1
EXHIBIT 20.2
================================================================================
SUMMARY OF THE TERMS OF THE RIGHTS PLAN
On October 14, 1998, the Board of Directors of Giga-tronics
Incorporated (the "Company") authorized and declared a dividend of one preferred
stock purchase right (a "Right") for each share of common stock of the Company
(the "Common Shares"). The dividend is payable on November 10, 1998 (the "Record
Date") to the holders of record of Common Shares as of the close of business on
such date.
The following is a brief description of the Rights. It is intended to
provide a general description only and is subject to the detailed terms and
conditions of a Rights Agreement (the "Rights Agreement") dated as of November
6, 1998 by and between the Company and ChaseMellon Shareholder Services, L.L.C.,
as Rights Agent (the "Rights Agent).
1. COMMON SHARE CERTIFICATES REPRESENTING RIGHTS.
Until the Distribution Date (as defined in Section 2 below), (a) the
Rights shall not be exercisable, (b) the Rights shall be attached to and trade
only together with the Common Shares and (c) the stock certificates representing
Common Shares shall also represent the Rights attached to such Common Shares.
Common Share certificates issued after the Record Date and prior to the
Distribution Date shall contain a notation incorporating the Rights Agreement by
reference.
2. DISTRIBUTION DATE
The "Distribution Date" is the earliest of (a) the tenth business day
following the date of the first public announcement that any person (other than
the Company or certain related entities, and with certain additional exceptions)
has become the beneficial owner of 15% or more of the then outstanding Common
Shares (such person is a "15% Shareholder" and the date of such public
announcement is the "15% Ownership Date"), (b) the tenth business day (or such
later day as shall be designated by the Board of Directors) following the date
of the commencement of, or the announcement of an intention to make, a tender
offer or exchange offer, the consummation of which would cause any person to
become a 15% Shareholder or (c) the first date, on or after the 15% Ownership
Date, upon which the Company is acquired in a merger or other business
combination in which the Company is not the surviving corporation or in which
the outstanding Common Shares are changed into or exchanged for stock or assets
of another person, or upon which 50% or more of the Company's consolidated
assets or earning power are sold (other than in transactions in the ordinary
course of business). In calculating the percentage of outstanding Common Shares
that are beneficially owned by any person, such person shall be deemed to
beneficially own any Common Shares issuable upon the exercise, exchange or
conversion of any options, warrants or other securities beneficially owned by
such person; provided, however, that
2
such Common Shares issuable upon such exercise shall not be deemed outstanding
for the purpose of calculating the percentage of Common Shares that are
beneficially owned by any other person.
Upon the close of business of the Distribution Date, the Rights shall
separate from the Common Shares, Right certificates shall be issued, and the
Rights shall become exercisable to purchase Preferred Shares as described in
Section 5 below.
3. ISSUANCE OF RIGHT CERTIFICATES
As soon as practicable following the Distribution Date, separate
certificates representing only Rights shall be mailed to the holders of record
of Common Shares as of the close of business on the Distribution Date, and such
separate Right certificates alone shall represent such Rights from and after the
Distribution Date.
4. EXPIRATION OF RIGHTS
The Rights shall expire on November 10, 2003, unless earlier redeemed
or exchanged, unless the Distribution Date has previously occurred and the
Rights have separated from the Common Shares, in which case the Rights will
remain outstanding for five years.
5. EXERCISE OF RIGHTS
Unless the Rights have expired or been redeemed or exchanged, they may
be exercised, at the option of the holders, pursuant to paragraphs (a), (b) or
(c) below. No Right may be exercised more than once or pursuant to more than one
of such paragraphs. From and after the first event of the type described in
paragraphs (b) or (c) below, each Right that is beneficially owned by a 15%
Shareholder or that was attached to a Common Share that is subject to an option
beneficially owned by a 15% Shareholder shall be void.
(a) Right to Purchase Preferred Shares. From and after the
close of business on the Distribution Date, each Right (other than a
Right that has become void) shall be exercisable to purchase one
one-hundredth of a share of Series A Junior Participating Cumulative
Preferred Stock of the Company (the "Preferred Shares"), at an exercise
price of $12 (twelve dollars) (the "Exercise Price"). Prior to the
Distribution Date, the Company may substitute for all or any portion of
the Preferred Shares that would otherwise be issuable upon exercise of
the Rights, cash, assets or other securities having the same aggregate
value as such Preferred Shares. The Preferred Shares are nonredeemable
and, unless otherwise provided in connection with the creation of a
subsequent series of preferred stock, are subordinate to any other
series of the Company's preferred stock whether issued before or after
the issuance of the Preferred Shares. The Preferred Shares may not be
issued except upon exercise of Rights. The holder of a Preferred Share
is entitled to receive when, as and if declared, the greater of (i)
cash and non-cash dividends in an amount equal to 100 times the
dividends declared on each Common Share or (ii) a preferential annual
dividend of $1.00 per Preferred Share ($.01 per one one-hundredth of a
Preferred Share). In the event of liquidation, the holders of
38
3
Preferred Shares shall be entitled to receive a liquidation payment in
an amount equal to the greater of (1) $1.00 per Preferred Share ($.01
per one one-hundredth of a Preferred Share), plus all accrued and
unpaid dividends and distributions on the Preferred Shares, or (2) an
amount equal to 100 times the aggregate amount to be distributed per
Common Share. Each Preferred Share has 100 votes per share, voting
together with the Common Shares. In the event of any merger,
consolidation or other transaction in which Common Shares are
exchanged, the holder of a Preferred Share shall be entitled to receive
100 times the amount received per Common Share. The rights of the
Preferred Shares as to dividends, voting and liquidation preferences
are protected by antidilution provisions. It is anticipated that the
value of one one-hundredth of a Preferred Share should approximate the
value of one Common Share.
