Exhibit
4.1


 


WATERS
INSTRUMENTS, INC.


 


and


Wells
Fargo Bank, N.A.


as Rights
Agent


 


 


Rights
Agreement


 


 


Dated as of  March 15, 2005


 





















 


RIGHTS
AGREEMENT


 


This Agreement, dated as
of March 15, 2005, by and between WATERS INSTRUMENTS, INC., a Minnesota
corporation (“the Company”), and
Wells Fargo Bank, N.A. (the “Rights Agent”),


 


WITNESSETH:


 


WHEREAS, on March 8,
2005, the Board of Directors of the Company (the “Board”) authorized the issuance of, and declared a dividend
payable in, one right (a “Right”)
for each share of Common Stock, $.01, par value per share, of the Company
outstanding as of the close of business on March 18, 2005 (the “Record Date”), each such Right representing
the right to purchase one one-hundredth (1/100) of a share of Series A Preferred
Stock of the Company (“Preferred Stock”)
authorized by the Board on March 8, 2005, upon the terms and subject to
the conditions set out in this Agreement; and


 


WHEREAS, the Board
further authorized the issuance of one Right (subject to adjustment) with respect
to each share of Common Stock which may be issued between the Record Date and
the earlier to occur of the Expiration Date or the Final Expiration Date
(defined below);


 


NOW, THEREFORE, in
consideration of the premises and the mutual agreements set forth in this
Agreement, the parties agree as follows:


 


Section 1.                                            Certain Definitions. 
The following terms will have the meanings indicated:


 


(a)                                  “Acquiring
Person” will mean any Person (defined below) who or which, together
with all Affiliates and Associates (defined below) of such Person, will be the
Beneficial Owner (defined below) of 15% or more of the shares of Voting Stock
(defined below) of the Company then outstanding;  provided, that, an Acquiring
Person will not include an (i) Exempt Person (defined below), or (ii) any
Person, together with all Affiliates and Associates of such Person, who or
which would be an Acquiring Person solely by reason of (A) being the Beneficial
Owner of shares of Voting Stock of the Company, the Beneficial Ownership of which
was acquired by such Person pursuant to any action or transaction or series of
related actions or transactions approved by a majority of the Continuing
Directors before such Person otherwise became an Acquiring Person or (B) a
reduction in the number of issued and outstanding shares of Voting Stock of the
Company pursuant to a transaction or a series of related transactions approved
by a majority of the Continuing Directors, or (iii) any Person who or which,
together with all Affiliates and Associates of such Person, was (based upon
such Person’s Schedule 13D or Schedule 13G filings under the Exchange
Act) the Beneficial Owner of 15% or more of the shares of Voting Stock of the
Company as of the date this Rights Agreement was first adopted by the Board where
such Person’s status as a more than 15% Beneficial Owner of Voting Stock of the
Company was expressly approved by the Board at the time this Rights Agreement
was first adopted by the Board; provided, further, that,
in the event that such Person described in clause (ii) does not become an
Acquiring Person by reason of sub clause (A) or (B) of this clause (ii), such
Person nonetheless will become an Acquiring Person in the event such Person
thereafter acquires Beneficial Ownership of an additional [1%] of the Voting
Stock of the Company, unless the acquisition of such additional Voting Stock
would not result in such person becoming an Acquiring Person by reason of sub
clause (A) or (B) of this clause (ii); provided, further, that
such Person described in clause (iii) will nonetheless become an


 


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Acquiring Person in the
event such Person thereafter acquires Beneficial Ownership of an additional 1%
of the Voting Stock of the Company unless such acquisition is pursuant to any
action or transaction or series of related actions or transactions approved by
a majority of the Continuing Directors. 
Notwithstanding the foregoing, if the Board determines in good faith
(but only if at the time of such determination by the Board there are then in
office not less than two Continuing Directors and such action is approved by a
majority of the Continuing Directors then in office) 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 shares of Common Stock 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 will not be deemed an “Acquiring Person” for any purposes of this Rights
Agreement.


 


(b)                                 “Affiliate”
and “Associate” will have the
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as in effect on the date of
this Rights Agreement.


 


(c)                                  A Person will be deemed the “Beneficial Owner” of, to “Beneficially Own,” or to have “Beneficial Ownership” of, any securities:


 


(i)                                     which such Person or any of such Person’s
Affiliates or Associates beneficially owns, directly or indirectly, for
purposes of Section 13(d) of the Exchange Act and Regulations 13D and 13G
thereunder as in effect on the date of this Rights Agreement; or


 


(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 or the fulfillment of
a condition or both) 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, other rights (other
than these Rights), warrants or options, or otherwise;  provided, however, that a
Person will not be deemed the Beneficial Owner of, or to Beneficially Own
securities tendered pursuant to a tender or exchange offer made by such Person
or any of such Person’s Affiliates or Associates until such tendered securities
are accepted for purchase or exchange or (B) the right to vote, alone or in
concert with others, pursuant to any agreement, arrangement or understanding
(whether or not in writing);  provided,
however, that a Person will not be deemed the Beneficial Owner of, or to
Beneficially Own, any securities if the agreement, arrangement or understanding
to vote such security (1) arises solely from a revocable proxy or consent given
in response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations under the Exchange Act
and (2) is not then reportable by such Person on  Schedule 13D under the Exchange Act (or
any comparable or successor report) as being beneficially owned by such Person;
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


 


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securities), whether or
not in writing, for the purpose of acquiring, holding, and voting (except as
described in clause (B) of subparagraph (ii) of this paragraph (c)) or
disposing of any securities of the Company; 
provided, however, that for purposes of determining
Beneficial Ownership of securities under this Rights Agreement, officers and
directors of the Company, solely by reason of their status as such, will not
constitute a group (notwithstanding that they may be Associates of one another
or may be deemed to constitute a group for purposes of Section 13(d) of
the Exchange Act) and will not be deemed to own shares owned by another officer
or director of the Company.


 


Notwithstanding anything
in this paragraph (c) to the contrary, the phrase “then outstanding,” when used
with reference to a Person’s Beneficial Ownership of securities of the Company,
will mean the number of such securities then issued and outstanding together
with the number of such securities not then actually issued and outstanding
which such Person would be deemed to Beneficially Own under this Rights
Agreement.  Further, notwithstanding
anything in this paragraph (c) to the contrary, a Person engaged in the
business of underwriting securities will not be deemed be Beneficial Owner of,
to Beneficially Own, or to have Beneficial Ownership of, any securities
acquired in good faith in a firm commitment underwriting until the expiration
of forty days after the date of such acquisition.


 


(d)                                 “Business
Day” will mean any day other than a Saturday, Sunday, or a day on
which banking institutions in the State of Minnesota are authorized or
obligated by law or executive order to close.


 


(e)                                  “Close
of Business” on any given date will mean 5:00 P.M., Minneapolis
time, on such date;  provided, however,
that if such date is not a Business Day it will mean 5:00 P.M., Minneapolis
time, on the next succeeding Business day.


 


(f)                                    “Common
Stock” when used with reference to the Company will mean the common
stock, par value $.01 per share of the Company. “Common Stock” when used with reference to any Person other
than the Company which will be organized in corporate form will mean the
capital stock or other equity security with the greatest per share voting power
of such Person.  “Common Stock” when used with reference to
any Person other than the Company which will not be organized in corporate form
will mean units of beneficial interest which will represent the right to
participate in profits, losses, deductions and credits of such Person and which
will be entitled to exercise the greatest voting power per unit of such Person.


 


(g)                                 “Continuing
Director” will mean any member of the Board, while such person is a
member of the Board, who is not an Acquiring Person, or an Affiliate or
Associate of an Acquiring Person, or a representative or nominee of an
Acquiring Person or of any such Affiliate or Associate, but only if such member
either (i) was a member of the Board when this Rights Agreement was first
adopted by the Board or (ii) subsequently became a member of the Board where
such subsequent member’s nomination for election or election to the Board was
recommended or approved by a majority of the Continuing Directors then on the
Board.


 


(h)                                 “Director”
will mean any member of the Board, while such person is a member of the Board,
who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, or a representative or nominee of an Acquiring Person or of any such
Affiliate or Associate.


 


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(i)                                     “Distribution
Date” will have the meaning set forth in Section 3(a).


 


(j)                                     “Exchange
Act” will have the meaning set forth in Section 1(b).


 


(k)                                  “Exempt
Person” will mean (i) the Company, (ii) any Subsidiary of the
Company or (iii) any employee benefit plan or employee stock plan of the
Company or any Subsidiary of the Company, or any trust or other entity
organized, appointed, established or holding Common Stock for or pursuant to
the terms of any such plan.


 


(l)                                     “Exercise
Price” will have the meaning set forth in Sections 4 and 7(b).


 


(m)                               “Expiration
Date” will have the meaning set forth in Section 7(a).


 


(n)                                 “Fair
Market Value” of any security or other property will mean the fair
market value of such property as determined in accordance with Section 11(d).


 


(o)                                 “Final
Expiration Date” will have the meaning set forth in Section 7(a).


 


(p)                                 “Person”
will mean any individual, firm, corporation or other entity, and will include
any successor (by merger or otherwise) of such entity.


 


(q)                                 “Principal
Party” will have the meaning set forth in Section 13(b).


 


(r)                                    “Preferred
Stock” will mean shares of Series A Preferred Stock, par value $.01
per share, of the Company, having the rights and preferences set forth in
Exhibit A hereto.


 


(s)                                  “Qualifying
Tender Offer” will mean a tender or exchange offer for all
outstanding shares of Common Stock of the Company approved by a majority of the
Board (provided that at the time of such approval of the Board there are then
in office not less than two Continuing Directors and such offer is approved by
a majority of the Continuing Directors then in office), after taking into
account the potential long-term value of the Company and all other factors that
they consider relevant.


 


(t)                                    “Record
Date” will have the meaning set forth in Exhibit B hereto.


 


(u)                                 “Redemption
Price” will have the meaning set forth in Section 23(a).


 


(v)                                 “Right
Certificate” will have the meaning set forth in Section 3(d).


 


(w)                               “Stock
Acquisition Date” will mean the first date on which there will be a
public announcement by the Company or an Acquiring Person that an Acquiring Person
has become such (which, for purposes of this definition, will include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act)
or such earlier date as a majority of the Continuing Directors will become
aware of the existence of an Acquiring Person.


 


(x)                                   “Subsidiary”
of a Person will mean any corporation or other entity of which securities or
other ownership interests having voting power sufficient to elect a majority of
the board of directors or other persons performing similar functions are
Beneficially Owned, directly or


 


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indirectly, by such
Person or by any corporation or other entity that is otherwise controlled by
such Person.


 


(y)                                 “Summary
of Rights” will have the meaning set forth in Section 3(b).


 


(z)                                   “Trading
Day” will have the meaning set forth in Section 11(d).


 


(aa)                            “Voting
Stock” will mean (i) the Common Stock of the Company and (ii) any
other shares of capital stock of the Company entitled to vote generally in the election
of directors or entitled to vote together with the Common Stock in respect of
any merger, consolidation, sale of all or substantially all of the Company’s
assets, liquidation, dissolution or winding up.


 


Any determination
required to be made by the Board for purposes of applying the definitions
contained in this Section 1 will be made in good faith by a majority of
the Continuing Directors, or, if there are none, by the Board, which
determination will be binding on the Rights Agent and the holders of the
Rights.


 


Section 2.                                            Appointment of Rights Agent. 
The Company hereby appoints the Rights Agent to act as agent for the
Company and the holders of Rights (who in accordance with Section 3,
shall, prior to the Distribution Date, also be the holders of Common Stock) in
accordance with this Agreement, and the Rights Agent accepts such appointment.
The Company may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable.


 


Section 3.                                            Issuance of Right Certificates.


