a special meeting, the
call thereof.
(3) Presentation of proxies.
(4) Announcement that a quorum is present.
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(5) Reading and approval of the minutes of the previous
meeting.
(6) Reports, if any, of officers.
(7) Election of directors, if the meeting is an annual
meeting or a meeting called for that purpose.
(8) Consideration of the specific purpose or purposes,
other than the election of directors, for which the
meeting has been called, if the meeting is a special
meeting.
(9) Transaction of such other business as may properly
come before the meeting.
(10) Adjournment.
SECTION 8. QUORUM AND ADJOURNMENTS. The presence in person or
representation by proxy of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
shall be necessary to, and shall constitute a quorum for, the transaction of
business at all meetings of the stockholders, except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, a quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat who are present in person or represented by proxy shall
have the power to adjourn the meeting from time to time until a quorum shall be
present or represented. If the time and place of the adjourned meeting are
announced at the meeting at which the adjournment is taken, no further notice of
the adjourned meeting need be given. Even if a quorum shall be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat who are present in person or represented by proxy shall have the
power to adjourn the meeting from time to time for good cause to a date that is
not more than thirty days after the date of the original meeting. Further notice
of the adjourned meeting need not be given if the time and place thereof are
announced at the meeting at which the adjournment is taken. At any adjourned
meeting at which a quorum is present in person or represented by proxy, any
business may be transacted that might have been transacted at the meeting as
originally called. If the adjournment is for more than thirty days, or if, after
the adjournment, a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote thereat.
SECTION 9. VOTING.
(a) At any meeting of the stockholders, every stockholder having the
right to vote shall be entitled to vote in person or by proxy. Except as
otherwise provided by law or the Certificate of Incorporation, each stockholder
of record shall be entitled to one vote for each share of capital stock
registered in his name on the books of the Corporation.
(b) All elections shall be determined by a plurality vote, and, except
as otherwise provided by law or the Certificate of Incorporation, all other
matters shall be determined by a vote of a majority of the shares present in
person or represented by proxy and voting on such other matters.
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SECTION 10. STOCKHOLDER ACTION. Regarding any action that is lawfully
required or permitted to be taken by written consent, in order that the
Corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any stockholder of record
seeking to have the stockholders authorize or take corporate action by written
consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within 10 days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed by
the Board of Directors within 10 days of the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or any officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by applicable law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
Board of Directors adopts the resolution taking such prior action.
SECTION 11. BUSINESS AT MEETINGS OF STOCKHOLDERS. Except as otherwise
provided by law (including but not limited to Rule 14a-8 of the Securities
Exchange Act of 1934, as amended, or any successor provision thereto) or these
Bylaws, the business which shall be conducted at any meeting of the stockholders
shall (a) have been specified in the written notice of the meeting (or any
supplement thereto) given by the Corporation, or (b) be brought before the
meeting at the direction of the Board of Directors, or (c) be brought before the
meeting by the presiding officer of the meeting unless a majority of the
Directors then in office object to such business being conducted at the meeting,
or (d) have been specified in a written notice given to the Secretary of the
Corporation, by or on behalf of any stockholder who shall have been a
stockholder of record on the record date for such meeting and who shall continue
to be entitled to vote thereat (the "Stockholder Notice"), in accordance with
all of the following requirements:
(1) Each Stockholder Notice must be delivered to, or mailed and
received at, the principal executive offices of the Corporation within sixty
(60) days from the date of the immediately preceding annual or special meeting
of stockholders; and
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(2) Each such Stockholder Notice must set forth: (i) the name and
address of the stockholder, as such appears on the Corporation's books,
intending to bring the business before the meeting; (ii) the general nature of
the business which such stockholder seeks to bring before the meeting and the
reasons for conducting such business at the annual or special meeting, and, if a
specific action is to be proposed, the text of the resolution or resolutions
which the proposing stockholder proposes that the stockholders adopt; (iii) a
representation that the stockholder is a holder of record of the stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to bring the business specified in the notice before the
meeting; (iv) the class and number of shares of the Corporation that are
beneficially owned by the shareholder; and (v) any material interest of the
stockholder in the business to be brought before the meeting. Notwithstanding
anything in the Bylaws to the contrary, no business shall be conducted at an
annual or special meeting except in accordance with the procedures set forth in
this Section 11. The chairman of an annual meeting or special meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting an/or was not in accordance with the
provisions of this Section. If he should so determine, he shall so declare to
the meeting and any such business not properly brought before the meeting shall
not be transacted.
ARTICLE III. DIRECTORS.
SECTION 1. GENERAL POWERS, NUMBER, AND TENURE. The business of the
Corporation shall be managed by its Board of Directors, which may exercise all
powers of the Corporation and perform all lawful acts that are not by law, the
Certificate of Incorporation, or these Bylaws directed or required to be
exercised or performed by the stockholders. The number of directors shall be
determined by the Board of Directors; if no such determination is made, the
number of directors shall be one. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office until the next annual meeting and
until his successor is elected and shall qualify. Directors need not be
stockholders.
SECTION 2. VACANCIES. If any vacancies occur in the Board of Directors,
or there is an increase in the authorized number of directors, they may be
filled by a majority of the directors then in office, or by a sole remaining
director. Each director so chosen shall hold office until such director's
successor is elected and qualified, or until such director's earlier death,
resignation or removal. If there are no directors in office, any officer may
call a special meeting of stockholders in accordance with the provisions of the
Certificate of Incorporation or these Bylaws, at which meeting such vacancies
shall be filled.
SECTION 3. REMOVAL OR RESIGNATION.
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(a) except as otherwise provided by law or the Certificate of
Incorporation, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
(b) Any director may resign at any time by giving written notice to the
Board of Directors, the Chairman of the Board, if any, or the President or
Secretary of the Corporation. Unless otherwise specified in such written notice,
a resignation shall take effect on delivery thereof to the Board of Directors or
the designated officer. It shall not be necessary for a resignation to be
accepted before it becomes effective.
(c) NOMINATIONS. Notwithstanding the provisions of Section 11 of
Article II of these Bylaws (dealing with business at meetings of stockholders),
nominations for the election of directors may be made by the Board of Directors
or a committee appointed by the Board of Directors or by any stockholder
entitled to vote in the election of directors generally. However, any
stockholder entitled to vote in the election of directors generally may nominate
one or more persons for election as a director at a meeting only if written
notice of such stockholder's intent to make such nomination or nominations has
been given, either by personal delivery or by Untied States mail, postage
prepaid, to the Secretary of the Corporation within ninety (90) days from the
date of the immediately preceding annual or special meeting. Each such notice
shall set forth: (a) the name and address of the stockholders who intend to make
the nomination and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (d) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as a director of the Company if so
elected. The chairman of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with the foregoing procedure.
SECTION 4. PLACE OF MEETINGS. The Board of Directors may
hold meetings, both regular and special, either within or without the State
of Delaware.
SECTION 5. ANNUAL MEETING. The annual meeting of each newly elected
Board of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting shall be necessary to the newly
elected directors in order to constitute the meeting legally, provided a quorum
shall be present.
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SECTION 6. REGULAR MEETINGS. Additional regular meetings of
the Board of Directors may be held without notice of such time and place as may
be determined from time to time by the Board of Directors.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, or by two or more
directors on at least two days' notice to each director, if such notice is
delivered personally or sent by telegram, or on at least three days' notice if
sent by mail. Special meetings shall be called by the Chairman of the Board,
President, Secretary, or two or more directors in like manner and on like notice
on the written request of one-half or more of the number of directors then in
office. Any such notice need not state the purpose or purposes of such meeting,
except as provided in Article XI.
SECTION 8. QUORUM AND ADJOURNMENTS. At all meetings of the Board of
Directors, a majority of the directors then in office shall constitute a quorum
for the transaction of business, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by law or the
Certificate of Incorporation. If a quorum is not present at any meeting of the
Board of Directors, the directors present may adjourn the meeting from time to
time, without notice other than announcement at the meeting at which the
adjournment is taken, until a quorum shall be present.
