freds8a12b101408ex41.htm


    Exhibit 4.1


      


       

      __________________________________________________________________________________________

       

      RIGHTS
AGREEMENT

       

      __________________

       

      FRED’S,
INC.

       

      and

       

      REGIONS
BANK

       

      Rights
Agent

       

      


       

      __________________

       

      Dated as
of October 10, 2008

       

      ___________________________________________________________________________________________

       

       

       

       

       

       

       

       

       

       

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      TABLE OF
CONTENTS

       

      


      
        	
                Section
      1.

              	
                Definitions

              	
                1

              
	
                Section
      2.

              	
                Appointment
      of Rights Agent

              	
                3

              
	
                Section
      3.

              	
                Issue
      of Right Certificates

              	
                3

              
	
                Section
      4.

              	
                Form
      of Right Certificates

              	
                4

              
	
                Section
      5.

              	
                Countersignature
      and Registration

              	
                5

              
	
                Section
      6.

              	
                Transfer,
      Split Up, Combination and Exchange of Right Certificates; Mutilated,
      Destroyed, Lost or Stolen Right Certificates

              	
                5

              
	
                Section
      7.

              	
                Exercise
      of Rights; Purchase Price; Expiration Date of Rights

              	
                6

              
	
                Section
      8.

              	
                Cancellation
      and Destruction of Right Certificates

              	
                6

              
	
                Section
      9.

              	
                Availability
      of Preferred Shares

              	
                7

              
	
                Section
      10.

              	
                Preferred
      Shares Record Date

              	
                7

              
	
                Section
      11.

              	
                Adjustment
      of Purchase Price, Number of Shares or Number of Rights

              	
                7

              
	
                Section
      12.

              	
                Certificate
      of Adjusted Purchase Price or Number of Shares

              	
                11

              
	
                Section
      13.

              	
                Consolidation,
      Merger or Sale or Transfer of Assets or Earning Power

              	
                11

              
	
                Section
      14.

              	
                Fractional
      Rights and Fractional Shares

              	
                12

              
	
                Section
      15.

              	
                Rights
      of Action

              	
                13

              
	
                Section
      16.

              	
                Agreement
      of Right Holders

              	
                13

              
	
                Section
      17.

              	
                Right
      Certificate Holder Not Deemed a Stockholder

              	
                13

              
	
                Section
      18.

              	
                Concerning
      the Rights Agent

              	
                14

              
	
                Section
      19.

              	
                Merger
      or Consolidation or Change of Name of Rights Agent

              	
                14

              
	
                Section
      20.

              	
                Duties
      of Rights Agent

              	
                15

              
	
                Section
      21.

              	
                Change
      of Rights Agent

              	
                16

              
	
                Section
      22.

              	
                Issuance
      of New Right Certificates

              	
                17

              
	
                Section
      23.

              	
                Redemption

              	
                17

              
	
                Section
      24.

              	
                Exchange

              	
                17

              
	
                Section
      25.

              	
                Notice
      of Certain Events

              	
                18

              
	
                Section
      26.

              	
                Notices

              	
                18

              
	
                Section
      27.

              	
                Supplements
      and Amendments

              	
                19

              
	
                Section
      28.

              	
                Successors

              	
                19

              
	
                Section
      29.

              	
                Benefits
      of this Agreement

              	
                19

              
	
                Section
      30.

              	
                Determinations
      and Actions by the Board of Directors

              	
                20

              
	
                Section
      31.

              	
                Severability

              	
                20

              
	
                Section
      32.

              	
                Governing
      Law

              	
                20

              
	
                Section
      33.

              	
                Counterparts

              	
                20

              
	
                Section
      34.

              	
                Descriptive
      Headings

              	
                20

              
	
                Section
      35.

              	
                Force
      Majeure

              	
                20

              
	
                Section
      36.

              	
                USA
      PATRIOT ACT

              	
                20

              
	
                Section
      37.

              	
                Representations
      and Warranties

              	
                20

              
	
                Exhibit
      A

              	 
      	
                22

              
	
                Exhibit
      B

              	 
      	
                26

              
	
                Exhibit
      C

              	 
      	
                29

              
	
                Exhibit
      D

              	 
      	
                30

              


      

    

     

    


    


      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    
      
               
Agreement, dated as of October 10, 2008, between Fred’s, Inc., a Tennessee
corporation (the “Company”), and
Regions Bank, an Alabama banking corporation, as rights agent (the “Rights
Agent”).