 


(a)                                  Until the earlier of (i) the tenth day
after the Stock Acquisition Date or (ii) the tenth Business Day (or such later
date as may be determined by action of the Board, but only if at the time of
such determination there are then in office not less than two Continuing
Directors and such action is approved by a majority of the Continuing Directors
then in office, prior to such time as any Person becomes an Acquiring Person)
after the date of the commencement by any Person (other than an Exempt Person)
of, or the first public announcement of the intent of any Person (other than an
Exempt Person) to commence, a tender or exchange offer upon the successful
consummation of which such Person, together with its Affiliates and Associates,
would become the Beneficial Owner of 15% or more of the then outstanding shares
of Voting Stock of the Company (irrespective of whether any shares are actually
purchased pursuant to any such offer) (the earlier of such dates is the “Distribution
Date”), (i) the Rights will be evidenced by the certificates for Common Stock
registered in the name of the holders thereof (together with, in the case of
certificates for Common Stock outstanding as of the Record Date, the Summary of
Rights) and not by separate Right certificates (and the record holders of such
certificates for Common Stock will be the record holders of the Rights
represented thereby), and (ii) the right to receive Right Certificate will be
transferable only simultaneously and together with the transfer of a share of
Common Stock (subject to adjustment as provided in this Agreement).  Until the Distribution Date (or, if earlier,
the Expiration Date or Final Expiration Date), the surrender for transfer of
any certificate for Common Stock will constitute the surrender for transfer of
the Right or Rights associated with the Common Stock evidenced thereby, whether
or not accompanied by a copy of the Summary of Rights.


 


(b)                                 On the Record Date, or as soon as
practicable thereafter, the Company will send a copy of a Summary of Rights to
Purchase Shares of Series A Preferred Stock, in substantially the


 


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form of Exhibit B
attached hereto (the “Summary of Rights”), by first class mail, postage
prepaid, to each record holder of the Common Stock as of the close of business
on the Record Date, at the address of such holder shown on the records of the
Company.


 


(c)                                  Rights will be issued in respect of all
shares of Common Stock that become outstanding after the Record Date but prior
to the earlier of the Distribution Date, the Expiration Date or the Final
Expiration Date.  Certificates for Common
Stock issued (including, without limitation, certificates issued upon original
issuance, transfer or exchange of Common Stock) after the Record Date but prior
to the earliest of the Distribution Date, the Expiration Date, or the Final
Expiration Date will have impressed, printed, written or stamped thereon or
otherwise affixed thereto the following legend:


 


This certificate also
evidences and entitles the holder of this certificate to the same number of
Rights (subject to adjustment) as the number of shares of Common Stock
represented by this certificate, such Rights being on the terms provided in the
Rights Agreement between WATERS INSTRUMENTS, INC. and Wells Fargo Bank, N.A.,
dated as of  March 15, 2005, as it
may be amended from time to time (the “Rights Agreement”), the terms of which
are incorporated here by reference and a copy of which is on file at the
principal executive offices of WATERS INSTRUMENTS, 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. WATERS INSTRUMENTS, INC.
will mail to the registered holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor. Under
certain circumstances as provided in Section 7(e) of the Rights Agreement,
Rights issued to or Beneficially Owned by Acquiring Persons or their Affiliates
or Associates (as such terms are defined in the Rights Agreement) or any
subsequent holder of such Rights will be null and void and may not be
transferred to any Person.


 


(d)                                 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 mail, postage prepaid, to each record
holder of the Common Stock as of the close of business on the Distribution
Date, as shown by the records of the Company, at the address of such holder
shown on such records, a certificate in the form provided by Section 4 (a “Right
Certificate”), evidencing one Right (subject to adjustment as provided in this
Agreement) for each share of Common Stock so held. As of and after the
Distribution Date, the Rights will be evidenced solely by Right Certificates
and may be transferred by the transfer of the Right Certificate as permitted
hereby, separately and apart from any transfer of one or more shares of Common
Stock.


 


Section 4.                                            Form of Right Certificates. 
The Right Certificates and the forms of election to purchase and
assignment to be printed on the reverse thereof, will be substantially in the
form set forth in Exhibit C hereto and may have such marks of identification or
designation and such legends, summaries or endorsements printed thereon as the
Company may deem appropriate, or as may be required to comply with any
applicable law, rule, or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Common Stock or the Rights may
from time to time be listed or conform to usage or otherwise and as are not
inconsistent with the provisions of this Rights Agreement. Subject to Section 22,
the Right Certificates evidencing Rights whenever issued, (i) will be dated as
of the date of issuance of the Rights they represent;


 


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(ii) will be subject
to adjustment from time to time as provided in this Agreement; and (iii) on
their face will entitle the holders the Right Certificates to purchase such
number of shares (including fractional shares which are integral multiples of
one one-hundredth of a share) of Preferred Stock as will be set forth in each
such Right Certificate at the price payable upon exercise of a Right provided
by Section 7(b) as the same may from time to time be adjusted pursuant to
this Agreement (the “Exercise Price”).


 


Section 5.                                            Countersignature and
Registration.


 


(a)                                  Each Right Certificate will be executed
on behalf of the Company by its Chairman, Chief Executive Officer, President or
any Vice President, either manually or by facsimile signature, and attested by
the Chief Financial Officer, the Secretary or an Assistant Secretary of the
Company, either manually or by facsimile signature. Each Right Certificate will
be countersigned by the Rights Agent either manually or by facsimile signature
and will not be valid for any purpose unless so countersigned.  If any officer of the Company who signed any
Right Certificate ceases to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery of the
certificate by the Company, such Right Certificate, nevertheless, may be
countersigned by the Rights Agent and issued and delivered 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. Any Right Certificate may be signed
on behalf of the Company by any person who, on the date of the execution of
such Right Certificate, will 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.


 


(b)                                 Following the Distribution Date, the
Rights Agent will keep or cause to be kept, at an office designated for such
purpose, books for registration and transfer of the Right Certificates issued
hereunder.  Such books will 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.


 


(a)                                  Subject to the provisions of Sections
7(e), 7(f) and 14, 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 Expiration
Date or the Final Expiration Date, any Right Certificate may be transferred, or
split up, combined or exchanged for one or more other Right Certificates,
entitling the registered holder to purchase a like number of shares of
Preferred Stock as the Right Certificate or Right Certificates surrendered then
entitled such holder to purchase.  Any
registered holder desiring to transfer any Right Certificate will surrender the
Right Certificate at the office of the Rights Agent designated for that purpose
with the form of certificate and assignment on the reverse side thereof duly
endorsed (or enclosed with such Right Certificate a written instrument of
transfer in a form satisfactory to the Company and the Rights Agent), duly
executed by the registered holder thereof or his attorney duly authorized in
writing, and with such signature duly guaranteed.  Any registered holder desiring to split up,
combine or exchange any Right Certificate will make such request in writing
delivered to the Rights Agent, and will surrender the Right Certificate to be
split up, combined or exchanged at the office of the Rights Agent designated
therefor.  Thereupon, the Rights Agent
will countersign and deliver to the person entitled thereto a Right Certificate
or Right Certificates, as the case may


 


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be, as so requested. The
Company may require payment of a sum sufficient to cover any transfer tax that
may be imposed in connection with any transfer, split up, combination or
exchange of any Right Certificates.


 


(b)                                 Subject to the provisions of Sections
7(e), 7(f) and 14, 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, if requested by the
Company, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, or upon surrender to the Rights Agent and
cancellation of the Right Certificate if mutilated, the Company will issue and
deliver a new Right Certificate of like tenor to the Rights Agent for delivery
to the registered owner in lieu of the Right Certificate so lost, stolen,
destroyed or mutilated.


 


Section 7.                                            Exercise of Rights: Exercise
Price: Expiration Date of Rights.


 


(a)                                  The Rights will not be exercisable until,
and will become exercisable on, the Distribution Date (unless otherwise
provided in this Agreement, including, without limitation, the restrictions on
exercisability set forth in Sections 7(e) and 23(a)).  Except as otherwise provided in this
Agreement, the Rights may be exercised, in whole or in part, at any time
commencing with the Distribution Date upon surrender of the Right Certificate,
with the form of election to purchase and the certificate on the reverse side
thereof duly executed (with signatures duly guaranteed), to the Rights Agent at
the principal office of the Rights Agent in St. Paul, Minnesota, together with
payment of the Exercise Price with respect to the total number of one
one-hundredths (1/100) of a share (or other securities, cash or other assets,
as the case may be) as to which such surrendered Rights are then exercisable,
subject to adjustment as provided in this Agreement, at or prior to the Close
of Business on the earlier of (i) March 17, 2015 (the “Final Expiration
Date”) or (ii) the date on which the Rights are redeemed as provided in Section 23
(such earlier date is the “Expiration Date”).


 


(b)                                 The Exercise Price for each one one-hundredth
(1/100) of a share of Preferred Stock pursuant to the exercise of a Right will
initially be Seventy Dollars ($70).  The
Exercise Price and the number of shares of Preferred Stock or other securities
to be acquired upon exercise of a Right will be subject to adjustment from time
to time as provided in Sections 11 and 13 and will be payable in accordance
with paragraph (c).


 


(c)                                  Except as otherwise provided in this
Agreement, upon receipt of a Right Certificate with the form of election to
purchase duly executed, accompanied by payment by certified check, cashier’s
check, bank draft or money order payable to the Company or the Rights Agent of
the Exercise Price for the shares to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of the Right
Certificate in accordance with Section 9(e), the Rights Agent will
thereupon promptly (i) requisition from any transfer agent of the Preferred
Stock of the Company one or more certificates representing the number of shares
of Preferred Stock to be so purchased, and the Company hereby authorizes and
directs such transfer agent to comply with all such requests;  (ii) as provided in Section 14(b), at
the election of the Company, cause depository receipts to be issued in lieu of
fractional shares of Preferred Stock; 
(iii) if the election provided for in the immediately preceding clause
(ii) has not been made, requisition from the Company the amount of cash to be
paid in lieu of the issuance of fractional shares in accordance with Section 14(b);  (iv) after receipt of such Preferred Stock
certificates, and if applicable, depository receipts,


 


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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 (v) when appropriate, after
receipt, promptly deliver such cash to or upon the order of the registered
holder of such Right Certificate;  provided,
however, that in the case of a purchase of securities, other than
Preferred Stock, pursuant to Section 13, the Rights Agent will promptly
take the appropriate actions corresponding in such case to that referred to in
the foregoing clauses (i) through (v) of this Section 7(c).  Notwithstanding the foregoing provisions of
this Section 7(c), the Company may suspend the issuance of shares of
Preferred Stock upon exercise of a Right for a reasonable period, not in excess
of ninety (90) days, during which time the Company seeks to register under the
Securities Act of 1933, as amended (the “Act”), and any applicable securities
law of any other jurisdiction, the shares of Preferred Stock to be issued
pursuant to the Rights;  provided,
however, that nothing contained in this Section 7(c) will relieve
the Company of its obligations under Section 9(c).


 


(d)                                 In case the registered holder of any
Right Certificate will exercise less than all the Rights evidenced thereby, a
new Right Certificate evidencing Rights equivalent to the remaining unexercised
Rights will be issued by the Rights Agent to the registered holder of such
Right Certificate or his assign, subject to the provisions of Section 14(b).