SECTION 9. COMPENSATION. Directors shall be entitled to such
compensation for their services as directors and to such reimbursement for any
reasonable expenses incurred in attending directors' meetings as may from time
to time be fixed by the Board of Directors. The compensation of directors may be
on such basis as is determined by the Board of Directors. Any director may waive
compensation for any meeting. Any director receiving compensation under these
provisions shall not be barred from serving the Corporation in any other
capacity and receiving compensation and reimbursement for reasonable expenses
for such other services.
SECTION 10. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting,
and without prior notice, if a written consent to such action is signed by all
members of the Board of Directors and such written consent is filed with the
minutes of its proceedings.
SECTION 11. MEETINGS BY TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT.
The Board of Directors may participate in a meeting by conference telephone or
similar communications equipment by means of which all directors participating
in the meeting can hear each other, and participation in such a meeting shall
constitute presence in person by any such director at such meeting.
ARTICLE IV. COMMITTEES.
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SECTION 1. EXECUTIVE COMMITTEE. The Board of Directors, by resolution
adopted by a majority of the whole Board, may appoint an Executive Committee
consisting of one or more directors, one of whom shall be designated as Chairman
of the Executive Committee. Each member of the Executive Committee shall
continue as a member thereof until the expiration of his term as a director or
his earlier resignation, unless sooner removed as a member or as a director.
SECTION 2. POWERS. The Executive Committee shall have and may exercise
those rights, powers, and authority of the Board of Directors as may from time
to time be granted to it by the Board of Directors to the extent permitted by
law, and may authorize the seal of the Corporation to be affixed to all papers
that may require it.
SECTION 3. PROCEDURE AND MEETINGS. The Executive Committee shall fix
its own rules of procedure and shall meet at such times and at such place or
places as may be provided by such rules or as the members of the Executive
Committee shall fix. The Executive Committee shall keep regular minutes of its
meetings, which it shall deliver to the Board of Directors from time to time.
The Chairman of the Executive Committee or, in his absence, a member of the
Executive Committee chosen by a majority of the members present, shall preside
at meetings of the Executive Committee; and another member chosen by the
Executive Committee shall act as Secretary of the Executive Committee.
SECTION 4. QUORUM. A majority of the Executive Committee shall
constitute a quorum for the transaction of business, and the affirmative vote of
a majority of the members present at any meeting at which there is a quorum
shall be required for any action of the Executive Committee; provided, however,
that when an Executive Committee of one member is authorized under the
provisions of Section 1 of this Article, that one member shall constitute a
quorum.
SECTION 5. OTHER COMMITTEES. The Board of Directors, by resolutions
adopted by a majority of the whole Board, may appoint such other committee or
committees as it shall deem advisable and with such rights, power, and authority
as it shall prescribe. Each such committee shall consist of one or more
directors.
SECTION 6. COMMITTEE CHANGES. The Board of Directors shall have
the power at any time to fill vacancies in, to change the membership of, and to
discharge any committee.
SECTION 7. COMPENSATION. Members of any committee shall be entitled to
such compensation for their services as members of the committee and to such
reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be fixed by the Board of Directors. Any member
may waive compensation for any meeting. Any committee member receiving
compensation under these provisions shall not be barred from
<PAGE> 9
serving the Corporation in any other capacity and from receiving compensation
and reimbursement of reasonable expenses for such other services.
SECTION 8. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of any committee of the Board of Directors may be taken
without a meeting if a written consent to such action is signed by all members
of the committee and such written consent is filed with the minutes of its
proceedings.
SECTION 9. MEETINGS BY TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT.
The members of any committee designated by the Board of Directors may
participate in a meeting of such committee by conference telephone or similar
communications equipment by means of which all persons participating in such
meeting can hear each other, and participation in such a meeting shall
constitute presence in person by any such committee member at such meeting.
ARTICLE V. NOTICES.
SECTION 1. FORM AND DELIVERY. Whenever a provision of any law, the
Certificate of Incorporation, or these Bylaws requires that notice be given to
any director or stockholder, it shall not be construed to require personal
notice unless so specifically provided, but such notice may be given in writing,
by mail addressed to the address of the director or stockholder as it appears on
the records of the Corporation, with postage prepaid. These notices shall be
deemed to be given when they are deposited in the United States mail. Notice to
a director may also be given personally or by telephone or by telegram sent to
his address as it appears on the records of the Corporation.
SECTION 2. WAIVER. Whenever any notice is required to be given under
the provisions of any law, the Certificate of Incorporation, or these Bylaws, a
written waiver thereof signed by the person entitled to said notice, whether
before or after the time stated therein, shall be deemed to be equivalent to
such notice. In addition, any stockholder who attends a meeting of stockholders
in person or is represented at such meeting by proxy, without protesting at the
commencement of the meeting the lack of notice thereof to him, or any director
who attends a meeting of the Board of Directors without protesting at the
commencement of the meeting of the lack of notice, shall be conclusively deemed
to have waived notice of such meeting.
ARTICLE VI. OFFICERS.
SECTION 1. DESIGNATIONS. The officers of the Corporation shall be
chosen by the Board of Directors. The Board of Directors may choose a Chairman
of the Board, a President, a Vice President or Vice Presidents, a Secretary, a
Treasurer, one or more Assistant Secretaries and/or Assistant Treasurers, and
other officers and agents that it shall deem necessary or
<PAGE> 10
appropriate. All officers of the Corporation shall exercise the powers and
perform the duties that shall from time to time be determined by the Board of
Directors. Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these Bylaws provide otherwise.
SECTION 2. TERM OF, AND REMOVAL FROM, OFFICE. At its first regular
meeting after each annual meeting of stockholders, the Board of Directors shall
choose a President, a Secretary, and a Treasurer. It may also choose a Chairman
of the Board, a Vice President or Vice Presidents, one or more Assistant
Secretaries and/or Assistant Treasurers, and such other officers and agents as
it shall deem necessary or appropriate. Each officer of the Corporation shall
hold office until his successor is chosen and shall qualify. Any officer elected
or appointed by the Board of Directors may be removed, with or without cause, at
any time by the affirmative vote of a majority of the directors then in office.
Removal from office, however, shall not prejudice the contract rights, if any,
of the person removed. Any vacancy occurring in any office of the Corporation
may be filled for the unexpired portion of the term by the Board of Directors.
SECTION 3. COMPENSATION. The salaries of all officers of the
Corporation shall be fixed from time to time by the Board of Directors, and no
officer shall be prevented from receiving a salary because he is also a director
of the Corporation.
SECTION 4. THE CHAIRMAN OF THE BOARD. The Chairman of the Board will
preside at all meetings of stockholders and of the Board of Directors.
SECTION 4A. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer,
subject to the direction of the Board of Directors, shall have general charge of
the business, affairs, and property of the Corporation and general supervision
over its other officers and agents.
SECTION 5. THE PRESIDENT.
(a) The President, if there is no chief executive officer of the
Corporation and, subject to the direction of the Board of Directors, shall have
general charge of the business, affairs, and property of the Corporation and
general supervision over its other officers and agents. In general, he shall
perform all duties incident to the office of President and shall see that all
orders and resolutions of the Board of Directors are carried into effect.
(b) Unless otherwise prescribed by the Board of Directors, the
President shall have full power and authority to attend, act, and vote on behalf
of the Corporation at any meeting of the security holders of other corporations
in which the Corporation may hold securities. At any such meeting, the President
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities that the Corporation might have possessed and
exercised if it had been present. The Board of Directors may from time to time
confer like powers upon any other person or persons.
<PAGE> 11
SECTION 6. THE VICE PRESIDENT. The Vice President, if any, or in the
event there be more than one, the Vice Presidents in the order designated, or in
the absence of any designation, in the order of their election, shall, in the
absence of the President or in the event of his disability, perform the duties
and exercise the powers of the President and shall generally assist the
President and perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors.
SECTION 7. THE SECRETARY. The Secretary shall attend all meetings of
the Board of Directors and the stockholders and record all votes and the
proceedings of the meetings in a book to be kept for that purpose. He shall
perform like duties for the Executive Committee or other committees, if
required. He shall give, or cause to be given, notice of all meetings of
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as may from time to time be prescribed by the Board of
Directors, the Chairman of the Board, or the President, under whose supervision
he shall act. He shall have custody of the seal of the Corporation, and he, or
an Assistant Secretary, shall have authority to affix it to any instrument
requiring it, and, when so affixed, the seal may be attested by his signature or
by the signature of the Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing thereof by his signature.