    

     

    The Board
of Directors of the Company has authorized and declared a dividend of one
preferred share purchase right (a “Right”) for each
Common Share (as hereinafter defined) of the Company outstanding at the close of
business on October 12, 2008 (the “Record Date”), each
Right representing the right to purchase one one-hundredth of a Preferred Share
(as hereinafter defined), upon the terms and subject to the conditions herein
set forth, and has further authorized and directed the issuance of one Right
with respect to each Common Share that shall become outstanding between the
Record Date and the earliest of the Distribution Date, the Redemption Date and
the Final Expiration Date (as such terms are hereinafter defined).

     

    Accordingly,
in consideration of the premises and the mutual agreements herein set forth, the
parties hereby agree as follows:

     

    Section
1. Definitions. For purposes of
this Agreement, the following terms have the meanings indicated:

     

    (a)
“Acquiring
Person” shall mean any Person (as such term is hereinafter defined) who
or which, together with all Affiliates (as such term is hereinafter defined) and
Associates (as such term is hereinafter defined) of such Person, shall be the
Beneficial Owner (as such term is hereinafter defined) of 15% or more of the
Common Shares (as such term is hereinafter defined) of the Company (as such term
is hereinafter defined) then outstanding, but shall not include (1) the Company,
(2) any Subsidiary (as such term is hereinafter defined) of the Company, or (3)
any employee benefit plan of the Company or of any Subsidiary of the Company, or
any entity holding Common Shares for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall become an “Acquiring Person” as
the result of an acquisition of Common Shares by the Company that, by reducing
the number of Common Shares of the Company outstanding, increases the
proportionate number of Common Shares of the Company beneficially owned by such
Person to 15% or more of the Common Shares of the Company then outstanding;
provided, however, that, if a
Person shall become the Beneficial Owner of 15% or more of the Common Shares of
the Company then outstanding by reason of share purchases by the Company and
shall, after such share purchases by the Company, become the Beneficial Owner of
any additional Common Shares of the Company, then such Person shall be deemed to
be an “Acquiring Person.” Notwithstanding the foregoing, if the Board of
Directors determines in good faith that a Person who would otherwise be an
“Acquiring Person,” as defined pursuant to the foregoing provisions of this
paragraph (a), (i) has become such inadvertently or (ii) has become such as the
result of contractual obligations that are or purport to be legally binding
entered into prior to, and not materially amended or modified after, the date of
this Agreement and has not acquired 1% or more of the Common Shares of the
Company then outstanding by means other than such contractual obligations since
the date of this Agreement, and in either of case (i) or (ii), such Person
divests as promptly as practicable (but in the case of clause (ii), in no event
later than 60 calendar days following the date of the acquisition of beneficial
ownership that would otherwise cause such Person to be an Acquiring Person) a
sufficient number of Common Shares so that such Person would no longer be an
“Acquiring Person,” as defined pursuant to the foregoing provisions of this
paragraph (a), then such Person (as such term is hereinafter defined) shall not
be deemed to be an “Acquiring Person” for any purposes of this Agreement. For
the avoidance of doubt, if any Person may avoid being an Acquiring Person by
divesting Common Shares as described above, then such Person shall not be
considered to become an Acquiring Person until (I) in the case of clause (i)
above, the date that the Board of Directors determines in good faith that such
divestiture has not occurred as promptly as practicable or (II) in the case of
clause (ii) above, the expiration of the 60-day deadline for
divestiture.

     

    (b)
“Affiliate”
shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules
and Regulations under the Exchange Act as in effect on the date of this
Agreement.

     

    (c)
“Associate”
shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules
and Regulations under the Exchange Act as in effect on the date of this
Agreement.