 


(e)                                  Notwithstanding any provision of this
Rights Agreement to the contrary, from and after the first occurrence of an
event described in Section 11(a)(ii), any Rights Beneficially Owned by (i)
an Acquiring Person, or any Associate or Affiliate of such Acquiring Person,
which a majority of the Continuing Directors, in their sole discretion, determines
is or was involved in or caused or facilitated, directly or indirectly
(including through any change in the Board), such event, (ii) a transferee of
any Rights Beneficially Owned by such Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after such Acquiring Person
becomes such, or (iii) a transferee of any Rights Beneficially owned by such
Acquiring Person (or any such Associate or Affiliate) who becomes a transferee
prior to or concurrently with such Acquiring Person becoming such and receives
such Rights pursuant to either (A) a transfer (whether or not for
consideration) from such Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which a majority of the Continuing Directors has
determined is part of a plan, arrangement or understanding which has a primary
purpose or effect of avoiding the provisions of this Section 7(e), will
become null and void without any further action and any holder of such Rights
will thereafter have no rights whatsoever with respect to such Rights, whether
under any provision of this Rights Agreement or otherwise.  The Company will use all reasonable efforts
to ensure that the provisions of this Section 7(e) are complied with, but
will have no liability to any holder of Right Certificates or any other Person
as a result of its failure to make any determination with respect to an
Acquiring Person or its Affiliates, Associates or transferees hereunder.  No Right Certificate will be issued pursuant
to Section 3 that represents Rights Beneficially Owned by an Acquiring
Person whose Rights would be void pursuant to the provisions of this Section 7(e)
or any Associate or Affiliate thereof; no Right Certificate will be issued at
any time upon the transfer of any Rights to an Acquiring Person whose Rights
would be void pursuant to the provisions of this Section 7(e) 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 whose Rights
would be void pursuant to the provisions of this Section 7(e) will be
cancelled.


 


9





















 


(f)                                    Notwithstanding anything in this
Agreement to the contrary, neither the Rights Agent nor the Company will be
obligated to undertake any action with respect to a registered holder upon the
occurrence of any purported exercise as set forth in this Section 7 unless
such registered holder will have (i) completed and signed the certificate
following the form of election to purchase set forth on the reverse side of the
Right Certificate surrendered for such exercise and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company will
reasonably request.


 


Section 8.                                            Cancellation and Destruction of
Right Certificates.  All Rights 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, will be cancelled by it, and no Right Certificates will be issued in
lieu thereof except as expressly permitted by any of the provisions of this
Rights Agreement. The Company will deliver to the Rights Agent for cancellation
and retirement, and the Rights Agent will cancel and retire, any Right
Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof.  Subject to applicable
law and regulation, the Rights Agent shall maintain in a retrievable database
electronic records of all canceled or destroyed Rights Certificates.  Upon written request of the Company, the
Rights Agent shall provide to the Company or its designee copies of such
electronic records relating to the Rights Certificates cancelled or destroyed
by the Rights Agent.


 


Section 9.                                            Reservation and Availability of
Shares of Preferred Stock.


 


(a)                                  The Company covenants and agrees that it
will cause to be reserved and kept available out of its authorized and unissued
shares of Preferred Stock (and, following the occurrence of an event described
in Section 11(a)(ii) or 13, out of its authorized and unissued shares of
Common Stock and/or other securities), the number of shares of Preferred Stock
(and, following the occurrence of an event described in Section 11(a)(ii)
or 13, Common Stock and/or other securities) that, as provided in this
Agreement including Section 11(a)(iii), will be sufficient to permit
exercise in full of all outstanding Rights.


 


(b)                                 The Company will use its best efforts to
cause, from and after such time as the Rights become exercisable, all shares of
Preferred Stock issued or reserved for issuance in accordance with this Rights
Agreement to be listed, upon official notice of issuance, upon the principal
national securities exchange, if any, upon which the Common Stock is listed or,
if the principal market for the Common Stock is not on any national securities
exchange, to be eligible for quotation in the National Association of
Securities Dealers’ Automated Quotation System (“NASDAQ”) or any successor
thereto or other comparable quotation system.


 


(c)                                  The Company covenants and agrees that it
will take all such action as may be necessary to insure that all shares
delivered upon the exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the Exercise Price in
respect thereof), be duly and validly authorized and issued and fully paid and
nonassessable shares.


 


(d)                                 The Company will use its best efforts to
(i) file, as soon as practicable following the occurrence of the event
described in Section 11(a)(ii) or 13, or as soon as is required by law
following the Distribution Date, as the case may be, a registration statement
under the Act, with respect to the securities purchasable upon exercise of the
Rights on an appropriate form;  (ii)
cause


 


10





















 


such registration
statement to become effective as soon as practicable after such filing;  and (iii) cause such registration statement
to remain effective (with a prospectus at all times meeting the requirements of
the Act) until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities, and (B) the date of the expiration of the
Rights. The Company may temporarily suspend, for a period not to exceed ninety
(90) days, the issuance of securities upon exercise of a Right in order to
prepare and file a registration statement under the Act and permit it to become
effective.  Upon any such suspension, the
Company will issue a public announcement that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such time
as the suspension is no longer in effect. 
The Company will also take such action as may be appropriate under, or
to ensure compliance with, the securities or “Blue Sky” laws of the various
states in connection with the exercisability of the Rights.  Notwithstanding any provision of this Rights
Agreement to the contrary, the Rights will not be exercisable in any
jurisdiction unless the requisite qualification in such jurisdiction has been
obtained and until a registration statement under the Act if required, has been
declared effective.


 


(e)                                  The Company 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 securities upon the exercise of Rights.  The Company will not, however, be required to
pay any transfer tax which may be payable in respect of any transfer or
delivery of a Right Certificate to a Person other than, or the issuance or
delivery of certificates for securities upon exercise of Rights in a name other
than that of, the registered holder of the Right Certificate, and the Company
will not be required to issue or deliver a Right Certificate or certificate for
such securities to a Person other than such registered holder until any such
transfer tax has have been paid (any such transfer 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 transfer tax
is due.


 


Section 10.                                      Preferred Stock Record Date. 
Each Person in whose name any certificate for shares of Preferred Stock
(or Common Stock and/or other securities, as the case may be) is issued upon
the exercise of Rights will for all purposes be deemed to have become the
holder of record of the Preferred Stock (or Common Stock and/or other
securities, as the case may be) represented thereby, and such certificate will
be dated as of the date upon which the Right Certificate evidencing such Rights
was duly surrendered and payment of the Exercise 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 Stock (or Common Stock and/or other securities, as the case
may be) transfer books of the Company are closed, such Person will be deemed to
have become the record holder of such shares on, and such certificate will be
dated as of, the next succeeding Business Day on which the Preferred Stock (or
Common Stock and/or other securities, as the case may be) transfer books of the
Company are open.  Prior to the exercise
of the Rights evidenced thereby, the holder of a Right Certificate, as such,
will not be entitled to any rights of a stockholder of the Company with respect
to shares for which the Rights will be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or
to exercise any preemptive rights, and will not be entitled to receive any
notice of any proceedings of the Company, except as provided in this Agreement.


 


Section 11.                                      Adjustment of Exercise Price or
Number of Shares.  The Exercise Price and the number and kind of
shares which may be purchased upon exercise of a Right are subject to
adjustment from time to time as provided in this Section 11.


 


11





















 


(a)                                                                                  (i)                                     In the event the Company will at any time after the
date of this Rights Agreement (A) declare or pay any dividend on Common Stock
payable in shares of Common Stock, (B) subdivide or split the outstanding
shares of Common Stock into a greater number of shares or (C) combine or
consolidate the outstanding shares of Common Stock into a smaller number of
shares or effect a reverse split of the outstanding shares of Common Stock,
then and in each such event the number and kind of shares of Preferred Stock or
capital stock issuable upon the exercise of a Right after the Record Date for
such event (if one has been established or, if not, after the date of such
event) will be the number of shares of Preferred Stock or capital stock
issuable pursuant to such right immediately prior to such event multiplied by a
fraction, the numerator of which is the number of Rights outstanding
immediately prior to such event, and the denominator of which is the number of
Rights outstanding immediately after such event and the Exercise Price after
such event will be the Exercise Price in effect immediately prior to such event
multiplied by such fraction. If an event occurs which would require an
adjustment under both this Section 11(a)(i) and Section 11(a)(ii),
the adjustment provided for in this Section 11(a)(i) will be in addition
to, and will be made prior to, any adjustment required pursuant to Section 11(a)(ii).


 


(ii)                                  Subject to Sections 23(a) and 24, in the
event that any Person (other than an Exempt Person), alone or together with its
Affiliates and Associates, will become an Acquiring Person, except pursuant to
a Qualifying Tender Offer and except as otherwise provided in this Section 11,
each holder of a Right, except as provided in Section 7(e), will
thereafter have the right to receive upon exercise of such Right in accordance
with the terms of this Rights Agreement and payment of the Exercise Price, the
greater of (A) the amount of Preferred Stock for which such Right was
exercisable immediately prior to the first occurrence of the event described in
this Section 11(a)(ii) or (B) the amount of Preferred Stock, based on the
per share Fair Market Value of the Preferred Stock (determined pursuant to Section 11(d))
on the date of such first occurrence, having a value equal to twice the
Exercise Price;  provided, however,
that if the transaction that would otherwise give rise to the foregoing
adjustment is also subject to the provisions of Section 13, then only the
provisions of Section 13 will apply and no adjustment will be made
pursuant to this Section 11(a)(ii); further provided, however,
in lieu of Preferred Stock, each holder of a Right, except as provided in Section 7(e),
may thereafter elect to receive upon and at the time of exercise of such Right,
such number of shares of Common Stock as, based upon the per share Fair Market
Value of the Common Stock (determined pursuant to Section 11(d)) on the
date of such first occurrence, have a value equal to twice the Exercise
Price.  From and after the occurrence of
an event described above, any Rights that are or were acquired or Beneficially
Owned by any Acquiring Person (or any Associate or Affiliate of any Acquiring
Person) or any transferee of any of the foregoing will be void and any holder
of such Rights will thereafter have no right to exercise such Rights under any
provision of this Agreement.  No Right
Certificate will 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, and no Right
Certificate will be issued pursuant to Section 3 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 transferee
or nominee of such an Acquiring Person, Associate or Affiliate, and any Right
Certificate delivered to the Rights Agent for transfer to an Acquiring Person
whose rights would be void pursuant to the preceding sentence or any Associate
or Affiliate


 


12





















 


thereof will be
cancelled.  In the event that any Person
will become an Acquiring Person and any Rights will be outstanding, the Company
will not take any action that would eliminate or diminish the benefits intended
to be afforded by the Rights.


 


(iii)                               In the event that the Company does not
have available sufficient authorized but unissued Preferred Stock and Common
Stock to permit the adjustments required pursuant to the foregoing subparagraph
(i) or the exercise in full of the Rights in accordance with the foregoing
subparagraph (ii), the Company will take all such action as may be necessary to
authorize and reserve for issuance such number of additional shares of
Preferred Stock and Common Stock as may from time to time be required to be
issued upon the exercise in full of all Rights from time to time outstanding
and, if necessary, will use its best efforts to obtain stockholder approval
thereof. In lieu of issuing shares of Preferred Stock in accordance with the
foregoing subparagraphs (i) and (ii), the Company may, subject to approval by a
majority of the Continuing Directors of the Board, if it determines that such
action is necessary or appropriate and not contrary to the interests of holders
of the Rights, elect to issue or pay, upon the exercise of the Rights, cash,
property, or shares of Preferred Stock or Common Stock, or any combination
thereof.  Such cash, property, or shares
of Preferred Stock or Common Stock will have a value equal to the Fair Market
Value of the shares of Preferred Stock that otherwise would have been required
to be issued upon such exercise of the Rights. 
The Fair Market Value of the Preferred Stock will be determined pursuant
to Section 11(d).  Subject to Section 23,
any such election by the Continuing Directors must be made and publicly
announced within thirty(30) days after the date on which the event described in
Section 11(a)(ii) occurs.