SECTION 8. THE ASSISTANT SECRETARY. The Assistant Secretary, if any, or
in the event there be more than one, the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election, shall, in the absence of the Secretary or in the event of his
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
SECTION 9. THE TREASURER. The Treasurer shall have custody of the
corporate funds and other valuable effects, including securities, and shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may from time
to time be designated by the Board of Directors. He shall disburse the funds of
the Corporation in accord with the orders of the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the Chairman of the
Board, if any, the President, and the Board of Directors, whenever they may
require it or at regular meetings of the Board, an account of all his
transactions as Treasurer and of the financial condition of the Corporation.
SECTION 10. THE ASSISTANT TREASURER. The Assistant Treasurer, if any,
or in the event there shall be more than one, the Assistant Treasurers in the
order designated, or in the absence of any designation, in the order of their
election, shall, in the absence of the Treasurer or in the event of his
disability, perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors.
<PAGE> 12
ARTICLE VII. INDEMNIFICATION.
Reference is made to Section 145 and any other relevant provisions of
the General Corporation Law of the State of Delaware. Particular reference is
made to the class of persons, hereinafter called "Indemnitees", who may be
indemnified by a Delaware corporation pursuant to the provisions of such Section
145, namely, any person, or the heirs, executors, or administrators of such
person, who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that such
person is or was a director, officer, employee, or agent of such corporation or
is or was serving at the request of such corporation as a director, officer,
employee, or agent of such corporation or is or was serving at the request of
such corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise. The
Corporation shall, and is hereby obligated to, indemnify the Indemnitees, and
each of them, in each and every situation where the Corporation is obligated to
make such indemnification pursuant to the aforesaid statutory provisions. The
Corporation shall indemnify the Indemnitees, and each of them, in each and every
situation where, under the aforesaid statutory provisions, the Corporation is
not obligated, but is nevertheless permitted or empowered, to make such
indemnification, it being understood that, before making such indemnification
with respect to any situation covered under this sentence, (i) the Corporation
shall promptly make or cause to be made, by any of the methods referred to in
Subsection (d) of such Section 145, a determination as to whether each
Indemnitee acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Corporation, and, in the case of
any criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful, and (ii) that no such indemnification shall be made unless
it is determined that such Indemnitee acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, in the case of any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
ARTICLE VIII. AFFILIATED TRANSACTIONS AND INTERESTED DIRECTORS.
SECTION 1. AFFILIATED TRANSACTIONS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof that authorizes
the contract or transaction or solely because his or their votes are counted for
such purpose if:
<PAGE> 13
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(b) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by the vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved, or ratified by the Board of Directors, a
committee thereof, or the stockholders.
SECTION 2. DETERMINING QUORUM. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee thereof which authorizes the contract or
transaction.
<PAGE> 14
ARTICLE IX. STOCK CERTIFICATES.
SECTION 1. FORM AND SIGNATURES.
(a) Every holder of stock of the Corporation shall be entitled to a
certificate stating the number and class, and series, if any, of shares owned by
him, signed by the Chairman of the Board, if any, or the President and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, and bearing the seal of the Corporation. The signatures and
the seal may be facsimiles. A certificate may be signed, manually or by
facsimile, by a transfer agent or registrar other than the Corporation or its
employee. In case any officer who has signed, or whose facsimile signature was
placed on, a certificate shall have ceased to be such officer before the
certificate is issued, it may nevertheless be issued by the Corporation with the
same effect as if he were such officer at the date of its issue.
(b) All stock certificates representing shares of capital stock that
are subject to restrictions on transfer or to other restrictions may have
imprinted thereon any notation to that effect determined by the Board of
Directors.
SECTION 2. REGISTRATION OF TRANSFER. Upon surrender to the Corporation
or any transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment, or
authority to transfer, the Corporation or its transfer agent shall issue a new
certificate to the person entitled thereto, cancel the old certificate, and
record the transaction upon the books of the Corporation.
SECTION 3. REGISTERED STOCKHOLDERS.
(a) Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person who is registered on its
books as the owner of shares of its capital stock to receive dividends or other
distributions and to vote or consent as such owner, and to hold liable for calls
and assessments any person who is registered on its books as the owner of shares
of its capital stock. The Corporation shall not be bound to recognize any
equitable or legal claim to, or interest in, such shares on the part of any
other person.
(b) If a stockholder desires that notices and/or dividends shall be
sent to a name or address other than the name or address appearing on the stock
ledger maintained by the Corporation, or its transfer agent or registrar, if
any, the stockholder shall have the duty to notify the Corporation, or its
transfer agent or registrar, if any, in writing of his desire and specify the
alternate name or address to be used.
SECTION 4. RECORD DATE. In order that the Corporation may determine the
stockholders of record who are entitled to receive notice of, or to vote at, any
meeting of
<PAGE> 15
stockholders or any adjournment thereof or to express consent to corporate
action in writing without a meeting, to receive payment of any dividend or other
distribution or allotment of any rights, or to exercise any rights in respect of
any change, conversion, or exchange of stock or for the purpose of any lawful
action, the Board of Directors may, in advance, fix a date as the record date
for any such determination. Such date shall not be more than sixty nor less than
ten days before the date of such meeting, nor more than sixty days prior to the
date of any other action. A determination of stockholders of record entitled to
notice of, or to vote at, a meeting of stockholders shall apply to any
adjournment of the meeting taken pursuant to Section 8 of Article II; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 5. LOST, STOLEN, OR DESTROYED CERTIFICATES. The Board of
Directors may direct that a new certificate be issued to replace any certificate
theretofore issued by the Corporation that, it is claimed, has been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen, or destroyed. When authorizing the
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of the lost,
stolen, or destroyed certificate, or his legal representative, to advertise the
same in such manner as it shall require, and/or to give the Corporation a bond
in such sum, or other security in such form, as it may direct as indemnity
against any claims that may be made against the Corporation with respect to the
certificate claimed to have been lost, stolen, or destroyed.
ARTICLE X. GENERAL PROVISIONS.
SECTION 1. DIVIDENDS. Subject to the provisions of law and the
Certificate of Incorporation, dividends upon the outstanding capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property, or in shares of the
Corporation`s capital stock.
SECTION 2. RESERVES. The Board of Directors shall have full power,
subject to the provisions of law and the Certificate of Incorporation, to
determine whether any, and, if so, what part, of the funds legally available for
the payment of dividends shall be declared as dividends and paid to the
stockholders of the Corporation. The Board of Directors, in its sole discretion,
may fix a sum that may be set aside or reserved over and above the paid-in
capital of the Corporation as a reserve for any proper purpose, and may, from
time to time, increase, diminish, or vary such amount.
SECTION 3. FISCAL YEAR. Except as from time to time otherwise provided
by the Board of Directors, the fiscal year of the Corporation shall end on April
30 in each year.
<PAGE> 16
SECTION 4. SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation, and the words "Corporate
Seal" and "Delaware".
ARTICLE XI. AMENDMENTS.
The Board of Directors shall have the power to alter and repeal these
Bylaws and to adopt new Bylaws by an affirmative vote of a 2/3 majority of the
whole Board of Directors, provided that notice of the proposal to alter or
repeal these Bylaws or to adopt new Bylaws must be included in the notice of the
meeting of the Board of Directors at which such action takes place.