     

     

     

    
      
        -1-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (d) A
Person shall be deemed the “Beneficial Owner” of
and shall be deemed to “beneficially own” any
securities:

     

    (i) which
such Person or any of such Person’s Affiliates or Associates beneficially owns,
directly or indirectly;

     

    (ii)
which such Person or any of such Person’s Affiliates or Associates has (A) the
right to acquire (whether such right is exercisable immediately or only after
the passage of time) pursuant to any agreement, arrangement or understanding
(other than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering
of securities), or upon the exercise of conversion rights, exchange rights,
rights (other than these Rights), warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially own,
securities tendered pursuant to a tender or exchange offer made by or on behalf
of such Person or any of such Person’s Affiliates or Associates until such
tendered securities are accepted for purchase or exchange; or (B) the right to
vote pursuant to any agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially own, any
security if the agreement, arrangement or understanding to vote such security
(1) arises solely from a revocable proxy or consent given to such Person in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations promulgated under the
Exchange Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or

     

    (iii)
which are beneficially owned, directly or indirectly, by any other Person with
which such Person or any of such Person’s Affiliates or Associates has any
agreement, arrangement or understanding (other than customary agreements with
and between underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring, holding, voting
(except to the extent contemplated by the proviso to Section 1(d)(ii)(B) hereof)
or disposing of any securities of the Company.

     

    Notwithstanding
anything in this definition of Beneficial Ownership to the contrary, the phrase
“then outstanding,” when used with reference to a Person’s Beneficial Ownership
of securities of the Company, shall mean the number of such securities then
issued and outstanding together with the number of such securities not then
actually issued and outstanding which such Person would be deemed to own
beneficially hereunder.

     

    (e)
“Board of
Directors” shall mean the Board of Directors of the Company or any duly
authorized committee thereof.

     

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

     

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

     

    (h)
“Common Shares”
when used with reference to the Company shall mean the shares of common stock,
no par value per share, of the Company. “Common Shares” when used with reference
to any Person other than the Company shall mean the capital stock (or equity
interest) with the greatest voting power of such other Person or, if such other
Person is a Subsidiary of another Person, the Person or Persons which ultimately
control such first-mentioned Person.

     

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

     

    (j)
“Exchange Act”
shall mean the Securities Exchange Act of 1934, as amended.

     

    (k)
“Exchange
Ratio” shall have the meaning set forth in Section 24(a) hereof, unless
otherwise expressly specified.

     

    (l)
“Final Expiration
Date” shall have the meaning set forth in Section 7(a)
hereof.

     

     

     

    
      
        -2-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    (m)
“NASDAQ” shall
mean The Nasdaq Stock Market.

     

    (n)
“Person” shall
mean any individual, firm, corporation, partnership, limited liability company
or other entity, and shall include any successor (by merger or otherwise) of
such entity.

     

    (o)
“Preferred
Shares” shall mean shares of Series A Junior Participating Preferred
Stock, no par value per share, of the Company having the rights and preferences
set forth in the statement of resolutions with respect to such series of
preferred stock of the Company.

     

    (p)
“Purchase
Price” shall have the meaning set forth in Section 4 hereof.

     

    (q)
“Record Date”
shall have the meaning set forth in the second paragraph hereof.

     

    (r)
“Redemption
Date” shall have the meaning set forth in Section 7(a)
hereof.

     

    (s)
“Redemption
Price” shall have the meaning set forth in Section 23(a)
hereof.

     

    (t)
“Right” shall
have the meaning set forth in the second paragraph hereof.

     

    (u)
“Right
Certificate” shall have the meaning set forth in Section 3(a)
hereof.

     

    (v)
“Shares Acquisition
Date” shall mean the first date of public announcement by the Company or
an Acquiring Person that an Acquiring Person has become such.

     

    (w)
“Subsidiary” of
any Person shall mean any Person of which a majority of the voting power of the
voting equity securities or equity interest is owned, directly or indirectly, by
such Person.

     

    (x)
“Summary of
Rights” shall have the meaning set forth in Section 3(b)
hereof.

     

    (y)
“Trading Day”
shall have the meaning set forth in Section 11(d) hereof.

     

    Section
2. Appointment of Rights Agent.
The Company hereby appoints the Rights Agent to act as agent for the Company in
accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such
co-Rights Agents as it may deem necessary or desirable. If the Company appoints
one or more co-rights agents, the respective duties of the Rights Agent and any
co-rights agent shall be as the Company shall determine, and the Company will
notify, in writing, the Rights Agent and any co-rights agents of any such
respective duties. The Rights Agent shall have no duty to supervise, and in no
event shall be liable for, the acts or omissions of any such co-Rights
Agent.