 


(b)                                 In case the Company will fix a record
date for the issuance of rights, options or warrants to all holders of
Preferred Stock entitling them (for a period expiring within 45 calendar days
after such record date) to subscribe for or purchase Preferred Stock (or shares
having the same rights, privileges and preferences as the Preferred Stock (“equivalent
preference shares”)) or securities convertible into Preferred Stock or
equivalent preference shares at a price per share of Preferred Stock or
equivalent preference share (or having a conversion price per share, if a
security convertible into Preferred Stock or equivalent preference shares) less
than the then current Fair Market Value of a share of Preferred Stock
(determined pursuant to Section 11(d)) on such record date, the Exercise
Price to be in effect after such record date will be determined by multiplying
the Exercise Price in effect immediately prior to such record date by a
fraction, the numerator of which will be the number of shares of Preferred
Stock and equivalent preference shares outstanding on such record date plus the
number of shares of Preferred Stock and equivalent preference shares which the
aggregate offering price of the total number of shares of Preferred Stock
and/or equivalent preference 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 Fair Market Value and the denominator of which will be
the number of shares of Preferred Stock and equivalent preference shares outstanding
on such record date plus the number of additional shares of Preferred Stock
and/or equivalent preference 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 will 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 will be
in a form other than cash, the value of such consideration will be as
determined in good faith by a majority of the Continuing Directors, or, if
there are none, by the Board of Directors of the Company, whose


 


13





















 


determination will be
described in a statement filed with the Rights Agent.  Shares of Preferred Stock and equivalent
preference shares owned by or held for the account of the Company will not be
deemed outstanding for the purpose of any such computation.  Such adjustment will 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 Exercise Price will be adjusted to be
the Exercise Price which would then be in effect if such record date had not
been fixed.


 


(c)                                  In case the Company will fix a record
date for the making of a distribution to all holders of the Preferred Stock
(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 Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b)), the Exercise Price to be
in effect after such record date will be determined by multiplying the Exercise
Price in effect immediately prior to such record date by a fraction, the
numerator of which will be the then current Fair Market Value of a share of the
Preferred Stock (determined pursuant to Section 11(d)) on such record
date, less the Fair Market Value (as determined in good faith by a majority of
the Continuing Directors, or, if there are none, by the Board of Directors of
the Company, whose determination will 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
share of Preferred Stock and the denominator of which will be such current Fair
Market Value (determined pursuant to Section 11(d)) of a share of
Preferred Stock; provided, however, that in no event will 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 will be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the Exercise Price will
again be adjusted to be the Exercise Price which would then be in effect if
such record date had not been fixed.


 


(d)                                 For the purpose of this Rights Agreement,
the “Fair Market Value” of any share of Preferred Stock, Common Stock or any
other stock or any Right or other security or any other property on any date
will be determined as provided in this Section 11(d).  In the case of a publicly traded stock or
other security, the Fair Market Value on any date will be deemed to be the
average of the daily closing prices per share of such stock or per unit of such
other security for the 30 consecutive Trading Days (defined below) immediately
prior to such date;  provided, however,
that in the event that the Fair Market Value per share of any share of Common
Stock is determined during a period which includes any date that is within 30
Trading Days after (i) the ex-dividend date for a dividend or distribution on
such stock payable in shares of Common Stock or securities convertible into
shares of Common Stock, or (ii) effective date of any subdivision, split,
combination, consolidation, reverse stock split or reclassification of such
stock, then, and in each such case, the Fair Market Value will be appropriately
adjusted by a majority of the Continuing Directors, or, if there are none, by
the Board, to take into account ex-dividend or post-effective date trading. The
closing price for any day will 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 applicable transaction
reporting system with respect to securities listed or admitted to trading on
the New York Stock Exchange), or, if the securities are not listed or admitted
to trading on the New York Stock Exchange, as reported in the applicable
transaction reporting system with respect to securities listed on the principal
national securities exchange on which such security is listed or admitted to
trading;  or, if not listed or admitted
to trading on any national securities


 


14





















 


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 no bids for such security
are 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 such
security selected by the Board. The term “Trading Day” will mean a day on which
the principal national securities exchange on which such security is listed or
admitted to trading is open for the transaction of business or, if such
security is not listed or admitted to trading on any national securities
exchange, a Business Day. If a security is not publicly held or not so listed
or traded, “Fair Market Value” will mean the fair value per share of stock or
per other unit of such other security, as determined by an independent
investment banking firm experienced in the valuation of securities selected in
good faith by a majority of the Continuing Directors, or, if there are none, by
the Board, or, if no such investment banking firm is, in the good faith judgment
of a majority of the Continuing Directors or the Board, as applicable,
available to make such determination, in good faith by a majority of the
Continuing Directors, or, if there are none, by the Board;  provided, however, that for
purposes of making the adjustment provided for by Section 11(a)(ii)(B),
the Fair Market Value of a share of Preferred Stock will not be less than 100%
of the product of the Fair Market Value of a share of Common Stock multiplied
by the higher of the then Dividend Multiple or Vote Multiple applicable to the
Preferred Stock (as defined in the Certificate of Designation relating to the
Preferred Stock) and will not exceed 105% of the product of the then Fair
Market Value of a share of Common Stock multiplied by the higher of the then
Dividend Multiple or Vote Multiple applicable to the Preferred Stock. In the
case of property other than securities, the “Fair Market Value” thereof will be
determined in good faith by a majority of the Continuing Directors, or, if
there are none, by the Board, based upon such appraisals or valuation reports
of such independent experts as a majority of the Continuing Directors or the
Board, as applicable, will in good faith determine to be appropriate in
accordance with good business practices and the interests of the holders of
Rights. Any such determination of Fair Market Value will be described in a
statement filed with the Rights Agent and will be binding upon the Rights
Agent.


 


(e)                                  All calculations under this Section 11
will be made to the nearest cent or to the nearest one one-hundredth (1/100) of
a share, as the case may be.


 


(f)                                    Irrespective of any adjustment or change
in the Exercise Price or the securities issuable upon the exercise of the
Rights, the Right Certificates theretofore and thereafter issued may continue
to express the Exercise Price and the number of shares to be issued upon
exercise of the Rights as in the initial Right Certificates issued hereunder
but, nevertheless, will represent the Rights as so adjusted.


 


(g)                                 Before taking any action that would cause
an adjustment reducing the purchase price per whole share purchasable upon
exercise of the Rights below the then per share par value, the Company will use
its best efforts to take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and non-assessable shares at such adjusted purchase price per share.


 


(h)                                 Notwithstanding anything in this Section 11
to the contrary, in the event of any reclassification of stock of the Company
or any recapitalization, reorganization or partial liquidation of the Company
or similar transaction, the Company will make such further adjustments in the
number and kind of shares which may be acquired upon exercise of the Rights,
and such adjustments in the Exercise Price therefor, in addition to those
adjustments expressly required by the


 


15





















 


other paragraphs of this Section 11,
as a majority of Continuing Directors (or, if there are none, the Board) will
in good faith determine to be necessary or appropriate in order for the holders
of the Rights in such event to be treated equitably and in accordance with the
purpose and intent of this Rights Agreement or in order that any such event
will not, but for such adjustment, in the opinion of counsel to the Company,
result in the stockholders of the Company being subject to any United States
federal income tax liability by reason thereof.


 


(i)                                     In the event the Company will at any time
after the Record Date make any distribution on the shares of Common Stock of
the Company, whether by way of a dividend or a reclassification of stock, a
recapitalization, reorganization or partial liquidation of the Company or
otherwise, in cash or any security, debt security, debt instrument,
subscription right, warrant, real or personal property or any other property or
security (other than any shares of Common Stock) and the amount of such cash
dividend or the Fair Market Value of such security, right, warrant, debt
security, debt instrument or property exceeds 150% of the aggregate amount of
the cash dividends declared or paid on the Common Stock of the Company in the
15-month period immediately preceding such distribution, then and in each such event,
unless such distribution is part of or is made in connection with a transaction
to which Section 11(a)(ii) or Section 13 applies, the Exercise Price
will be reduced by an amount equal to the cash or the Fair Market Value of such
distribution, as the case may be, per share of Common Stock.  The Fair Market Value of any property
distributed to the holders of shares of Common Stock will be the Fair Market
Value of such property as determined by an independent investment banking firm
experienced in the valuation of securities or the other property so
distributed, as the case may be, selected in good faith by the Continuing
Directors, or, if there are none, by the Board, or, if no such investment
banking firm is in the good faith judgment of a majority of the Continuing
Directors or the Board, as applicable, available to make such determination, in
good faith by a majority of the Continuing Directors, or, if there are none, by
the Board, whose determination will be final and binding on the Company, the Rights
Agent and the holders of Rights.


 


Section 12.                                      Certification of Adjusted
Exercise Price or Number of Shares.  Whenever an
adjustment is made as provided in Section 11, 13 or 23(c) of this Rights
Agreement, the Company will (a) promptly prepare a certificate setting forth
such adjustment, and a brief statement of the facts giving rise to such
adjustment, (b) promptly file with the Rights Agent and with each transfer
agent for the Preferred Stock a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section 25
of this Rights Agreement. 
Notwithstanding the foregoing sentence, the failure of the Company, to
make such certification or give such notice will not affect the validity of or
the force or effect of the requirement for such adjustment.  Any adjustment to be made pursuant to Section 11,
13 or 23(c) of this Rights Agreement will be effective as of the date of the
event giving rise to such adjustment. The Rights Agent will be fully protected
in relying on any such certificate and on any adjustment therein contained and
will not be deemed to have knowledge of any adjustment unless and until it will
have received such certificate.


 


Section 13.                                      Consolidation, Merger or Sale or
Transfer of Assets or Earning Power.


 


(a)                                  In the event that, following the Stock
Acquisition Date, directly or indirectly, (w) the Company will consolidate
with, or merge with and into, any other Person (other than an Exempt Person),
and the Company will not be the surviving or continuing corporation of such
consolidation or merger, or (x) any Person (other than an Exempt Person) will
consolidate with, or merge with


 


16





















 


and into, the Company,
and the Company will be the continuing or surviving corporation of such
consolidation or merger and, in connection with such consolidation or merger,
all or part of the outstanding shares of Common Stock will be changed into or
exchanged for stock or other securities of any other Person (or the Company) or
cash or other property, or (y) the Company will effect a statutory share
exchange with the outstanding shares of Common Stock being exchanged for stock
or other securities of any other Person or cash or other property, or (z) the
Company or one or more of its Subsidiaries shall, directly or indirectly, sell
or otherwise transfer to any other Person, or any Affiliate or Associate of
such Person, in one or more transactions, or the Company or one or more of its
Subsidiaries will sell or otherwise transfer to any Persons in one or a series
of related transactions, assets or earning power aggregating more than 50% of
the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any Person or Persons (other than the Company or any Subsidiary of
the Company in one or more transactions) then, on the first occurrence of any
such event, proper provision will be made so that (i) each holder of record of
a Right, except as provided in Section 7(e), will thereafter have the right
to receive, upon the exercise thereof and payment of the Exercise Price in
accordance with the terms of this Rights Agreement, such number of shares of
validly issued, fully paid, nonassessable and freely tradable Common Stock of
the Principal Party, not subject to any liens, encumbrances, rights of first
refusal or other adverse claims, as shall, based on the Fair Market Value of
the Common Stock of the Principal Party on the date of the consummation of such
consolidation, merger, sale or transfer, equal twice the Exercise Price;  (ii) such Principal Party will thereafter be
liable for, and will assume, by virtue of such consolidation, merger, sale or
transfer, all the obligations and duties of the Company pursuant to this Rights
Agreement;  (iii) the term “Company” for
all purposes of this Rights Agreement will thereafter be deemed to refer to
such Principal Party; (iv) such Principal Party will take such steps
(including, but not limited to, the reservation of a sufficient number of
shares of its Common Stock in accordance with the provisions of Section 9)
in connection with such consummation as may be necessary to assure that the
provisions of this Agreement will thereafter be applicable, as nearly as
reasonably may be, in relation to its shares of Common Stock thereafter
deliverable upon the exercise of the Rights; 
provided, however, that upon the subsequent occurrence of
any merger, consolidation, sale of all or substantially all of the assets,
recapitalization, reclassification of shares, reorganization or other
extraordinary transaction in respect of such Principal Party, each holder of a
Right will thereupon be entitled to receive, upon exercise of a Right and
payment of the Exercise Price, such cash, shares, rights, warrants and other
property which such holder would have been entitled to receive had it, at the
time of such transaction, owned the shares of Common Stock of the Principal
Party purchasable upon the exercise of a Right, and such Principal Party will
take such steps (including, but not limited to, reservation of shares of stock)
as may be necessary to permit the subsequent exercise of the Rights in
accordance with the terms of this Agreement for such cash, shares, rights,
warrants and other property; and (v) the provisions of Section 11(a)(ii)
will be of no effect following the occurrence of any event described in clause
(x), (y) or (z) above of this Section.