(b) Right to Purchase Common Shares of the Company. From and
after the close of business on the tenth business day following the 15%
Ownership Date, each Right (other than a Right that has become void)
shall be exercisable to purchase, at the Exercise Price (initially
$12), Common Shares with a market value equal to two times the Exercise
Price. If the Company does not have sufficient Common Shares available
for all Rights to be exercised, the Company shall substitute for all or
any portion of the Common Shares that would otherwise be issuable upon
the exercise of the Rights, cash, assets or other securities having the
same aggregate value as such Common Shares.
(c) Right to Purchase Common Stock of a Successor Corporation.
If, on or after the 15% Ownership Date, (i) the Company is acquired in
a merger or other business combination in which the Company is not the
surviving corporation, (ii) the Company is the surviving corporation in
a merger or other business combination in which all or part of the
outstanding Common Shares are changed into or exchanged for stock or
assets of another person or (iii) 50% or more of the Company's
consolidated assets or earning power are sold (other than in
transactions in the ordinary course of business), then each Right
(other than a Right that has become void) shall thereafter be
exercisable to purchase, at the Exercise Price (initially $12), shares
of common stock of the surviving corporation or purchaser,
respectively, with an aggregate market value equal to two times the
Exercise Price.
6. ADJUSTMENTS TO PREVENT DILUTION
The Exercise Price, the number of outstanding Rights and the number of
Preferred Shares or Common Shares issuable upon exercise of the Rights are
subject to adjustment from time to time as set forth in the Rights Agreement in
order to prevent dilution. With certain exceptions, no adjustment in the
Exercise Price shall be required until cumulative adjustments require an
adjustment of at least 1%.
7. CASH PAID INSTEAD OF ISSUING FRACTIONAL SECURITIES
No fractional securities shall be issued upon exercise of a Right
(other than fractions of Preferred Shares that are integral multiples of one
one-hundredth of a Preferred Share and that may, at the election of the Company,
be evidenced by depositary receipts) and in lieu thereof, an
39
4
adjustment in cash shall be made based on the market price of such securities on
the last trading date prior to the date of exercise.
8. REDEMPTION
At any time prior to the earlier of (a) the tenth business day (or such
later day as shall be designated by the Board of Directors) following the date
of the commencement of, or the announcement of an intention to make, a tender
offer or exchange offer, the consummation of which would cause any person to
become a 15% Shareholder, (b) the tenth business day after the 15% Ownership
Date or (c) the first event of the type giving rise to exercise rights under
Section 5(c) above, the Board of Directors may, at its option, direct the
Company to redeem the Rights in whole, but not in part, at a price of $.001 per
Right (the "Redemption Price"), and the Company shall so redeem the Rights.
Immediately upon such action by the Board of Directors (the date of such action
is the "Redemption Date"), the right of the holders of Rights thereafter shall
be to receive the Redemption Price.
9. EXCHANGE
At any time after the 15% Ownership Date and prior to the first date
thereafter upon which a 15% Shareholder shall be the beneficial owner of 50% or
more of the outstanding Common Shares, the Board of Directors may, at its
option, direct the Company to exchange all, but not less than all, of the then
outstanding Rights for Common Shares at an exchange ratio per Right equal to
that number of Common Shares which, as of the date of the Board of Directors'
action, has a current market price equal to the difference between the Exercise
Price and the current market price of the shares that would otherwise be
issuable upon exercise of a Right on such date (the "Exchange Ratio"), and the
Company shall so exchange the Rights. Immediately upon such action by the Board
of Directors, the right to exercise Rights shall terminate and the only right of
the holders of Rights thereafter shall be to receive a number of Common Shares
equal to the Exchange Ratio.
10. NO SHAREHOLDER RIGHTS PRIOR TO EXERCISE
Until a Right is exercised, the holder thereof, as such, shall have no
rights as a Shareholder of the Company (other than rights resulting from such
holder's ownership of Common Shares), including, without limitation, the right
to vote or to receive dividends.
11. AMENDMENT OF RIGHTS AGREEMENT
The Board of Directors may, from time to time, without the approval of
any holder of Rights, direct the Company and the Rights Agent to supplement or
amend any provision of the Rights Agreement in any manner, whether or not such
supplement or amendment is adverse to any holder of Rights, and the Company and
the Rights Agent shall so supplement or amend such provision; provided, however,
that from and after the earliest of (a) the tenth business day (or such later
day as shall be designated by the Board of Directors) following the date of the
commencement of, or the announcement of an intention to make, a tender offer or
exchange offer, the consummation of which would cause any person to become a 15%
Shareholder, (b) the
40
5
15% Ownership Date, (c) the first event of the type giving rise to exercise
rights under Section 5(c) above, or (d) the Redemption Date, the Rights
Agreement shall not be supplemented or amended in any manner that would
materially and adversely affect any holder of outstanding Rights other than a
15% Shareholder.
41