     

    Section
3. Issue of Right Certificates.
(a) Until the earlier of (i) the tenth day after the Shares Acquisition Date or
(ii) the tenth Business Day (or such later date as may be determined by action
of the Board of Directors prior to such time as any Person becomes an Acquiring
Person) after the date of the commencement by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company or any entity holding Common Shares of the
Company for or pursuant to the terms of any such plan) of a tender or exchange
offer the consummation of which would result in any Person becoming the
Beneficial Owner of Common Shares of the Company aggregating 15% or more of the
then outstanding Common Shares of the Company (including any such date which is
after the date of this Agreement and prior to the issuance of the Rights; the
earlier of such dates being herein referred to as the “Distribution Date”),
(x) the Rights will be evidenced (subject to the provisions of Section 3(b)
hereof) by the certificates for Common Shares of the Company (or, in the case of
uncertificated Common Shares, by the book-entry account that evidences record
ownership of such Common Shares) registered in the names of the holders thereof
(which certificates, if any, shall also be deemed to be Right Certificates) and
not by separate Right Certificates, and (y) the right to receive Right
Certificates will be transferable only in connection with the transfer of Common
Shares of the Company. 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
and provided with all necessary information, send) by first-class, insured,
postage-prepaid mail, to each record holder of Common Shares of the Company as
of the Close of Business on the Distribution Date, at the address of such holder
shown on the records of the Company, a Right Certificate, in substantially the
form of Exhibit A hereto (a “Right Certificate”),
evidencing one Right for each Common Share so held. In the event that an
adjustment in the number of Rights per Common Share has been made pursuant to
Section 11(i) hereof, at the time of distribution of the Right Certificates, the
Company shall make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that Right Certificates representing
only whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of the Distribution Date, the Rights will be evidenced
solely by such Right Certificates. The Company shall promptly notify the Rights
Agent in writing upon the occurrence of the Distribution Date and, if such
notification is given orally, the Company shall confirm same in writing on or
prior to the Business Day next following. Until such notice is received by the
Rights Agent, the Rights Agent may presume conclusively for all purposes that
the Distribution Date has not occurred.

     

     

    
      
        -4-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b) On
the Record Date, or as soon as practicable thereafter, the Company will send a
copy of a Summary of Rights to Purchase Preferred Shares, in substantially the
form of Exhibit B hereto (the “Summary of Rights”),
by first-class, postage-prepaid mail, to each record holder of Common Shares as
of the Close of Business on the Record Date, at the address of such holder shown
on the records of the Company. With respect to certificates for Common Shares of
the Company outstanding as of the Record Date, until the Distribution Date, the
Rights will be evidenced by such certificates registered in the names of the
holders thereof together with a copy of the Summary of Rights attached thereto.
With respect to uncertificated Common Shares of the Company outstanding as of
the Record Date, until the Distribution Date, the Rights will be evidenced by
the book-entry account that evidences record ownership of such Common Shares in
the names of the holders thereof together with a copy of the Summary of Rights
maintained by the Company. Until the Distribution Date (or the earlier of the
Redemption Date or the Final Expiration Date), the surrender for transfer of any
certificate (or, in the case of uncertificated Common Shares, a transfer
recorded in the book-entry accounts that evidence record ownership of such
Common Shares) for Common Shares of the Company outstanding on the Record Date,
with or without a copy of the Summary of Rights attached thereto, shall also
constitute the transfer of the Rights associated with the Common Shares of the
Company represented thereby.

     

    (c)
Certificates for Common Shares which become outstanding (including, without
limitation, reacquired Common Shares referred to in the last sentence of this
paragraph (c)) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them a legend in
substantially the following form:

     

    This
certificate also evidences and entitles the holder hereof to certain rights as
set forth in a Rights Agreement between Fred’s, Inc. and Regions Bank, dated as
of October 10, 2008, as it may be amended or supplemented from time to time (the
“Agreement”), the terms of which are hereby incorporated herein by reference and
a copy of which is on file at the principal executive offices of Fred’s. Inc.
Under certain circumstances, as set forth in the Agreement, such Rights (as
defined in the Agreement) will be evidenced by separate certificates and will no
longer be evidenced by this certificate. Fred’s, Inc. will mail to the holder of
this certificate a copy of the Agreement without charge after receipt of a
written request therefor. As set forth in the Agreement, Rights beneficially
owned by any Person (as defined in the Agreement) who becomes an Acquiring
Person (as defined in the Agreement) become null and void.

