Issuance of stock rights to subscribe. The company is issuing to its holders of common stock of record at the close of business on this date rights ("rights") to subscribe for _________ shares of the company's common stock offered by this prospectus. One right will be issued for each share of common stock held of record as of that date. Seven rights are required to subscribe for each share of the company's common stock. The company has been advised that the principal shareholder of the company, _________ ("_________"), holding _________ shares or approximately _________ percent of the outstanding common stock of the company, will exercise all of the rights offered to it. Shareholders who exercise their rights and purchase shares shall have the right to subscribe for unsubscribed shares, if any. The number of unsubscribed shares which a shareholder may purchase shall be determined by a fraction, the numerator of which shall be the number of shares purchased by the shareholder in this rights offering (other than pursuant to the right to buy unsubscribed shares) and the denominator of which shall be the aggregate of the shares purchased by all shareholders who elect to purchase unsubscribed shares (other than pursuant to the right to buy unsubscribed shares). Such fraction shall be multiplied by the number of unsubscribed shares. In the event offers to purchase unsubscribed shares exceed the total number of unsubscribed shares, all purchases of shares will be prorated according to the above formula. The right to purchase unsubscribed shares may be exercised by completion of the appropriate portion of the warrant referred to below. _________ has indicated it will purchase its pro rata portion of the unsubscribed shares. In the event there remain unsubscribed shares after all over-allocation rights are exercised, _________ has agreed to purchase the remaining shares at the subscription price. _________ may refuse at its discretion to exercise its rights to purchase shares as set forth above if (a) the company has sustained a loss, whether or not insured, as a result of any fire, flood, accident, earthquake or other similar calamity which interferes materially with the continuous conduct of the business of the company, (b) if there has occurred an outbreak of hostilities between the United States and any foreign power, (c) trading in securities on the New York Stock Exchange is suspended or minimum prices are established on the exchange, or (d) a banking moratorium is in effect in the State of _________ by action of state or federal authorities. Warrants The rights are evidenced by a form of subscription warrant ("warrant") in registered form. Each warrant represents the total number of rights to which the holder is entitled. Expiration of Offer The rights will expire at _________ a.m./p.m., _________ time, [date]; (the "expiration date"), unless extended by the company, and the rights will then be valueless. Subscription Price The subscription price is $_____(United States funds) for each share. Method of Exercising Rights Seven rights are required to subscribe for each share through the exercise of rights. Rights may be exercised by mailing or delivering the warrants, prior to the expiration date, with the subscription agreement executed, together with full payment of the subscription price, and in addition, a deposit of $_____ for each unsubscribed share offered to be purchased to the subscription agent (the "subscription agent"). Payment of the subscription price is to be made by check, bank draft or postal or express money order to the order of the subscription agent or to the company. No fractional shares will be issued.
The name and address of the subscription agent are as follows: _________ The name and address of the forwarding agent (together with the subscription agent called the "agents") are as follows: If rights are delivered by mail: _________ If rights are delivered by hand: _________ Telegraphic Exercise of Rights If, at or before the expiration date, either agent shall have received the full subscription price by telegram or otherwise, together with a guarantee in writing or by telegram from a bank or trust company or from a member firm of the New York, American, or Pacific Stock Exchange, that the warrant for rights has been forwarded to the agent (setting forth the subscriber's name and the serial number of the certificate for rights), the subscription will be accepted, subject to withholding delivery of the shares subscribed for until receipt of the executed warrant for rights. Purchases and Sales of Rights The company will neither buy nor sell rights. Rights may be bought or sold through the usual investment channels during the period of the subscription offer. For the convenience of the holders of the rights, the company has made arrangements for the subscription agent, as the agent for holders, to sell any rights that the holder does not wish to exercise, or to purchase not more than six additional rights necessary for the purchase of a full share. It is expected that trading, if any, in the rights (which will be on the Pacific Stock Exchange) will be on the basis of one right accruing to each share of common stock, and the unit of trading will be 100 rights. Delivery of Certificates Certificates for shares subscribed for will be delivered in definitive form, registered in the name of the subscriber, as soon as practicable. Certain Holders Where warrants mailed to stockholders are returned as undelivered, or the company lacks a mailing address for any stockholder or, with respect to any stockholder concerning whom the agents are advised by counsel for the company, _________, that the issuance and mailing of a warrant and sale of the company's common stock are not qualified under state securities or "blue sky" laws, regulations or rulings, the subscription agent may but shall not be obligated to sell the rights evidenced by those warrants as soon as practicable after noon on the day prior to the expiration date and remit the proceeds to or hold the proceeds for the persons entitled. Warrants for rights will not be mailed to stockholders who have addresses outside the United States, Puerto Rico, Canada and Mexico or to stockholders who have APO or FPO addresses, but will be held by the subscription agent for the account of stockholders and, if no instructions with full payment of the subscription price are received by noon on the day prior to the expiration date, the rights evidenced will be sold if possible and the net proceeds remitted to the stockholders. Federal Income Tax Consequences The company has been advised by its counsel, _________, that
(1). Pursuant to Section 305 of the Internal Revenue Code, no amount will be included in gross income by shareholders upon receipt of the rights; (2). If the fair market value of the rights (on the date of distribution) is 15 percent or more of the fair market value (on that date) of the stock of the company on which the rights are issued, each shareholder who exercises or sells any rights must allocate to those rights part of the cost basis of his or her shares on which the rights are issued, in the proportion that the fair market value of the rights received bears to the total of the fair market value of the shares (ex-rights) and the fair market value of the rights (all values being determined as of the date of distribution); (3). If the fair market value of the rights (on the date of distribution) is less than 15 percent of the fair market value (on that date) of the stock of the company on which the rights are issued, each shareholder who exercises or sells any rights may elect to allocate to those rights part of the cost basis of his or her shares on which the rights are issued (using the formula as described in (2) above), and, in the event that an election to allocate is not made, the basis for the rights will be zero; (4). If the rights received by a stockholder are not exercised or sold but are allowed to expire, no loss will be allowed to the stockholder and no adjustment will be made to the cost basis of the shares of stock upon which the rights are issued; (5). On the sale of the rights by a stockholder in whose hands the rights constitute capital assets, long or short term capital gain or loss will be realized in an amount equal to the difference between the allocated cost basis, if any, and the sale price; (6). In determining the holding period of the rights for purposes of determining whether a capital gain or loss is short-term or long-term, the period for which the stockholder held the common stock with respect to which the rights were issued prior to the receipt of the rights will be added to the holding period of the rights; and (7). No gain or loss will be recognized by the holder of the rights upon exercise. The basis of the shares received upon exercise will be the subscription price, increased by the basis of the rights. The holding period of the shares received upon exercise will begin from the date of exercise. Shareholders should consult their tax advisors as to the federal income tax consequences to them upon the receipt, exercise or sale of the rights.