<PAGE> 1
EXHIBIT NO. 4
- --------------------------------------------------------------------------------
VIDEO UPDATE, INC.
and
American Stock Transfer & Trust Company, as Rights Agent
RIGHTS AGREEMENT
Dated as of April 13, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
-----------------
PAGE
----
Section 1. Certain Definitions .................................... 3
Section 2. Appointment of Rights Agent ............................ 7
Section 3. Issue of Right Certificates............................. 7
Section 4. Form of Right Certificates ............................. 10
Section 5. Countersignature and Registration....................... 10
Section 6. Transfer, Split Up, Combination and
Exchange of Right Certificates: Mutilated,
Destroyed, Lost or Stolen Right Certificates ........... 11
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights .............................. 12
Section 8. Cancellation and Destruction of Right
Certificates ........................................... 13
Section 9. Availability of Preferred Shares........................ 14
Section 10. Preferred Shares Record Date............................ 14
Section 11. Adjustment of Purchase Price, Number
of Shares or Number of Rights .......................... 15
Section 12. Certificate of Adjusted Purchase Price
or Number of Shares .................................... 23
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power ............................. 23
Section 14. Fractional Rights and Fractional Shares ................ 25
Section 15. Rights of Action ....................................... 26
Section 16. Agreement of Right Holders ............................. 27
<PAGE> 3
Section 17. Right Certificate Holder Not Deemed a
Stockholder ............................................ 27
Section 18. Concerning the Rights Agent ............................ 28
Section 19. Merger or Consolidation or Change of Name
of Rights Agent ........................................ 28
Section 20. Duties of Rights Agent ................................. 29
Section 21. Change of Rights Agent ................................. 31
Section 22. Issuance of New Right Certificates...................... 32
Section 23. Redemption ............................................. 33
Section 24. Exchange ............................................... 34
Section 25. Notice of Certain Events ............................... 35
Section 26. Notices................................................. 36
Section 27. Supplements and Amendments ............................. 37
Section 28. Successors ............................................. 38
Section 29. Benefits of this Agreement ............................. 38
Section 30. Severability ........................................... 38
Section 31. Governing Law .......................................... 38
Section 32. Counterparts ........................................... 38
Section 33. Descriptive Headings ................................... 38
Section 34. Administration.......................................... 39
Signatures
Exhibit A - ......Form of Certificate of Designations
Exhibit B - ......Form of Right Certificate
Exhibit C - ......Summary of Rights to Purchase Preferred Shares
ii
<PAGE> 4
Agreement, dated as of April 13, 1998, between Video Update, Inc., a
Delaware corporation (the "Company"), and American Stock Transfer & Trust
Company (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
and Warrant (each as hereinafter defined) of the Company outstanding at the
Close of Business on April 24, 1998 (the "Record Date"), each Right representing
the right to purchase one one-hundredth of a Preferred Share (as hereinafter
defined), upon the terms and subject to the conditions herein set forth, and has
further authorized and directed the issuance of one Right with respect to each
Common Share that shall become outstanding between the Record Date and the
earliest of the Distribution Date, the Redemption Date and the Final Expiration
Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 15% or more of the Common Shares
of the Company then outstanding, but shall not include the Company, any
Subsidiary (as such term is hereinafter defined) of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan or any
Person who becomes an Acquiring Person by means of a tender or exchange offer or
other acquisition at a price and on terms approved, prior to the acquisition of
such Common Shares, by at least a majority of the members of the Company's Board
of Directors who are otherwise not Acquiring Persons. Notwithstanding the
foregoing, no Person shall become an "Acquiring Person" as the result of an
4
<PAGE> 5
acquisition of Common Shares by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 15% or more of the Common Shares of the Company then
outstanding; PROVIDED, HOWEVER, that if a Person shall become the Beneficial
Owner of 15% or more of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and shall, after such share purchases
by the Company, become the Beneficial Owner of any additional Common Shares of
the Company, then such Person shall be deemed to be an "Acquiring Person".
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph (a),
has become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of Common Shares so that such Person would no
longer be an "Acquiring Person," as defined pursuant to the foregoing provisions
of this paragraph (a), then such Person shall not be deemed to be an "Acquiring
Person" for any purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the rules and regulations promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or Associates
has (A) the right to acquire (whether such right is exercisable immediately
or only after the passage of time) pursuant to any agreement, arrangement
or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights,
exchange rights,
5
<PAGE> 6
rights (other than these Rights), warrants or options, or otherwise;
PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner
of, or to beneficially own, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; PROVIDED FURTHER, HOWEVER, that a Person
shall not be deemed the Beneficial Owner of, or to beneficially own, any
security if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given to such
Person in response to a public proxy or consent solicitation made pursuant
to, and in accordance with, the applicable rules and regulations
promulgated under the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent contemplated by
the proviso to Section l(c)(ii)(B)) or disposing of any securities of the
Company.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding that such Person
would be deemed to own beneficially hereunder.
Notwithstanding the foregoing, none of the Company's directors,
officers or financial advisers shall be deemed to be the Beneficial Owner of, or
to beneficially own, any Common Shares of the Company owned by any other
director, officer or financial adviser of the Company by virtue of such persons
acting in their capacities as such, including in connection with the
6
<PAGE> 7
formulation and publication of the Board of Director's recommendation of its
position, and actions taken in furtherance thereof, with respect to an
acquisition proposal relating to the Company or a tender or exchange offer for
the Common Shares of the Company.
(d) "Business Day" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in St. Paul, Minnesota are authorized or
obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M., Eastern
Standard Time, on such date; PROVIDED, HOWEVER, that if such date is not a
Business Day it shall mean 5:00 P.M., Eastern Standard Time, on the next
succeeding Business Day.
(f) "Common Shares" when used with reference to the Company shall mean
the shares of Class A Common Stock, par value $.01 per share, of the Company.
"Common Shares" when used with reference to any Person other than the Company
shall mean the capital stock (or equity interest) with the greatest voting power
of such other Person or, if such other Person is a Subsidiary of another Person,
the Person or Persons which ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in Section
3(a) hereof.
(h) "Final Expiration Date" shall have the meaning set forth in Section
7(a) hereof; PROVIDED THAT, for purposes of clarification, prior to the
Distribution Date, any Rights associated with any Warrant shall expire
simultaneously with the exercise or expiration of such Warrant.
(i) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
7
<PAGE> 8
(j) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $.01 per share, of the Company having
the rights and preferences set forth in the Form of Certificate of Designations
attached to this Agreement as Exhibit A.
(k) "Purchase Price" shall have the meaning set forth in Section 7(b)
hereof.
(l) "Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.
(m) "Shares Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person has
become such.
(n) "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
(o) "Warrants" shall mean those redeemable Class B Warrants of the
Company as described in the Warrant Agreement, dated July 20, 1994 by and among
the Company, the Rights Agent and D.H. Blair Investment Banking Corp.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares or the Warrants, as the case may be) in
accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such
co-Rights Agents as it may deem necessary or desirable.
Section 3. ISSUE OF RIGHT CERTIFICATES. (a) Until the earlier of (i)
the tenth day after the Shares Acquisition Date or (ii) the tenth Business Day
(or such later date as may be determined by action of the Board of Directors
prior to such time as any Person otherwise would become an Acquiring Person)
after the date of the commencement by any Person (other than the
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<PAGE> 9
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) of, or of the first public announcement
of the intention of any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company or any entity holding Common Shares for or pursuant to the terms of any
such plan) to commence, a tender, exchange or other offer or transaction, the
consummation of which could result in any Person becoming the Beneficial Owner
of Common Shares aggregating 15% or more of the then outstanding Common Shares
(including any such date which is after the date of this Agreement and prior to
the issuance of the Rights; the earlier of such dates being herein referred to
as the "Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common Shares and
Warrants registered in the names of the holders thereof (which certificates
shall also be deemed to be Right Certificates) and not by separate Right
Certificates, and (y) the right to receive Right Certificates will not be
detachable and will be transferable in tandem with and only in connection with
the transfer of Common Shares or Warrants, as the case may be.
As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Shares and Warrants as of the Close of Business on the Distribution Date, at the
address of such holder shown on the records of the Company (or the Company's
transfer agent), a Right Certificate, in substantially the form of Exhibit B
hereto (a "Right Certificate"), evidencing one Right for each Common Share
and/or Warrant so held. Subsequent to the Distribution Date, the Rights will be
evidenced solely by such Right Certificates, certificates for Common Shares or
Warrants, as the case may be, shall no longer evidence any right to receive
Rights or Right Certificates, and the Company shall thereafter maintain separate
transfer registers and other records as are necessary to reflect the record
ownership and each transfer of Right Certificates.
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<PAGE> 10
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares and
each record holder of Warrants as of the Close of Business on the Record Date,
at the address of such holder shown on the records of the Company. With respect
to certificates for Common Shares and for Warrants outstanding as of the Record
Date, until the Distribution Date, the Rights will be evidenced by such
certificates registered in the names of the holders thereof together with a copy
of the Summary of Rights attached thereto. Until the Distribution Date (or the
earlier of the Redemption Date or the Final Expiration Date), the surrender for
transfer of any certificate for Common Shares or for Warrants outstanding on the
Record Date, with or without a copy of the Summary of Rights attached thereto,
shall also constitute the transfer of the Rights associated with the Common
Shares or the Warrants represented thereby.