     

    With
respect to such certificates containing the foregoing legend, the Rights
associated with the Common Shares of the Company represented by such
certificates shall, until the Distribution Date, be evidenced by such
certificates alone, and the surrender for transfer of any such certificate shall
also constitute the transfer of the Rights associated with the Common Shares of
the Company represented thereby. In the event that the Company purchases or
acquires any Common Shares of the Company after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Shares of the Company
shall be deemed cancelled and retired so that the Company shall not be entitled
to exercise any Rights associated with the Common Shares of the Company which
are no longer outstanding.

     

    Section
4. Form of Right Certificates.
The Right Certificates (and the forms of election to purchase Preferred Shares
and of assignment to be printed on the reverse thereof) shall be substantially
the same as Exhibit A hereto, and may have such marks of identification or
designation and such legends, summaries or endorsements printed thereon as the
Company may deem appropriate (but which do not affect the rights, duties or
responsibilities of the Rights Agent) and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any
applicable law or with any applicable rule or regulation made pursuant thereto
or with any applicable rule or regulation of any stock exchange or the National
Association of Securities Dealers, Inc., or to conform to usage. Subject to the
provisions of Section 22 hereof, the Right Certificates shall entitle the
holders thereof to purchase such number of one one-hundredths of a Preferred
Share as shall be set forth therein at the price per one one-hundredth of a
Preferred Share set forth therein (the “Purchase Price”), but
the number of such one one-hundredths of a Preferred Share and the Purchase
Price shall be subject to adjustment as provided herein.

     

     

     

    
      
        -4-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
5. Countersignature and
Registration. The Right Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its Chief Executive Officer, its
President, any of its Vice Presidents, or its Treasurer, either manually or by
facsimile signature, shall have affixed thereto the Company’s seal or a
facsimile thereof, and shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. In case any officer of the
Company who shall have signed any of the Right Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Right Certificates, nevertheless, may
be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the individual who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any individual who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Agreement any such individual was not such an
officer.

     

    Following
the Distribution Date and receipt by the Rights Agent of notice and all other
relevant information, the Rights Agent will keep or cause to be kept, at its
office designated for such purpose, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.

     

    Section
6. Transfer, Split Up, Combination and
Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates. Subject to the provisions of Section 14 hereof, at any time
after the Close of Business on the Distribution Date, at or prior to the Close
of Business on the earlier of the Redemption Date or the Final Expiration Date,
and following receipt in writing by the Rights Agent of notice to that effect,
any Right Certificate or Right Certificates (other than Right Certificates
representing Rights that have become null and void pursuant to Section 11(a)(ii)
hereof or that have been exchanged pursuant to Section 24 hereof) may be
transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates entitling the registered holder to purchase a like number of
one one-hundredths of a Preferred Share as the Right Certificate or Right
Certificates surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Right Certificate
or Right Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the office of the Rights Agent
designated for such purpose. The Rights Certificates are transferable only on
the registry books of the Rights Agent. Thereupon the Rights Agent, subject to
the provisions hereof, shall countersign (by manual signature) and deliver to
the Person entitled thereto a Right Certificate or Right Certificates, as the
case may be, as so requested. The Company may require payment from the holder of
a Rights Certificate of a sum sufficient to cover any tax or charge that may be
imposed in connection with any transfer, split up, combination or exchange of
such Right Certificates. The Rights Agent shall have no duty or obligation to
take any action under any section of this Agreement which requires the payment
by a Rights holder of applicable taxes and charges unless and until the Rights
Agent is satisfied that all such taxes and/or charges have been
paid.

     

    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
satisfactory to them, and, if requested by the Company, reimbursement to the
Company and the Rights Agent of all reasonable expenses incidental thereto, and
upon surrender to the Rights Agent and cancellation of the Right Certificate if
mutilated, the Company will make and deliver a new Right Certificate of like
tenor to the Rights Agent for countersignature and delivery to the registered
holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.

     

     

    
      
        -5-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    Section
7. Exercise of Rights; Purchase Price;
Expiration Date of Rights. (a) The registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein), in whole or in part, at any time after the Distribution Date,
upon surrender of the Right Certificate, with the form of election to purchase
on the reverse side thereof duly executed (with such signature duly guaranteed),
to the Rights Agent at the office of the Rights Agent designated for such
purpose, together with payment of the Purchase Price for each one one-hundredth
of a Preferred Share as to which the Rights are exercised, at or prior to the
earliest of (i) the Close of Business on October 12, 2018 (the “Final Expiration
Date”), (ii) the time at which the Rights are redeemed as provided in
Section 23 hereof (the “Redemption Date”), or
(iii) the time at which such Rights are exchanged as provided in Section 24
hereof.