 


(b)                                 “Principal
Party” will mean


 


(i)                                     in the case of any transaction described
in (w), (x) or (y) of the first sentence of Section 13(a): (A) the Person
that is the issuer of the securities into which shares of Common Stock of the
Company are changed or otherwise exchanged or converted in such merger,
consolidation or exchange, or, if there is more than one such issuer, the
issuer of the Common Stock of which has the greatest aggregate market value of
shares outstanding or (B) if no such securities are so issued, (x) the Person
that is the other party to


 


17





















 


the merger, consolidation
or exchange and that survives such merger, consolidation or exchange, or, if
there is more than one such Person, the Person the Common Stock of which has
the greatest aggregate market value of shares outstanding or (y) if the Person
that is the other party to the merger, consolidation or exchange does not
survive the merger, consolidation or exchange, the Person that does survive the
merge, consolidation, or exchange (including the Company if it survives);  and


 


(ii)                                  in the case of any transaction described
in (z) of the first sentence in Section 13(a), the Person that is the
party receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions, or, if each Person that is a
party to such transaction or transactions receives the same portion of the
assets or earning power so transferred or if the Person receiving the greatest
portion of the assets or earning power cannot be determined, whichever of such
Persons as is the issuer of Common Stock having the greatest aggregate market
value of shares outstanding; provided, however, that in any such
case, if the Common Stock of such Person is not at such time and has not been
continuously over the preceding 12-month period registered under Section 12
of the Exchange Act, and such Person is a direct or indirect Subsidiary of
another Person the Common Stock of which is and has been so registered, “Principal
Party” will refer to such other Person, or if such Person is a Subsidiary,
directly or indirectly, of more than one Person, the Common Stocks of all of
which are and have been so registered, the term “Principal Party” will refer to
whichever of such Persons is the issuer of the Common Stock having the greatest
aggregate market value of shares outstanding.


 


(c)                                  The Company will not consummate any
consolidation, merger or sale or transfer of assets or earning power referred
to in Section 13(a) unless the Principal Party will have a sufficient
number of authorized shares of its Common Stock that have not been issued or reserved
for issuance to permit exercise in full of all Rights in accordance with this Section and
unless prior thereto the Company and the Principal Party involved therein will
have executed and delivered to the Rights Agent an agreement confirming that
the Principal Party shall, upon consummation of such consolidation, merger,
exchange or sale or transfer of assets or earning power, assume this Rights
Agreement in accordance with Section 13(a) and that all rights of first
refusal or preemptive rights in respect of the issuance of shares of Common
Stock of the Principal Party upon exercise of outstanding Rights have been
waived and that such transaction will not result in a default by the Principal
Party under this Rights Agreement, and further providing that, as soon as
practicable after the date of any consolidation, merger, exchange or sale or
transfer of assets or earning power referred to in Section 13(a), the
Principal Party will:


 


(i)                                     prepare and file a registration statement
under the Act with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, use its best efforts to cause
such registration statement to become effective as soon as practicable after
such filing and use its best efforts to cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of
the Act) until the date of expiration of the Rights, and similarly comply with
applicable state securities laws;


 


(ii)                                  use its best efforts to list (or continue
the listing of) the Rights and the securities purchasable upon exercise of the
Rights on a national securities exchange or to meet the eligibility
requirements for quotation on NASDAQ; 
and


 


18





















 


(iii)                               deliver to holders of the Rights
historical financial statements for the Principal Party which comply in all
respects with the requirements for registration on Form 10 (or any successor
form) under the Exchange Act.


 


In the event that any of
the transactions described in Section 13(a) will occur at any time after
the occurrence of a transaction described in Section 11(a)(ii), the Rights
which have not theretofore been exercised shall, subject to the provisions of Section 7(e),
thereafter be exercisable in the manner described in Section 13(a).


 


(d)                                 The Company will not enter into any
transaction 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 or other provisions which, as a
result of the consummation of such transaction, would eliminate or
substantially diminish the benefits intended to be afforded by the Rights.  In that regard, and without limiting the
foregoing, in case the Principal Party which is to be a party to a transaction
referred to in this Section 13 has any provision in any of its authorized
securities or in its Articles or Certificate of Incorporation or Bylaws or
other instrument governing its corporate affairs, which provision would have
the effect of (i) causing such Principal Party to issue, in connection with, or
as a consequence of the consummation of a transaction referred to in this Section 13,
shares of Common Stock of such Principal Party at less than the then Fair Market
Value per share (determined pursuant to Section 11(d)) or securities
exercisable for, or convertible into, Common Stock of such Principal Party at
less than such then Fair Market Value (other than to holders of Rights pursuant
to this Section 13) or (ii) providing for any special tax or similar
payment in connection with the issuance to any holder of a Right of Common
Stock of such Principal Party pursuant to the provisions of this Section 13,
then, in such event, the Company will not consummate any such transaction
unless prior thereto the Company and such Principal Party will have executed
and delivered to the Rights Agent a supplemental agreement providing that the
provision in question of such Principal Party has been cancelled, waived or
amended, or that the authorized securities will be redeemed, so that the
applicable provision will have no effect in connection with, or as a
consequence of, the consummation of the proposed transaction.


 


Section 14.                                      Fractional Rights and Fractional
Shares.


 


(a)                                  The Company will not be required to issue
fractions of Rights or to distribute Right Certificates which evidence
fractional Rights.  In lieu of such
fractional Rights, there will 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 Fair Market Value
of the whole Right.


 


(b)                                 The Company will not be required to issue
fractions of shares of Preferred Stock (other than fractions which are integral
multiples of one one-hundredth of a share or, if a Right will then be
exercisable for a fraction other than one one-hundredth of a share, integral
multiples of that fraction) upon exercise of the Rights or to distribute
certificates which evidence fractional shares (other than fractions which are
integral multiples of one one-hundredth of a share or, if a Right will then be
exercisable for a fraction other than one one-hundredth of a share, integral
multiples of that fraction).  In lieu of
issuing fractions of shares of Preferred Stock, the Company may, at its
election, issue depositary receipts evidencing fractions of shares pursuant to
an appropriate agreement between the Company and a depositary selected by it,
provided that such agreement will provide


 


19





















 


that the holders of such
depositary receipts will have all of the rights, privileges and preferences to
which they would be entitled as owners of the Preferred Stock.  With respect to fractional shares that are
not integral multiples of one one-hundredth of a share or, if a Right will then
be exercisable for a fraction other than one one-hundredth of a share, are not
integral multiples of that fraction, if the Company does not issue such fractional
shares or depositary receipts in lieu thereof, there will be paid to the
holders of record of Right Certificates at the time such Right Certificates are
exercised as provided in this Agreement an amount in cash equal to the same
fraction of the Fair Market Value of a share of Preferred Stock.


 


(c)                                  The holder of a Right by the acceptance
of a Right expressly waives his right to receive any fractional Rights or any
fractional shares of Preferred Stock (other than fractions which are integral
multiples of one one-hundredth of a share or, if a Right will then be
exercisable for a fraction other than one one-hundredth of a share, integral
multiples of that fraction) upon exercise of a Right.


 


Section 15.                                      Rights of Action. 
All rights of action in respect of this Rights Agreement, except the
rights of action given to the Rights Agent in Section 18, are vested in
the respective registered holders of the Right Certificates (and, prior to the
Distribution Date, the registered holders of the Common Stock);  and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Stock), without
the consent of the Rights Agent or of the holder of any other Right Certificate
(or, prior to the Distribution Date, of the Common Stock), may, in his own
behalf and for his own benefit, enforce, institute, and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in
respect of, his right to exercise the Rights evidenced by such Right
Certificate in the manner provided in such Right Certificate and in this Rights
Agreement.  Without limiting the
foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Rights Agreement and 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 Common
Stock;


 


(b)                                 after the Distribution Date, the Right
Certificates are transferable only on the registry books of the Rights Agent if
surrendered at the office of the Rights Agent designated for such purpose, duly
endorsed or accompanied by a proper instrument of transfer; 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 Stock certificate) is registered as
the absolute owner thereof and of the Rights evidenced thereby (notwithstanding
any notations of ownership or writing on the Right Certificates or the
associated Common Stock certificate made by anyone other than the Company or
the Rights Agent) for all purposes whatsoever, and neither the Company nor the
Rights Agent will be affected by any notice to the contrary.


 


20





















 


Section 17.                                      Right Certificate Holder Not
Deemed a Stockholder.  No holder, as such, of any
Right Certificate will be entitled to vote, receive dividends or be deemed for
any purpose the holder of Preferred Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor will anything contained in this Agreement 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), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by such
Right Certificate has been exercised in accordance with the provisions of this
Agreement.


 


Section 18.                                      Concerning the Rights Agent.


 


(a)                                  The Company agrees to pay to the Rights
Agent reasonable compensation for all services rendered by it hereunder and,
from time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and other distributions incurred in the administration and
execution of this Rights Agreement and the exercise and performance of its
duties hereunder. The Company also agrees to indemnify the Rights Agent for,
and to hold it harmless against, any loss, liability, or expense, incurred
without negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Rights Agreement, including the costs and
expenses of defending against any claim of liability relating to the Rights or
this Rights Agreement.


 


(b)                                 The Rights Agent will be protected
against, and will incur no liability for or in respect of, any action taken,
suffered or omitted by it in connection with its administration of this Rights
Agreement in reliance upon any Right Certificate or certificate for Preferred
Stock or for other securities of the Company, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement or other paper or document believed by it to be
genuine and to be signed, 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.


 


Section 19.                                      Merger or Consolidation of, or
Change in Name of, the Rights Agent.


 


(a)                                  Any corporation into which the Rights
Agent or any successor Rights Agent may be merged or consolidated, or any
corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent will be a party, or any corporation
succeeding to the corporate trust or stock transfer business of the Rights
Agent or any successor Rights Agent, will be the successor to the Rights Agent
under this Rights Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto; provided  that
such corporation would be eligible for appointment as a successor Rights Agent
under the provisions of Section 21. In case at the time such successor
Rights Agent will succeed to the agency created by this Rights Agreement, any
of the Rights Certificates has 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 will not have been countersigned, any successor Rights Agent may
countersign such Right Certificates


 


21





















 


either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent;  and in all such cases such Right Certificates
will have the full force provided in the Right Certificates and in this Rights
Agreement.


 


(b)                                 In case at any time the name of the
Rights Agent will be changed and at such time any of the Right Certificates has
been countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Right Certificates so
countersigned;  in case at that time any
of the Right Certificates will not have been countersigned, the Rights Agent
may countersign such Right Certificates either in its prior name or in its
changed name;  in all such cases such
Right Certificates will have the full force provided in the Right Certificates
and in this Rights Agreement.


 


Section 20.                                      Duties of Rights Agent. 
The Rights Agent undertakes the duties and obligations imposed by this
Rights Agreement upon the following terms and conditions, by all of which the
Company and the holders of Right Certificates by their acceptance thereof, will
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 will 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 Rights Agreement the Rights Agent will 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 is specifically prescribed by this Agreement) may
be defined to be conclusively proved and established by a certificate signed by
the Chairman of the Board, the Chief Executive Officer, the President or any
Vice President and by the Chief Financial Officer, the Secretary or an
Assistant Secretary of the Company and delivered to the Rights Agent. Any such
certificate will be full authorization to the Rights Agent for any action taken
or suffered in good faith by it under the provisions of this Rights Agreement
in reliance upon such certificate.


 


(c)                                  The Rights Agent will not be liable for
or by reason of any of the statements of fact or recitals contained in this
Rights Agreement or in the Right Certificates (except its countersignature
thereof), or be required to verify the same, but all such statements and
recitals are and will be deemed to have been made by the Company only.