(c) Certificates for Common Shares or Warrants which become outstanding
(including, without limitation, reacquired Common Shares or Warrants referred to
in the last sentence of this paragraph (c)) after the Record Date but prior to
the earliest of the Distribution Date, the Redemption Date or the Final
Expiration Date shall have impressed on, printed on, written on or otherwise
affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Video Update,
Inc. and American Stock Transfer and Trust Company, dated as of April
13, 1998 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of Video Update, Inc. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced
by this certificate. Video Update, Inc. will mail to the holder of this
certificate a copy of the Rights Agreement without charge after receipt
of a written request therefor. Under certain circumstances, as set
forth in the Rights Agreement,
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<PAGE> 11
Rights issued to any Person who becomes an Acquiring Person (as defined
in the Rights Agreement) may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares or Warrants
represented by such certificates shall be evidenced by such certificates alone,
and the surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares or the Warrants, as the
case may be, represented thereby. In the event that the Company purchases,
acquires or redeems any Common Shares or Warrants after the Record Date but
prior to the Distribution Date or if any Warrants are exercised or expire after
the Record Date but prior to the Distribution Date, any Rights associated with
such Common Shares or such Warrants, as the case may be, shall be deemed
cancelled and retired so that any Rights associated with the Common Shares or
the Warrants, as the case may be, shall no longer be outstanding or exercisable.
Section 4. FORM OF RIGHT CERTIFICATES. The Right Certificates (and the
forms of election to purchase Preferred Shares and of assignment to be printed
on the reverse thereof) shall be substantially the same as Exhibit B hereto and
may have such marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 22 hereof, the Right Certificates shall entitle the
holders thereof to purchase such number of one one-hundredths of a Preferred
Share as shall be set forth therein at the Purchase Price, but the number of
such one one-hundredths of a Preferred Share and the Purchase Price shall be
subject to adjustment as provided herein.
Section 5. COUNTERSIGNATURE AND REGISTRATION. The Right Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
Chief Executive Officer, its President, any of its Vice Presidents, or its
Treasurer, either manually or by facsimile signature,
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<PAGE> 12
shall have affixed thereto the Company's seal or a facsimile thereof, and shall
be attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES: MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. Subject
to the provisions of Section 14 hereof, at any time after the Close of Business
on the Distribution Date, and at or prior to the Close of Business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11 (a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up,
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<PAGE> 13
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the principal office of the Rights Agent. Thereupon the Rights
Agent shall countersign and deliver to the Person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Company may require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS. (a) The registered holder of any Right Certificate may, subject to the
second paragraph of Section 11 (a)(ii), exercise the Rights evidenced thereby
(except as otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase on the reverse side thereof duly executed, to the Rights
Agent at the principal office of the Rights Agent, together with payment of the
Purchase Price for each one one-hundredth of a Preferred Share as to which the
Rights are exercised, at or prior to the earliest of (i) the Close of Business
on April 24, 2008 (the "Final Expiration Date," provided that prior to the
Distribution Date the "Final Expiration Date" for purposes of Rights associated
with any Warrant shall be the earlier of the date of expiration or exercise of
such Warrant), (ii) the time at which the Rights are redeemed as provided in
Section 23 hereof (the "Redemption Date"), or (iii) the time at which such
Rights are exchanged as provided in Section 24 hereof.
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<PAGE> 14
(b) The Purchase Price for each one one-hundredth of a Preferred Share
purchasable pursuant to the exercise of a Right shall initially be $20.00, and
shall be subject to adjustment from time to time as provided in Section 11 or 13
hereof and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below (the "Purchase Price").
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly (i) (A) requisition from any transfer agent of the Preferred
Shares certificates for the number of Preferred Shares to be purchased and the
Company hereby irrevocably authorizes its transfer agent to comply with all such
requests, or (B) requisition from the depositary agent depositary receipts
representing such number of one one-hundredths of a Preferred Share as are to be
purchased (in which case certificates for the Preferred Shares represented by
such receipts shall be deposited by the transfer agent with the depositary
agent) and the Company hereby directs the depositary agent to comply with such
request, (ii) when appropriate, requisition from the Company the amount of cash
to be paid in lieu of issuance of fractional shares in accordance with Section
14 hereof, (iii) after receipt of such certificates or depositary receipts,
cause the same to be delivered to or upon the order of the registered holder of
such Right Certificate, registered in such name or names as may be designated by
such holder and (iv) when appropriate, after receipt, deliver such cash to or
upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to
such holder's duly authorized assigns, subject to the provisions of Section 14
hereof.
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Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such cancelled Right Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
Section 9. AVAILABILITY OF PREFERRED SHARES. The Company covenants and
agrees that it will cause to be reserved and kept available out of its
authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the exercise
of any
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Rights until any such tax shall have been paid (any such tax being payable by
the holder of such Right Certificate at the time of surrender) or until it has
been established to the Company's reasonable satisfaction that no such tax is
due.
Section 10. PREFERRED SHARES RECORD DATE. Each Person in whose name any
certificate for Preferred Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Preferred
Shares represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made;
PROVIDED, HOWEVER, that if the date of such surrender and payment is a date upon
which the Preferred Shares transfer books of the Company are closed, such Person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares transfer books of the Company are open. Prior to the exercise
of the Rights evidenced thereby, the holder of a Right Certificate shall not be
entitled to any rights of a holder of Preferred Shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of Preferred Shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11 (a), the Purchase Price in
effect at the time of the record date for such
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<PAGE> 17
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable on
such date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive the aggregate number and
kind of shares of capital stock which, if such Right had been exercised
immediately prior to such date and at a time when the Preferred Shares transfer
books of the Company were open, such holder would have owned upon such exercise
and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification; PROVIDED, HOWEVER, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any Person
becomes an Acquiring Person, each holder of a Right shall thereafter have a
right to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred Shares, such number of Common Shares of
the Company as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable and dividing that product by (y) 50% of
the current per share market price of the Company's Common Shares (determined
pursuant to Section 11 (d) hereof) on the date of the event upon which any
Person becomes an Acquiring Person. In the event that any Person shall become an
Acquiring Person and the Rights shall then be outstanding, the Company shall not
take any action that would eliminate or diminish the benefits intended to be
afforded by the Rights.
From and after the occurrence of such event, any Rights that are or
were acquired or beneficially owned by any Acquiring Person (or any Associate or
Affiliate of such Acquiring Person) shall be void and any holder of such Rights
shall thereafter have no right to exercise such Rights under any provision of
this Agreement. No Right Certificate shall be issued pursuant to Section 3 that
represents Rights beneficially owned by an Acquiring Person whose Rights would
be void pursuant to the preceding sentence or any Associate or Affiliate
thereof; no Right
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<PAGE> 18
Certificate shall be issued at any time upon the transfer of any Rights to an
Acquiring Person whose Rights would be void pursuant to the preceding sentence
or any Associate or Affiliate thereof or to any nominee of such Acquiring
Person, Associate or Affiliate; and any Right Certificate delivered to the
Rights Agent for transfer to an Acquiring Person (or any Associate or Affiliate
of such Acquiring Person) whose Rights would be void pursuant to the preceding
sentence shall be cancelled.
(iii) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit the exercise in
full of the Rights in accordance with the foregoing subparagraph (ii), the
Company shall take all such action as may be necessary to authorize additional
Common Shares for issuance upon exercise of the Rights. In the event the Company
shall, after good faith effort, be unable to take all such action as may be
necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exercise
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied by such number
or fraction is equal to the current per share market price of one Common Share
as of the date of issuance of such Preferred Shares or fraction thereof.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("equivalent preferred
shares")) or securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent preferred share
(or having a conversion price per share, if a security convertible into
Preferred Shares or equivalent preferred shares) less than the then current per
share market price of the Preferred Shares (as defined in Section 11 (d)) on
such record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of Preferred Shares outstanding on such record date plus the number of
Preferred Shares which the aggregate offering price of the total number of
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<PAGE> 19
Preferred Shares and/or equivalent preferred shares so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the denominator of
which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); PROVIDED, HOWEVER, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11 (b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
current per share market price of the Preferred Shares;
<PAGE> 20
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of
capital stock of the Company to be issued upon exercise of one Right. Such
adjustments shall be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11 (d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date; PROVIDED,
HOWEVER, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the issuer
of such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security and prior to the
expiration of 30 Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other
system then in use, or, if on any such date the Security is not quoted by any
such organization, the
20
<PAGE> 21
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the Board of Directors
of the Company. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is not
listed or admitted to trading on any national securities exchange, a Business
Day.