 


(d)                                 The Rights Agent will not be under any
responsibility in respect of the validity of this Rights Agreement or the
execution and delivery of this Agreement (except the due execution of this
Agreement by the Rights Agent) or in respect of the validity or execution of any
Right Certificate (except its countersignature thereof);  nor will it be responsible for any breach by
the Company of any covenant or condition contained in this Rights Agreement or
in any Right Certificate;  nor will it be
responsible for any adjustment in the terms of the Rights (including the
manner, method or amount required under the provisions of Section 11 or
13) or for ascertaining the existence of facts that would require any such
adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after receipt of a certificate furnished pursuant to Section 12
describing such adjustment);  nor will it
by any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Preferred Stock to be issued


 


22





















 


pursuant to this Rights
Agreement or any Right Certificate or as to whether any shares of Preferred
Stock will, when issued, be validly authorized and issued, fully paid and
nonassessable.


 


(e)                                  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 Rights
Agreement.


 


(f)                                    The Rights Agent is hereby authorized and
directed to accept instructions with respect to the performance of its duties
hereunder from the Chairman of the Board, the Chief Executive Officer, the
President or any Vice President and confirmed by the Chief Financial Officer,
the Secretary or an Assistant Secretary of the Company, and to apply to such
officers for advice or instructions in connection with its duties.  The Rights Agent will 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.


 


(g)                                 The Rights Agent and any shareholder,
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 acquire a  pecuniary interest in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Rights Agreement. Nothing in this Agreement will preclude the
Rights Agent from acting in any other capacity for the Company or for any other
legal entity.


 


(h)                                 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
will 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 Rights Agreement upon thirty (30) days
written notice mailed to the Company and to each transfer agent of the Common
Stock and the Preferred Stock by registered or certified mail. The Company may
remove the Rights Agent or any successor Rights Agent (with or without cause)
upon thirty (30) days written notice, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common
Stock and Preferred Stock by registered or certified mail. If the Rights Agent
will resign or be removed or will otherwise become incapable of acting, the
Company will appoint a successor to the Rights Agent. Notwithstanding the
foregoing provisions of this Section 21, in no event will the resignation
or removal of a Rights Agent be effective until a successor Rights Agent has
been appointed and has accepted such appointment. If the Company will fail to
make such appointment within a period of thirty (30) days after 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 his Right Certificate for inspection by
the Company), then the incumbent Rights Agent or the holder of record 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, will be (a) a corporation
organized and doing business under the laws of the United States or of any
state thereof,


 


23





















 


in good standing, which
is authorized under such laws to exercise corporate trust or stock transfer
powers and is subject to supervision or examination in the conduct of its
corporate trust or stock transfer business 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 $100,000,000 or (b) an Affiliate controlled by a
corporation described in clause (a) of this sentence. After appointment, the
successor Rights Agent will 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 will 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 will file written notice thereof with the predecessor
Rights Agent and each transfer agent of the Common Stock and Preferred Stock,
and mail a written notice thereof to the registered holders of the Right
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, will 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. Notwithstanding the foregoing provisions, in
the event of resignation, removal or incapacity of the Rights Agent, the
Company will have the authority to act as the Rights Agent until a successor
Rights Agent will have assumed the duties of the Rights Agent hereunder.


 


Section 22.             Issuance of New Right Certificates.  Notwithstanding any of the provisions of this
Rights Agreement or of the Rights to the contrary, the Company may, at its
option, issue new Right Certificates evidencing Rights in such form as may be
approved by its Board of Directors to reflect any adjustment or change in the
Exercise Price per share and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Rights Agreement.


 


Section 23.             Redemption.


 


(a)           The
Board of Directors of the Company may, at its option by majority vote, redeem
all but not less than all of the then outstanding Rights, at any time prior to
the Close of Business on the earlier of (i) the tenth day following the Stock
Acquisition Date (subject to extension by the Company as provided in Section
27) or (ii) the Final Expiration Date, at a redemption price of $.001 per
Right, subject to adjustments to reflect any stock split, stock dividend or
similar transaction occurring after the date of this Agreement as provided in
subsection (c) below (the “Redemption Price”); 
provided, however, the Company may redeem the Rights only
if at the time of the action of the Board there are then in office not less
than two Continuing Directors and such redemption is approved by a majority of
the Continuing Directors then in office. 
Notwithstanding anything contained in this Agreement to the contrary,
the Rights will not be exercisable pursuant to Section 11(a)(ii) prior to the
expiration of the Company’s right of redemption under this Agreement.


 


(b)           Immediately
upon the Board’s action ordering the redemption of rights pursuant to paragraph
(a) of this Section, 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 will be to receive the Redemption Price.  Within ten (10) days after the effective time
of the action of the Board ordering the redemption of the Rights, the Company
will give notice of such redemption to the holders of the then outstanding
Rights by mailing such notice to all such holders at their last addresses as
they appear upon the registry books of the Rights Agent, or prior to the
Distribution Date, on the registry books of the transfer agent for the Common
Stock. Any notice which is mailed


 


24





















 


in the manner provided in
this Agreement will be deemed given, whether or not the holder receives such
notice.  Each notice of redemption will
state the method by which payment of the Redemption Price will be made.  At the option of the Board, the Redemption
Price may be paid in cash to each Rights holder or by the issuance of shares
(and, at the Company’s election pursuant to Section 14(b), cash or depositary
receipts in lieu of fractions of shares other than fractions which are integral
multiples of one one-hundredth (1/100) of a share or, if a Right will then be
exercisable for a fraction other than one one-hundredth of a share, integral
multiples of that fraction) of Preferred Stock having a Fair Market Value equal
to such cash payment.


 


(c)           In
the event the Company will at any time after the date of this Rights Agreement
(A) pay any dividend on Common Stock in shares of Common Stock, (B) subdivide
or split the outstanding shares of Common Stock into a greater number of shares
or (C) combine or consolidate the outstanding shares of Common Stock into a
smaller number of shares or effect a reverse split of the outstanding shares of
Common Stock, then, and in each such event, the Redemption Price will be
adjusted so that the Redemption Price after such event will equal the
Redemption Price immediately prior to such event multiplied by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which is the number of
shares of Common Stock outstanding immediately after such event.


 


Section 24.  Exchange.


 


(a)           The
Board may, at its option (provided at the time of such election by the Board
there are then in office not less than two Continuing Directors and such
election is approved by a majority of the Continuing Directors then in office),
at any time after any Person becomes an Acquiring Person, exchange all or part
of the then outstanding and exercisable Rights (excluding Rights that have
become void pursuant to the provisions of Section 11(a)(ii)) for shares of
Common Stock, at an exchange ratio of one share of Common Stock  per Right, appropriately adjusted to reflect
any stock split, stock dividend or a similar transaction occurring thereafter
(such exchange ratio is the “Exchange Ratio”). 
Notwithstanding the foregoing, the Board will not be empowered to effect
such exchange at any time after any Person (other than an Exempt Person),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of shares of Common Stock aggregating fifty percent (50%) or
more of the shares of Common Stock then outstanding.


 


(b)           Immediately
upon the Board’s action 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 will terminate and the only right of
a holder of such rights thereafter will be to receive that number of shares of
Common Stock equal to the number of such Rights held by such holder multiplied
by the Exchange Ratio.  The Company will
promptly give public notice of any such exchange;  provided, however, that the
failure to give, or any defect in, such notice will not affect the validity of
such an exchange.  The Company promptly
will mail a notice of any such exchange to all of the registered holders of the
Rights at their last addresses as they appear upon the registry books of the
Rights Agent.  Any notice mailed in
accordance herewith will be deemed given, whether or not the holder receives
the notice.  Each notice of exchange will
state the method by which the exchange of the Common Stock for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged.  Any partial exchange
will be effected pro rata based on the number of Rights (other than Rights that
have become void pursuant to the provisions of Section 11(a)(ii)) held by each
registered Rights holder.


 


25





















 


(c)           In
the event that there are insufficient shares of Common Stock authorized but
unissued to permit any exchange of Rights as contemplated in accordance with
this Section 24, the Company will take all such action as may be necessary to
authorize additional shares of Common Stock for issuance upon exchange of the
Rights.  In the event the Company shall,
after good faith effort, be unable to take such action to authorize such
additional number of shares of Common Stock, the Company will substitute, for
each share of Common Stock that would otherwise be issuable upon the exchange
of Rights, a number of shares of Preferred Stock or a fraction thereof so that
the Fair Market Value of one share of Preferred Stock multiplied by such number
or fraction is equal to the Fair Market Value of one share of Common Stock as
of the date of issuance of such shares of Preferred Stock or fraction thereof.


 


(d)           The
Company will not be required to issue fractions of shares of Common Stock or to
distribute certificates which evidence fractional shares of Common Stock.  In lieu of fractional shares of Common Stock,
the Company will pay to the registered holders of the Right certificates, with
regard to which such fractional shares of Common Stock would otherwise be
issuable, an amount in cash equal to the same fraction of the Fair Market Value
of a whole share of Common Stock.  For
purposes of this paragraph (d), the Fair Market Value of a whole share of
Common Stock will be the closing price (as defined in Section 11(d)) of a share
of Common Stock for the Trading Day immediately prior to the date of exchange
pursuant to this Section 24.


 


Section 25.             Notice of Proposed Actions.


 


(a)           In
case the Company, after the Distribution Date, will propose to (i) effect any
of the transactions referred to in Section 11(a)(i) or 11(i), or (ii) offer to
the holders of record of its Common Stock options, warrants, or other rights to
subscribe for or to purchase shares of Common Stock (including any security
convertible into or exchangeable for Common Stock) or shares of stock of any
class or any other securities, options, warrants, convertible or exchangeable
securities or other rights, or (iii) effect any reclassification of its
Preferred Stock or Common Stock or any recapitalization or reorganization of
the Company, or (iv) effect any consolidation, merger with or into, exchange or
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 more than
fifty percent (50%) of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to, any other Person or Persons, or (v) effect
the liquidation, dissolution or winding up of the Company, then, in each such
case, the Company will give to each holder of record of a Right Certificate, in
accordance with Section 26, notice of such proposed action, which will specify
the record date for the purposes of such transaction referred to in Section
11(a)(i) or 11(i) or such dividend or distribution, or the date on which such
reclassification, recapitalization, reorganization, consolidation, merger, sale
or transfer of assets, liquidation, dissolution, or winding up is to take place
and the record date for determining participation therein by the holders of
record of Common Stock or Preferred Stock, if any such date is to be fixed, and
such notice will be so given in the case of any action covered by clause (i) or
(ii) above at least ten (10) days prior to the Record Date for determining
holders of record of the Preferred Stock for purposes of such action, and in
the case of any such other action, at least ten (10) days prior to the date of
the taking of such proposed action or the date of participation therein by the
holders of record of Common Stock or Preferred Stock, whichever will be the
earlier.  The failure to give notice
required by this Section 25 or any defect therein will not affect the legality
or validity of the action taken by the Company or the vote upon any such action.


 


26





















 


(b)           In
case any of the transactions referred to in Section 11(a)(i), 11(i) or 13 of
this Rights Agreement are proposed, then, in any such case, the Company will
give to each holder of Rights, in accordance with Section 26, notice of the
proposal of such transaction at least ten (10) days prior to consummating such
transaction.  Such notice will specify
the proposed event and the consequences of the event to holders of Rights under
Section 11(a)(i), 11(i) or 13, as the case may be, and upon consummating such
transaction, will similarly give notice thereof to each holder of Rights.


 


Section 26.             Notices. 
Notices or demands authorized by this Rights Agreement to be given or
made by the Rights Agent or by the holder of record of any Right Certificate or
Right to or on the Company will 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:


 


WATERS INSTRUMENTS,
INC.


13705 - 26th Avenue
North, Suite 102


Plymouth, MN 55441


 


Attention:  Chief Executive Officer


 


Subject to the provisions of Section 21, any notice or
demand authorized by this Rights Agreement to be given or made by the Company
or by the holder of record of any Right Certificate or Right to or on the
Rights Agent will 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:


 


WELLS FARGO BANK,
N.A.