(ii) For the purpose of any computation hereunder, the "current per
share market price" of the Preferred Shares shall be determined in accordance
with the method set forth in Section 11 (d)(i). If the Preferred Shares are not
publicly traded, the "current per share market price" of the Preferred Shares
shall be conclusively deemed to be the current per share market price of the
Common Shares as determined pursuant to Section 11 (d)(i) (appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof), multiplied by one hundred. If neither the
Common Shares nor the Preferred Shares are publicly held or so listed or traded,
"current per share market price" shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section
11 (e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11 (e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the date of the expiration of the right to exercise any
Rights.
(f) If as a result of an adjustment made pursuant to Section 11 (a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so
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<PAGE> 22
receivable upon exercise of any Right shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Shares contained in Section 11 (a)
through (c), inclusive, and the provisions of Sections 7, 9, 10 and 13 with
respect to the Preferred Shares shall apply on like terms to any such other
shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11 (i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11 (b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share (calculated to the nearest one one-millionth of a Preferred
Share) obtained by (i) multiplying (x) the number of one one-hundredths of a
share covered by a Right immediately prior to this adjustment by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment Each Right held of record prior to such
adjustment of the-number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of
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<PAGE> 23
the Purchase Price. The Company shall make a public announcement of its election
to adjust the number of Rights, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made. This record
date may be the date on which the Purchase Price is adjusted or any day
thereafter, but, if the Right Certificates have been issued, shall be at least
10 days later than the date of the public announcement. If Right Certificates
have been issued, upon each adjustment of the number of Rights pursuant to this
Section 11 (i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record date Right
Certificates evidencing, subject to Section 14 hereof, the additional Rights to
which such holders shall be entitled as a result of such adjustment, or, at the
option of the Company, shall cause to be distributed to such holders of record
in substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be distributed
shall be issued, executed and countersigned in the manner provided for herein
and shall be registered in the names of the holders of record of Right
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a Preferred Share issuable upon the exercise
of the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-hundredths of a
Preferred Share which were expressed in the initial Right Certificates issued
hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
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<PAGE> 24
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; PROVIDED,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, dividends on
Preferred Shares payable in Preferred Shares or issuance of rights, options or
warrants referred to hereinabove in Section l1(b), hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such stockholders.
(n) In the event that at any time after the date of this Agreement and
prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) each
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<PAGE> 25
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11 (n) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares or the
Preferred Shares a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Right Certificate in accordance with Section 25 hereof.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER. In the event, directly or indirectly, at any time after a Person
has become an Acquiring Person, (a) the Company shall consolidate with, or merge
with and into, any other Person, (b) any Person shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person other than the Company or one or more of its wholly-owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that (i) each holder of a Right (except as otherwise provided herein) shall
thereafter have the right to receive, upon the exercise thereof at a price equal
to the then current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of such other Person (including the Company as
successor thereto or as the surviving corporation) as shall equal the result
obtained
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<PAGE> 26
by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable and
dividing that product by (B) 50% of the then current per share market price of
the Common Shares of such other Person (determined pursuant to Section 11 (d)
hereof) on the date of consummation of such consolidation, merger, sale or
transfer; (ii) the issuer of such Common Shares shall thereafter be liable for,
and shall assume, by virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Company pursuant to this Agreement; (iii) the
term "Company" shall thereafter be deemed to refer to such issuer; and (iv) such
issuer shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise of
the Rights. The Company shall not consummate any such consolidation, merger,
sale or transfer unless prior thereto the Company and such issuer shall have
executed and delivered to the Rights Agent a supplemental agreement so
providing. The Company shall not enter into any transaction of the kind referred
to in this Section 13 if at the time of such transaction there are any rights,
warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights. The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked
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<PAGE> 27
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading or, if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by NASDAQ or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights, the fair value of
the Rights on such date as determined in good faith by the Board of Directors of
the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-hundredth of a Preferred Share
may, at the election of the Company, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it; PROVIDED, that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the Preferred Shares
represented by such depositary receipts. In lieu of fractional Preferred Shares
that are not integral multiples of one one-hundredth of a Preferred Share, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one Preferred Share. For the purposes of
this Section 14(b), the current market value of a Preferred Share shall be the
closing price of a Preferred Share (as determined pursuant to the second
sentence of Section 11 (d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
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<PAGE> 28
(c) The holder of a Right by the acceptance of the Right expressly
waives such holder's right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).
Section 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares and the Warrants, as the case may be); and any registered holder
of any Right Certificate (or, prior to the Distribution Date, of the Common
Shares and the Warrants, as the case may be), 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 and the Warrants, as the case may be),
may, in such holder's own behalf and for such holder's own benefit, enforce, and
may institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, such holder's right to exercise the
Rights evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement.
Section 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
ONLY in connection with the transfer of the Common Shares and the Warrants, as
the case may be;
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<PAGE> 29
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate or the Warrant Certificate, as the case may
be) is registered as the absolute owner thereof and of the Rights evidenced
thereby (notwithstanding any notations of ownership or writing on the Right
Certificates or the associated Common Shares certificate or the Warrant
Certificate, as the case may be, made by anyone other than the Company or the
Rights Agent) for all purposes whatsoever, and neither the Company nor the
Rights Agent shall be affected by any notice to the contrary.
Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT. The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights
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<PAGE> 30
Agent for, and to hold it harmless against, any loss, liability, or expense,
incurred without negligence, bad faith or willful misconduct on the part of the
Rights Agent, for anything done or omitted by the Rights Agent in connection
with the acceptance and administration of this Agreement, including the costs
and expenses of defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection with,
its administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preferred Shares, the Warrants, or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust powers of the Rights Agent or any successor Rights Agent, shall
be the successor to the Rights Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto; PROVIDED, that such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21 hereof. In case at the
time such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all
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<PAGE> 31
such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.
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<PAGE> 32
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful misconduct
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11 (a)(ii) hereof) or any adjustment in
the terms of the Rights (including the manner, method or amount thereof)
provided for in this Agreement, or the ascertaining of the existence of facts
that would require any such change or adjustment (except with respect to the
exercise of Rights evidenced by Right Certificates after actual notice that such
change or adjustment is required); nor shall it by any act hereunder be deemed
to make any representation or warranty as to the authorization or reservation of
any Preferred Shares to be issued pursuant to this Agreement or any Right
Certificate or as to whether any Preferred Shares will, when issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board,
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<PAGE> 33
the Chief Executive .Officer, the President, any Vice President, the Secretary
or the Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions.
(h) The Rights Agent and any stockholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares, Warrants or Preferred Shares by registered or certified
mail, and to the holders of the Right Certificates by first-class mail. The
Company may remove the Rights Agent or any successor Rights Agent upon 30 days'
notice in writing, mailed to the Rights Agent or successor Rights Agent, as the
case may be, and to each transfer agent of the Common Shares, Warrants or
Preferred Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
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<PAGE> 34
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit such holder's Right Certificate for
inspection by the Company), then the registered holder of any Right Certificate
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be a corporation organized and doing business under the laws
of the United States or of the State of New York (or of any other state of the
United States so long as such corporation is authorized to do business as a
banking institution in the State of New York or Minnesota), in good standing,
having an office in the State of New York, which is authorized under such laws
to exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authorities and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50 million. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares, Warrants or Preferred Shares, and mail a notice thereof in
writing to the registered holders of the Right Certificates. Failure to give any
notice provided for in this Section 21, however, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or
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<PAGE> 35
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
Section 23. REDEMPTION. (a) The Board of Directors of the Company may,
at its option, at any time prior to such time as any Person becomes an Acquiring
Person, redeem all but not less than all the then outstanding Rights at a
redemption price of $.001 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the "Redemption Price").
The redemption of the Rights by the Board of Directors may be made effective at
such time, on such basis and with such conditions as the Board of Directors in
its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. The Company shall promptly
give public notice of any such redemption; PROVIDED, HOWEVER, that the failure
to give, or any defect in, any such notice shall not affect the validity of such
redemption. Within 10 days after such action of the Board of Directors ordering
the redemption of the Rights, the Company shall mail a notice of redemption to
all the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
Neither the Company nor any of its Affiliates or Associates may redeem, acquire
or purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in Section 24 hereof, and other
than in connection with the purchase of Common Shares or the Warrants, as the
case may be, prior to the Distribution Date.
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Section 24. EXCHANGE. (a) The Board of Directors of the Company may, at
its option, at any time after any Person becomes an Acquiring Person, exchange
all or part of the then outstanding and exercisable Rights (which shall not
include Rights that have become void pursuant to the provisions of Section 11
(a)(ii) hereof) for Common Shares at an exchange ratio of one Common Share per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time after any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or any such Subsidiary, or any entity
holding Common Shares for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to paragraph (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; PROVIDED,
HOWEVER, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 11 (a)(ii) hereof) held by each holder of Rights.
36
<PAGE> 37
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with this Section 24, the Company shall
take all such action as may be necessary to authorize additional Common Shares
for issuance upon exchange of the Rights. In the event the Company shall, after
good faith effort, be unable to take all such action as may be necessary to
authorize such additional Common Shares, the Company shall substitute, for each
Common Share that would otherwise be issuable upon exchange of a Right, a number
of Preferred Shares or fraction thereof such that the current per share market
price of one Preferred Share multiplied by such number or fraction is equal to
the current per share market price of one Common Share as of the date of
issuance of such Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares. In
lieu of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share. For the purposes of this
paragraph (d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11 (d)(i) hereof) for the Trading Day immediately prior to the date
of exchange pursuant to this Section 24.
Section 25. NOTICE OF CERTAIN EVENTS. (a) In case the Company shall
propose (i) to pay any dividend payable in stock of any class to the holders of
its Preferred Shares or to make any other distribution to the holders of its
Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer
to the holders of its Preferred Shares rights or warrants to subscribe for or to
purchase any additional Preferred Shares or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50%
37
<PAGE> 38
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to, any other Person, (v) to effect the liquidation,
dissolution or winding up of the Company, or (vi) to declare or pay any dividend
on the Common Shares payable in Common Shares or to effect a subdivision,
combination or consolidation of the Common Shares (by reclassification or
otherwise than by payment of dividends in Common Shares), then, in each such
case, the Company shall give to each holder of a Right Certificate, in
accordance with Section 26 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, or distribution
of rights or warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution, or winding up
is to take place and the date of participation therein by the holders of the
Common Shares and/or Preferred Shares, if any such date is to be fixed, and such
notice shall be so given in the case of any action covered by clause (i) or (ii)
above at least 10 days prior to the record date for determining holders of the
Preferred Shares for purposes of such action, and in the case of any such other
action, at least 10 days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the Common Shares and/or
Preferred Shares, whichever shall be the earlier.
(b) In case the event set forth in Section 11 (a)(ii) hereof shall
occur, then the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11 (a)(ii) hereof.
Section 26. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Video Update, Inc.
3100 World Trade Center
St. Paul, Minnesota 55101
Attention: Corporate Secretary
38
<PAGE> 39
copy to: Gadsby & Hannah LLP
Lawrence H. Gennari, Esq.
225 Franklin Street
Boston, MA 02110
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Attention: Mr. Wilbert Myles, Vice President
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. SUPPLEMENTS AND AMENDMENTS. The Company may from time to
time and the Rights Agent shall, if the Company so directs, supplement or amend
this Agreement without the approval of any holders of Right Certificates in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
or to make any other provisions with respect to the Rights which the Company may
deem necessary or desirable, any such supplement or amendment to be evidenced by
a writing signed by the Company and the Rights Agent; PROVIDED, HOWEVER, that
from and after such time as any Person becomes an Acquiring Person, this
Agreement shall not be amended in any manner which would adversely affect the
interests of the holders of Rights (other than any Acquiring Person and its
Affiliates and Associates). Without limiting the foregoing, the Company may at
any time prior to such time as any Person becomes an Acquiring Person amend this
Agreement to (a) lower the thresholds set forth in Sections l(a) and 3(a) to not
less than the
39
<PAGE> 40
greater of (i) the sum of .001% and the largest percentage of the outstanding
Common Shares then known by the Company to be beneficially owned by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or any Subsidiary of the Company, or any entity holding
Common Shares for or pursuant to the terms of any such plan) and (ii) 10%, (b)
fix a Final Expiration Date later than the date set forth in Section 7 hereof or
(c) increase the Purchase Price.
Section 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares or the Warrants, as the case may be) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares or the Warrants, as the case may be).
Section 30. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. GOVERNING LAW. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
40
<PAGE> 41
Section 32. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 33. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 34. ADMINISTRATION. The Board of Directors of the Company shall
have the exclusive power and authority to administer and interpret the
provisions of this Agreement and to exercise all rights and powers specifically
granted to the Board of Directors or the Company or as may be necessary or
advisable in the administration of this Agreement. All such actions,
calculations, determinations and interpretations which are done or made by the
Board of Directors in good faith shall be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Rights and all other parties and
shall not subject the Board of Directors to any liability to the holders of the
Rights.
41
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
VIDEO UPDATE, INC.
Attest:
By By /s/ Daniel A. Potter
------------------------------- --------------------------------
Title: Title: CEO
ATTEST: AMERICAN STOCK
TRANSFER & TRUST COMPANY
By By /s/ Wilbert Myles
------------------------------- --------------------------------
Title: Title: Vice President
42
<PAGE> 43
EXHIBIT A
---------
FORM
of
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
VIDEO UPDATE, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
------------------------------------------------
Video Update, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on April 9, 1998:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation of the Corporation, the Board of Directors hereby creates a
series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of
the Corporation and hereby states the designation and number of shares, and
fixes the relative rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. DESIGNATION AND AMOUNT. The shares of this series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 400,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; PROVIDED, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any other stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to
<PAGE> 44
the holders of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), of the Corporation, and of any other junior
stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1 or (b)
subject to the provision for adjustment hereinafter set forth, 100
times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend payable in
shares of Class A Common Stock or a subdivision of the outstanding
shares of Class A Common Stock (by reclassification or otherwise),
declared on the Class A Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Class
A Common Stock payable in shares of Class A Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Class A Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Class A Common Stock) into a greater
or lesser number of shares of Class A Common Stock, then in each such
case the amount to which holders of shares of Series A Preferred Stock
were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Class A
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Class A Common Stock
that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Class A Common Stock (other than a dividend payable in shares of Class
A Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Class A Common Stock
during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $1 per
share on the Series A Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the
A-2
<PAGE> 45
record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of
issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares
shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Class A Common Stock
payable in shares of Class A Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Class A
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Class A Common Stock) into a greater or lesser
number of shares of Class A Common Stock, then in each such case the
number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of
which is the number of shares of Class A Common Stock outstanding
immediately after such event and the denominator of which is the number
of shares of Class A Common Stock that were outstanding immediately
prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of
Preferred Stock or any similar stock, in the Certificate
of Incorporation of the Corporation or by law, the
holders of shares of Series A Preferred Stock and the
holders of shares of Class A Common Stock and any other
capital stock of the Corporation having general voting
rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no
special
A-3
<PAGE> 46
voting rights and their consent shall not be required
(except to the extent they are entitled to vote with
holders of Class A Common Stock as set forth herein) for
taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (as to dividends and upon
dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation
A-4
<PAGE> 47
unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such
manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Certificate of Incorporation, or in any other Certificate
of Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall have received
$100 per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of shares of Class A Common Stock, or (2) to
the holders of shares of stock ranking on a parity (upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except
distributions made ratably on the Series A Preferred Stock and all such parity
stock in proportion to the total amounts to which the holders of-all such shares
are entitled upon such liquidation, dissolution or winding up. In the event the
Corporation shall at any time declare or pay any dividend on the Class A Common
Stock payable in shares of Class A Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Class A Common Stock
(by reclassification or otherwise than by payment of a dividend in shares of
Class A Common Stock) into a greater or lesser number of shares of Class A
Common Stock, then in each such case the aggregate amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under the proviso in clause (1) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Class A Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Class A Common Stock that were
outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Class A Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Class A Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on the Class A Common Stock payable in shares of Class A
A-5
<PAGE> 48
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Class A Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Class A Common Stock) into a greater
or lesser number of shares of Class A Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Class A Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Class A Common Stock that were
outstanding immediately prior to such event.