161 North Concord
Exchange


South St. Paul,
Minnesota  55075


 


Attention:  Account Management


 


Notices or demands authorized by this Rights Agreement
to be given or made by the Company or the Rights Agent to the holder of record
of any Right Certificate or Right will 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.  
For as long as the Rights are then redeemable and except as provided in
the last sentence of this Section 27, the Company may, in its sole and absolute
discretion, and the Rights Agent will if the Company so directs, supplement or
amend any provision of this Rights Agreement without the approval of any
holders of the Rights. At any time when the Rights are then redeemable and
except as provided in the last sentence of this Section 27, the Company may
upon approval by the Board (provided at the time of such approval by the Board
there are then in office not less than two Continuing Directors and such
approval is joined in by a majority of the Continuing Directors then in
office), and the Rights Agent will if the Company so directs, supplement or
amend this Rights Agreement without the approval of any holders of the Right
Certificates (i) to cure any ambiguity, (ii) to correct or supplement any
provision contained in this Agreement which may be defective or inconsistent
with any other provisions in this Agreement, (iii) to extend the Final
Expiration Date or the period in which the Company may redeem the Rights, or
(iv) to change or supplement the provisions hereunder in any


 


27





















 


manner which the Company
may deem necessary or desirable, provided that no such supplement or amendment
pursuant to this clause will materially adversely affect the interest of the
holders of the Right Certificates.  Upon
the delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the
terms of this Section 27, the Rights Agent will execute such supplement or
amendment. Notwithstanding anything contained in this Rights Agreement to the
contrary, no supplement or amendment will be made which changes the Redemption
Price, and supplements or amendments may be made after the time that any Person
becomes an Acquiring Person (other than pursuant to a Qualifying Tender Offer)
only if at the time of the action of the Board approving such supplement or
amendment there are then in office not less than two Continuing Directors and
such supplement or amendment is approved by a majority of the Continuing
Directors then in office.


 


Section 28.             Successors. 
All the covenants and provisions of this Rights Agreement by or for the
benefit of the Company or the Rights Agent will bind and inure to the benefit
of their respective successors and assigns hereunder.


 


Section 29.             Benefits of this Rights Agreement.  Nothing in this Rights Agreement will 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 holders of Common Stock in their capacity as holders of
the Rights) any legal or equitable right, remedy or claim under this Rights
Agreement;  but this Rights Agreement
will 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 Stock).


 


Section 30.             Severability. 
If any term, provision, covenant or restriction of this Rights Agreement
is held by a court of competent jurisdiction or other authority to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Rights Agreement will remain in full force and effect and
will in no way be affected, impaired or invalidated.  In particular, if the use of Continuing
Directors in this Rights Agreement is held by a court of competent jurisdiction
or other authority to be invalid, void or unenforceable, then, in every
instance where included in this Rights Agreement, the defined term Continuing
Directors will be automatically deleted and replaced with the defined term
Directors.


 


Section 31.             Governing Law.  This Rights Agreement and each Right
Certificate issued hereunder will be deemed to be a contract made under the
laws of the State of Minnesota and for all purposes will be governed by and
construed and enforced in accordance with the laws of such state applicable to
contracts to be made and performed entirely within such state.


 


Section 32.             Counterparts. 
This Rights Agreement may be executed in any number of counterparts and
each of such counterparts will for all purposes be deemed to be an original,
and all such counterparts will together constitute but one and the same
instrument.


 


Section 33.             Descriptive Headings.  Descriptive headings of the several Sections
of this Rights Agreement are inserted for convenience only and will not control
or affect the meaning or construction of any of the provisions of this
Agreement.


 


(Signature page follows)


 


28





















 


IN WITNESS WHEREOF, the parties
have caused this Rights Agreement to be duly executed, all as of the day and
year first above written.


 


	
   

  	
  WATERS INSTRUMENTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Jerry W.
  Grabowski

  	
   

  
	
   

  	
   

  	
   Jerry W.
  Grabowski, President and

  
	
   

  	
   

  	
  Chief Executive
  Officer

  
	
   

  	
   

  
	
   

  	
  WELLS FARGO BANK, N.A.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Cindy Gesme

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
  Account Manager/Officer

  	
   

  	
   

  
									



 


Exhibits:


 


A - Certificate of
Designation of Series A Preferred Stock


 


B - Summary of
Rights to Purchase Shares of Series A Preferred Stock


 


C - Form of Right
Certificate


 


29





















 


 


EXHIBIT
A


 


CERTIFICATE
OF DESIGNATION


OF


SERIES A
PREFERRED STOCK


OF


WATERS
INSTRUMENTS, INC.


 


(Pursuant to Chapter 302A
of the


Minnesota Business
Corporation Act)


 










 


WATERS INSTRUMENTS, INC. (the “Company”), a Minnesota
corporation, certifies that the following resolution was adopted by the Board
of Directors of the Company as required by Section 302A.239 of the Minnesota
Business Corporation Act on March 8, 2005:


 


RESOLVED, that, pursuant to the authority granted to
and vested in the Board of Directors of the Company (the “Board of Directors”
or the “Board”) in accordance with the Company’s Amended and Restated Articles
of Incorporation, as amended to date (the “Articles of Incorporation”), the
Board of Directors creates a series of Preferred Stock, par value $.01 per share
(the “Preferred Stock”), of the Company and states the designation and number
of shares, and fixes the relative rights, preferences, and limitations of such
Preferred Stock as follows:


 


Series A Preferred Stock:


 


Section 1.               Designation
and Amount.  The shares of such
series will be designated as “Series A Preferred Stock” (the “Series A
Preferred Stock”), and the number of shares constituting the Series A Preferred
Stock will be Fifty Thousand (50,000). 
Such number of shares may be increased or decreased by resolution of the
Board of Directors;  provided,
that, no decrease will 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
Company 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,
par value $.01 per share (the “Preferred Stock”), of the Company or Preferred
Stock (or any similar 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 the holders of Common Stock, par value $.01
per share (the “Common Stock”), of the Company, and of any other junior stock,
will 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 is 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


 


1





















 


(rounded to the nearest
cent) equal to the greater of (a) $1 or (b) subject to the provision for
adjustment set forth in this Certificate, 100 times (as adjusted, the “Dividend
Multiple”) 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 Common Stock or
a subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series A Preferred Stock.  In
the event the Company will at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a greater or lesser number of shares of
Common Stock, then in each such case the Dividend Multiple will be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.


 


(B)           The
Company will 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 Common Stock (other than a dividend payable in
shares of Common Stock);  provided,
that, in the event no dividend or distribution has been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on
the Series A Preferred Stock will nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.


 


(C)           Dividends
will 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 record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares will 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
will begin to accrue and be cumulative from such Quarterly Dividend Payment
Date.  Accrued but unpaid dividends will
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 will 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 will be not more than sixty (60) days prior
to the date fixed for the payment thereof.


 


Section 3.               Voting
Rights.  The holders of shares of
Series A Preferred Stock will have the following voting rights:


 


(A)          Subject
to the provision for adjustment as set forth in this Certificate, each share of
Series A Preferred Stock will entitle the holder thereof to 100 votes (as
adjusted, the “Vote Multiple”) on all matters submitted to a vote of the
shareholders of the Company.  In the
event the Company will at any time declare or pay any dividend on the Common
Stock payable in


 


2





















 


shares of Common Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise) into a greater or
lesser number of shares of Common Stock, then in each such case the Vote
Multiple will be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.


 


(B)           Except
as otherwise provided in Section 10 hereof, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred Stock and the holders of
shares of Common Stock and any other capital stock of the Company having
general voting rights will vote together as one class on all matters submitted
to a vote of shareholders of the Company.


 


(C)           Except
as set forth in this Certificate, or as otherwise provided by law, holders of
Series A Preferred Stock will have no special voting rights and their consent
will not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth in this Certificate) 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 has been paid in full, the
Company will 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 Company may at any time redeem, purchase or otherwise acquire
shares of any such junior stock in exchange for shares of any stock of the
Company ranking junior (as to dividends and upon dissolution, liquidation and
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 (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board) to all holders of such shares upon such terms as the
Board,


 


3





















 


after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, will determine in good
faith will result in fair and equitable treatment among the respective series or
classes.


 


(B)           The
Company will not permit any subsidiary of the Company to purchase or otherwise
acquire for consideration any shares of stock of the Company unless the Company
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 Company in any manner whatsoever will be retired and
cancelled promptly after the acquisition thereof.  All such shares will 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 in this Certificate, in the Articles 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 Company, no distribution will be
made (A) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock will have received the greater of (i) $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, or (ii) subject to the provision
for adjustment set forth in this Certificate, 100 times (as adjusted, the “Liquidation
Preference Multiple”) the aggregate amount to be distributed per share to
holders of shares of Common Stock, or (B) to the holders of 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 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 Company will at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a greater or lesser number of shares of
Common Stock, then in each such case the Liquidation Preference Multiple will
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.


 


Section 7.               Consolidation,
Merger, Etc.  In case the Company
will enter into any consolidation, merger, statutory exchange combination or
other transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property, then in
any such case each share of Series A Preferred Stock will at the same time be
similarly exchanged or changed into an amount per share, subject to the
provision for adjustment set forth in this Certificate, equal to 100 times (as
adjusted, the “Exchange Multiple”) the aggregate amount of stock, securities,
cash and/or any other property (payable in kind), as the case may be, into
which or for which each share of Common Stock is changed or exchanged.  In the event the Company will at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of


 


4





















 


the outstanding shares of
Common Stock (by reclassification or otherwise) into a greater or lesser number
of shares of Common Stock, then in each such case the Exchange Multiple will be
adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.


 


Section 8.               No
Redemption.  The shares of Series A
Preferred Stock will not be redeemable.


 


Section 9.               Rank.  The Series A Preferred Stock will rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of Preferred Stock hereafter issued that
specifically provide that they will rank senior to the Series A Preferred
Stock.


 


Section 10.             Amendment.  If any proposed amendment to the Company’s
Articles of Incorporation or this Certificate would alter or change the
preferences, special rights or powers given to the Series A Preferred Stock so
as to affect the Series A Preferred Stock adversely, or would authorize the
issuance of a class or classes of stock having preferences or rights with
respect to dividends or dissolutions or the distribution of assets that would
be superior to the preferences or rights of the Series A Preferred Stock, then
the holders of the Series A Preferred Stock will be entitled to vote as a
series upon such amendment, and the affirmative vote of two-thirds of the
outstanding shares of Series A Preferred Stock will be necessary to the adoption
thereof, in addition to such other vote as may be required by the Minnesota
Business Corporation Act.


 


Section 11.  Fractional
Shares.  Series A Preferred Stock may
be issued in fractions of a share which will entitle the holder, in proportion
to such holder’s fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Preferred Stock.


 


I certify that I am authorized to execute this
Certificate of Designation, and I further certify that I understand that by
signing this Certificate I am subject to the penalties of perjury as set forth
in Minnesota Statutes, Section 609.48, as if I had signed this Certificate
under oath.


 


	
   

  	
   

  
	
   

  	
  Jerry Grabowski,
  President and Chief Executive Officer

  



 


5





















 


EXHIBIT B


 


SUMMARY OF RIGHTS TO PURCHASE


SHARES OF SERIES A PREFERRED
STOCK


 


On March 8, 2005, the Board of Directors of Waters
Instruments, Inc. (the “Company”) declared a dividend of one preferred stock
purchase right (a “Right”) for each outstanding share of common stock, par
value $.01 per share (the “Common Stock”), of the Company.  The dividend is payable on  March 18, 2005 (the “Record Date”) to the
shareholders 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 Preferred Stock, par value $.01 per
share (the “Preferred Stock”), of the Company at a price of $70 per one
one-hundredth of a  Preferred Share (the “Exercise
Price”), subject to adjustment.  The
description and terms of the Rights are set forth in the Rights Agreement dated
as of March 15, 2005 (the “Rights Agreement”) between the Company and Wells
Fargo Bank, N.A., as Rights Agent (the “Rights Agent”).