Section 8. NO REDEMPTION. The shares of Series A Preferred Stock shall
not be redeemable.
Section 9. RANK. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of Preferred Stock.
Section 10. AMENDMENT. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its Chairman of the Board and attested
by its Secretary this 13th day of April, 1998.
VIDEO UPDATE, INC.
/s/ Daniel A. Potter
--------------------------
Daniel A. Potter,
Chairman of the Board
Attest:
/s/ Daniel C. Howard
- -----------------------------
Secretary
A-6
<PAGE> 49
EXHIBIT B
---------
FORM OF RIGHT CERTIFICATE
-------------------------
Rights
Certificate No. R- ------------------
NOT EXERCISABLE AFTER APRIL 24, 2008 OR EARLIER IF REDEMPTION OR EXCHANGE
OCCURS OR AS OTHERWISE DESCRIBED IN THE RIGHTS
AGREEMENT. THE RIGHTS ARE SUBJECT TO REDEMPTION AT
$.001 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH
IN THE RIGHTS AGREEMENT.
Right Certificate
VIDEO UPDATE, 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 April 13, 1998 (the "Rights Agreement"), between Video Update, Inc., a
Delaware corporation (the "Company"), and American Stock Transfer & Trust
Company (the "Rights Agent"), to purchase from the Company at any time after the
Distribution Date (as such term is defined in the Rights Agreement) and prior to
5:00 P.M., New York, Eastern Standard time, on April 24, 2008 (or such earlier
time as described in the Rights Agreement) at the principal office of the Rights
Agent, or at the office of its successor as Rights Agent, one one-hundredth of a
fully paid non-assessable share of Series A Junior Participating Preferred
Stock, par value $.01 per share (the "Preferred Shares"), of the Company, at a
purchase price of $20.00 per one one-hundredth of a Preferred Share (the
"Purchase Price"), upon presentation and surrender of this Right Certificate
with the Form of Election to Purchase duly executed. The number of Rights
evidenced by this Right Certificate (and the number of one one-hundredths of a
Preferred Share which may be purchased upon exercise hereof) set forth above,
and the Purchase Price set forth above, are the number and Purchase Price as of
April 24, 1998, based on the Preferred Shares as constituted at such date. As
provided in the Rights Agreement, the Purchase Price and the number of one
one-hundredths of a Preferred Share which may be purchased upon the exercise of
the Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the above-mentioned offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal 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 of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate (i) may be redeemed by the Company at a redemption price of
$.001 per Right or (ii) may be exchanged in whole or in part for Preferred
Shares or shares of the Company's Class A Common Stock, par value $.01 per
share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
B-2
<PAGE> 50
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of the date first set forth above.
ATTEST: VIDEO UPDATE, INC.
By
- -------------------------- -----------------------------
Countersigned:
AMERICAN STOCK TRANSFER &
TRUST COMPANY, AS RIGHTS AGENT
By
-----------------------
Authorized Signature
B-3
<PAGE> 51
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED hereby sells,
-----------------------------
assigns and transfers unto
-----------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint Attorney, to transfer
the within Right Certificate on the books of the within-named Company, with full
power of substitution.
Dated: ,
----------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
----------------------------------------
Signature
B-4
<PAGE> 52
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: VIDEO UPDATE, INC.
The undersigned hereby irrevocably elects to exercise
Rights represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:
PLEASE INSERT SOCIAL SECURITY
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated: ,
----------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
B-5
<PAGE> 53
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE - CONTINUED
-----------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
----------------------------------------
Signature
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
B-6
<PAGE> 54
EXHIBIT C
---------
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On April 9, 1998, the Board of Directors of Video Update, Inc. (the
"Company") approved the declaration of a dividend of one preferred share
purchase right (a "Right") for each outstanding share of Class A Common Stock,
par value $.01 per share (the "Common Shares") and for each outstanding Class B
Warrant ("Warrants"), of the Company. The dividend is payable on April 24, 1998
(the "Record Date") to the stockholders and Class B Warrantholders of record on
that date. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Junior Participating Preferred
Stock, par value $.01 per share (the "Preferred Shares"), of the Company at a
price of $ 20.00 per one one-hundredth of a Preferred Share (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement dated as of April 13, 1998 (the "Rights Agreement")
between the Company and American Stock Transfer and Trust Company, as Rights
Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons have
acquired beneficial ownership of 15% or more of the outstanding Common Shares
(an "Acquiring Person") or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any person
or group of affiliated persons becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding Common Shares
(the earlier of such dates being called the "Distribution Date"), the Rights
will be evidenced, with respect to any of the Common Share or the Warrant
certificates outstanding as of the Record Date, by such Common Share certificate
or such Warrant certificate, as the case may be, with a copy of this Summary of
Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights are NOT detachable
and will be transferred WITH and ONLY WITH the Common Shares or the Warrants, as
the case may be. Until the Distribution Date (or earlier redemption or
expiration of the Rights), new Common Share or Warrant certificates issued after
the Record Date upon transfer or new issuance of Common Shares or Warrants will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares or for Warrants
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights being attached thereto, will also constitute the transfer of
the Rights associated with the Common Shares or Warrants represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares and of the Warrants as of the close of
business on the Distribution Date and such separate Right Certificates alone
will evidence the Rights.
<PAGE> 55
The Rights are not exercisable until the Distribution Date. The Rights
will expire on April 24, 2008 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then-current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each Preferred
Share will have 100 votes, voting together with the Common Shares. Finally, in
the event of any merger, consolidation or other transaction in which Common
Shares are exchanged, each Preferred Share will be entitled to receive 100 times
the amount received per Common Share. These rights are protected by customary
antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one Common Share.
In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, proper provision shall be made so that each
holder of a Right, other than Rights beneficially owned by the Acquiring Person
(which will thereafter be void), will thereafter have the right to receive upon
exercise -- in lieu of Preferred Shares -- that number of Common Shares having a
market value of two times the exercise price of the Right. At any time after any
person or group becomes an Acquiring Person and prior to the acquisition by such
person or group of 50% or more of the outstanding Common Shares, the Board of
C-2
<PAGE> 56
Directors of the Company may exchange the Rights (other than Rights owned by
such person or group which will have become void), in whole or in part, at an
exchange ratio of one Common Share, or one one-hundredth of a Preferred Share
(or of a share of a class or series of the Company's preferred stock having
equivalent rights, preferences and privileges), per Right (subject to
adjustment).
The Rights Agreement provides that none of the Company's directors,
officers or financial advisers shall be deemed to beneficially own any Common
Shares owned by any other director, officer or financial adviser by virtue of
such persons acting in their capacities as such, including in connection with
the formulation and publication of the Board of Directors recommendation of its
position, and actions taken in furtherance thereof, with respect to an
acquisition proposal relating to the Company or a tender or exchange offer for
the Common Shares.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the Right.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to the acquisition by a person or group of affiliated
or associated persons of beneficial ownership of 15% or more of the outstanding
Common Shares, the Board of Directors of the Company may redeem the Rights in
whole, but not in part, at a price of $.001 per Right (the "Redemption Price").
The redemption of the Rights may be made effective at such time on such basis
with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
C-3
<PAGE> 57
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to (a) lower certain thresholds described above to not less than the greater of
(i) the sum of .001% and the largest percentage of the outstanding Common Shares
then known to the Company to be beneficially owned by any person or group of
affiliated or associated persons and (ii) 10%, (b) fix a Final Expiration Date
later than April 13, 2008 or (c) increase the Purchase Price, except that from
and after such time as any person or group of affiliated or associated persons
becomes an Acquiring Person no such amendment may adversely affect the interests
of the holders of the Rights (other than the Acquiring Person and its affiliates
and associates).
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
A copy of the Rights Agreement is being filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
April 14, 1998. A copy of the Rights Agreement is available free of charge from
the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is hereby incorporated herein by reference.
C-4