 


Until the earlier of (i) 10 days following a public
announcement by the Company or a person or group of affiliated or associated
persons (an “Acquiring Person”) that such an Acquiring Person has acquired
beneficial ownership of 15% or more of the outstanding Common Stock 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 Stock (the earlier of such dates being called the
“Distribution Date”), the Rights will be evidenced, with respect to any of the
Common Stock certificates outstanding as of the Record Date, by such Common
Stock certificate 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 will be transferable with and only with the Common Stock.  Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Stock certificates issued
after the Record Date upon transfer or new issuance of shares of Common Stock
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 of Common Stock 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
shares of Common Stock 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 Stock 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 March
17, 2015 (the “Final Expiration Date”), unless the Final Expiration Date is
extended or


 


1





















 


unless the Rights are
earlier redeemed by the Company, as described below.


 


The Exercise Price payable, and/or the number of
shares of Preferred Stock or other securities or property issuable, upon
exercise of the Rights are subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision, combination
or reclassification of, or certain distributions on, the Common Stock, (ii) upon
the issuance to holders of Preferred Stock of certain rights or warrants to
subscribe for or purchase Preferred Stock at a price, or securities convertible
into Preferred Stock with a conversion price, less than the then current market
price of the Preferred Stock or (iii) upon the distribution to holders of the
Preferred Stock of evidences of indebtedness or assets (other than regular
periodic cash dividends) or of subscription rights or warrants.


 


Preferred Stock purchasable upon exercise of the
Rights will not be redeemable.  Each
share of Preferred Stock 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 share of Common Stock.  In the event of liquidation, the holders of
the Preferred Stock 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 share of Common Stock.  Each share of Preferred Stock will have 100
votes, voting together with the Common Stock. 
Finally, in the event of any merger, consolidation or other transaction
in which Common Stock is exchanged, each share of Preferred Stock will be
entitled to receive 100 times the amount received per share of Common
Stock.  These rights are protected by
customary anti-dilution provisions.


 


Because of the nature of the Preferred Stock’s
dividend, liquidation and voting rights, the value of the one one-hundredth of
a share of Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of Common Stock.


 


In the event that any person or group of affiliated or
associated persons becomes an Acquiring Person, proper provision will 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 that number of shares of Preferred Stock having
a market value of two (2) times the Exercise Price of the Right.  In the event that, after a person or group
has become an Acquiring Person, the Company is acquired in a merger or other
business combination transaction or fifty percent (50%) or more of its
consolidated assets or earning power are sold, proper provision will be made so
that each registered 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 (2) 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 fifty
percent (50%) or more of the outstanding shares of Common Stock, the Board of
Directors of the Company may exchange the Rights (except the Rights owned by
such person or group which will have become void), in whole or in part, with
each Right to be exchanged for one share of Common Stock.  This exchange ratio is subject to further
adjustment to reflect any stock splits, stock dividends or similar transactions
occurring thereafter.  If there are
insufficient shares of


 


2





















 


Common Stock authorized
but unissued to permit the Company to complete any exchange of the Rights, the
Company may, under certain circumstances, substitute for each share of Common
Stock that would otherwise be issued upon such exchange of the Rights, shares
of Preferred Stock with market value equal to the market value of the shares of
Common Stock that would otherwise be issuable upon such exchange of the Rights.


 


No fractional shares of Preferred Stock will be issued
(other than fractions which are integral multiples of one one-hundredth of a
share of Preferred Stock or, if a Right will then be exercisable for a fraction
other than one one-hundredth of a share, integral multiples of that fraction,
which in either case 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 fair market value of the shares of Preferred Stock on the date of
exercise.


 


At any time prior to ten days (subject to extension by
the Board of Directors of the Company) after the time an Acquiring Person
becomes such, the Board of Directors may redeem the Rights in whole, but not in
part, at a price of $.001 per Right, subject to adjustment for stock splits,
stock dividends or similar transactions, (the “Redemption Price”).  The redemption of the Rights 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. 
The right to exercise the Rights will terminate immediately upon any
redemption of the Rights, 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 of
Directors of the Company without the consent of the holders of the Rights.


 


Until a Right is exercised, the holder thereof, as
such, will have no rights as a shareholder of the Company, including, without
limitation, the right to vote or to receive dividends.


 


A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an exhibit to a Registration Statement on
Form 8-A filed March 16, 2005.  A copy of
the Rights Agreement is available free of charge from the Company.  This summary description of the Rights does
not purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is incorporated into this summary by reference.


 


3





















 


EXHIBIT C


 


	
  [Form of Right Certificate]

  	
   

  	
   

  
	
  Certificate No. R-               

  	
   

  	
  Rights

  



 


NOT EXERCISABLE AFTER MARCH 17, 2015, EARLIER IF REDEEMED BY THE
COMPANY.  THE RIGHTS ARE SUBJECT TO
REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.001 PER RIGHT (SUBJECT TO
ADJUSTMENT) ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.  UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE
RIGHTS AGREEMENT, RIGHTS THAT ARE BENEFICIALLY OWNED BY, OR WERE ACQUIRED FROM,
AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) WILL BECOME NULL AND VOID.


 


Right Certificate


 


WATERS
INSTRUMENTS, INC.


 


This certifies that                           ,
or registered assigns, is the registered owner of the number of Rights set
forth above, each of which entitle the holder to thereof, subject to the terms,
provisions and conditions of the Rights Agreement, dated as of March 15, 2005
(the “Rights Agreement”), between WATERS INSTRUMENTS, INC. (the “Company”), a
Minnesota corporation, and Wells Fargo Bank, N.A. (the “Rights Agent”), to
purchase from the Company at any time after the Distribution Date (as defined
in the Rights Agreement) and prior to 5:00 P.M. (Minneapolis time) on March 17,
2015 at the office or offices of the Rights Agent designated for such purpose,
or its successors as Rights Agent, one one-hundredth (.01) of a fully paid,
non-assessable share of Series A Preferred Stock (the “Preferred Stock”) of the
Company, at a purchase price of $70 (Seventy Dollars) per share (the “Exercise
Price”), upon presentation and surrender of this Right Certificate with the
Form of Election to Purchase and related Certificate duly executed.


 


The number of Rights evidenced by this Right
Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Exercise Price set forth above, are the
number and Exercise Price as of March 15, 2005, based on the Preferred Stock as
constituted at such date.  As provided in
the Rights Agreement, the Exercise Price and the number and kind of shares of
Preferred Stock or other securities which may be purchased upon the exercise of
the Rights evidenced by this Right Certificate are subject to adjustment upon
the occurrence 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, which limitations of rights include the temporary suspension of
the exercisability of such Rights under the specific circumstances set forth in
the Rights Agreement.  Copies of the
Rights Agreement are on file at the above-mentioned office of the Rights Agent
and are also available upon written request to the Rights Agent.


 


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This Right Certificate, with or without other Right
Certificates, upon surrender at the principal office or offices of the Rights
Agent designated for such purpose, 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 one-hundredths of a
share of Preferred Stock as the Rights evidenced by the Right Certificate or
Right Certificates surrendered will have entitled such holder to purchase.  If this Right Certificate will be exercised
in part, the holder will be entitled to receive upon surrender hereof another
Right Certificate or Right Certificates for the number of whole Rights
unexercised.


 


Subject to the provisions of the Rights Agreement, the
Rights evidenced by this Certificate (i) may be redeemed by the Company at its
option at a redemption price of $.001 per Right, subject to adjustment as
provided in the Rights Agreement, at any time prior to the earlier of the close
of business on (A) the tenth day following the Stock Acquisition Date (such
time period may be extended pursuant to the Rights Agreement) or (B) the Final
Expiration Date (as defined in the Rights Agreement), and (ii) may, at the
option of the Company, be exchanged in whole or in part for Preferred Stock or
shares of the Company’s Common Stock, par value $.01 per share.


 


No fractional shares of Preferred Stock will be issued
upon the exercise of any Right or Rights evidenced hereby (other than fractions
which are integral multiples of one one-hundredth of a share of Preferred Stock
or, if a Right will then be exercisable for a fraction other than one
one-hundredth of a share, integral multiples of that fraction, which in either
case 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, as such, will be
entitled to vote or receive dividends or be deemed for any purpose the holder
of shares of Preferred Stock or of any other securities of the Company which
may at any time be issuable on the exercise hereof, nor will anything contained
in the Rights Agreement or herein be construed to confer upon the holder
hereof, as such, any of the rights of a shareholder of the Company or any right
to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or, to receive notice of meetings or other actions affecting
shareholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by this Right Certificate have been exercised as provided in the
Rights Agreement.


 


From and after the first occurrence of an event
described in Section 11(a)(ii) of the Rights Agreement, any Rights evidenced by
this Right Certificate that are Beneficially Owned by an Acquiring Person, any
Associate or Affiliate of such Acquiring Person or certain transferees of any
such Acquiring Person (or of any such Associate or Affiliate) (as such terms
are defined in the Rights Agreement) will be null and void without further
action and any holder of such Rights will thereafter have no rights whatsoever
with respect to such Rights.


 


This Right Certificate will not be valid or obligatory
for any purpose until it has been countersigned by the Rights Agent.


 


WITNESS the facsimile signature of the proper officers
of the Company and its corporate seal.


 


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Dated as of                       
     ,           .


 


 


	
  ATTEST:

  	
  WATERS INSTRUMENTS,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
      Its:

  	
   

  	
   

  	
  Jerry
  W. Grabowski, President and

  
	
   

  	
  Chief
  Executive officer

  
							



 


 


	
  Countersigned:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  WELLS FARGO BANK, N.A.

  	
   

  
	
  as Rights Agent

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Authorized Signature

  	
   

  
				



 


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[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.


 


THE UNDERSIGNED HEREBY
CERTIFIES that the Rights evidenced by this Right Certificate are not
beneficially owned by, and were not acquired from, an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).


 


Dated:                                         ,
          


 


 


	
   

  	
   

  
	
   

  	
  Signature

  



 


 


THE
SIGNATURES TO THIS FORM OF ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN
UPON THE FACE OF THIS RIGHT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE MEDALLION GUARANTEED
BY AN ELIGIBLE INSTITUTION AS DEFINED IN SECTION 240.17 Ad-15 OF THE SECURITIES
EXCHANGE ACT OF 1934.


 


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FORM OF
ELECTION TO PURCHASE


 


(To be executed if holder
desires to exercise


Rights represented by the
Right Certificate)


 


To WATERS INSTRUMENTS,
INC.


 


The undersigned hereby
irrevocably elects to exercise                       
Rights represented by this Right Certificate to purchase the Preferred Stock
issuable upon exercise of such Rights and requests that certificates for such
Preferred Stock be issued in the name of:


 


	
  Please insert social
  security

  
	
   

  
	
  or other
  identifying number

  



 


 


(Please print name and
address)


 


 


 


If such number of Rights
will not be all the Rights evidenced by this Right Certificate, a new Right
Certificate for the balance remaining of such Rights will be registered in the
name of and delivered to:


 


 


(Please print name and
address)


 


 


 


THE UNDERSIGNED HEREBY
CERTIFIES that the Rights evidenced by this Right Certificate are not
beneficially owned by, and were not acquired from, an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).


 


Dated:                                         ,
          


 


 


	
   

  	
   

  
	
   

  	
  Signature

  



 


 


THE
SIGNATURES TO THIS FORM OF ELECTION TO PURCHASE MUST CORRESPOND TO THE NAME AS
WRITTEN UPON THE FACE OF THIS RIGHT CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE MEDALLION
GUARANTEED BY AN ELIGIBLE INSTITUTION AS DEFINED IN SECTION 240.17 Ad-15 OF
THE SECURITIES EXCHANGE ACT OF 1934.


 


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