     

    (b) The
Purchase Price for each one one-hundredth of a Preferred Share purchasable
pursuant to the exercise of a Right shall initially be $100.00, and shall be
subject to adjustment from time to time as provided in Section 11 or 13 hereof,
and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below.

     

    (c) Upon
receipt of a Right Certificate representing exercisable Rights, with the form of
election to purchase and certification duly executed, accompanied by payment of
the Purchase Price for the shares to be purchased and an amount equal to any
applicable tax or charge required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier’s
check or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly (i) (A) requisition from any transfer agent of the Preferred
Shares certificates for the number of Preferred Shares to be purchased and the
Company hereby irrevocably authorizes and directs any such transfer agent to
comply with all such requests, or (B) requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a
Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent of the Preferred Shares with such depositary agent) and the Company hereby
directs such depositary agent to comply with such request; (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof; (iii)
promptly after receipt of such certificates or depositary receipts, cause the
same to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder; and (iv) when appropriate, after receipt, 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 Common Shares
of the Company, pursuant to Section 13 hereof, the Rights Agent shall promptly
take the appropriate actions corresponding to the foregoing clauses (i) through
(iv). In the event that the Company is obligated to issue other securities of
the Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution by the
Rights Agent, if and when appropriate.

     

    (d) In
case the registered holder of any Right Certificate shall exercise less than all
the Rights evidenced thereby, a new Right Certificate evidencing Rights
equivalent to the Rights remaining unexercised shall be issued by the Rights
Agent to the registered holder of such Right Certificate or to such holder’s
duly authorized assigns, subject to the provisions of Section 14
hereof.

     

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

     

    Section
8. Cancellation and Destruction of Right
Certificates. All Right Certificates surrendered for the purpose of
exercise, transfer, split up, combination or exchange shall, if surrendered to
the Company or to any of its agents, be delivered to the Rights Agent for
cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall
be cancelled by it, and no Right Certificates shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Agreement. The
Company shall deliver to the Rights Agent for cancellation and retirement, and
the Rights Agent shall so cancel and retire, any other Right Certificate
purchased or acquired by the Company otherwise than upon the exercise thereof.
The Rights Agent shall deliver all cancelled Right Certificates to the Company,
or shall, at the written request of the Company, destroy such cancelled Right
Certificates, and, in such case, shall deliver a certificate of destruction
thereof to the Company.

     

     

    
      
        -6-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
9. Availability of Preferred
Shares. The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued Preferred Shares
or any Preferred Shares held in its treasury the number of Preferred Shares that
will be sufficient to permit the exercise in full of all outstanding Rights in
accordance with Section 7 hereof. The Company covenants and agrees that it will
take all such action as may be necessary to ensure that all Preferred Shares
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such Preferred Shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.

     

    The
Company further covenants and agrees that it will pay when due and payable any
and all taxes and charges which may be payable in respect of the issuance or
delivery of the Right Certificates or of any Preferred Shares upon the exercise
of Rights. The Company shall not, however, be required to pay any tax or charge
which may be payable in respect of any transfer or delivery of Right
Certificates to a Person other than, or the issuance or delivery of certificates
or depositary receipts for the Preferred Shares in a name other than that of,
the registered holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or to deliver any certificates or depositary receipts for
Preferred Shares upon the exercise of any Rights until any such tax shall have
been paid (any such tax or charge being payable by the holder of such Right
Certificate at the time of surrender) or until it has been established to the
Company’s reasonable satisfaction that no such tax is due.

     

    Section
10. Preferred Shares Record Date.
Each Person in whose name any certificate for Preferred Shares is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Preferred Shares represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of the Purchase Price (and any
applicable taxes or charges) was made; provided, however, that, if the
date of such surrender and payment is a date upon which the Preferred Shares
transfer books of the Company are closed, such Person shall be deemed to have
become the record holder of such shares on, and such certificate shall be dated,
the next succeeding Business Day on which the Preferred Shares transfer books of
the Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a holder of
Preferred Shares for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.

     

    Section
11. Adjustment of Purchase Price, Number
of Shares or Number of Rights. The Purchase Price, the number of
Preferred Shares covered by each Right and the number of Rights outstanding are
subject to adjustment from time to time as provided in this Section
11.

     

    (a) (i)
In the event the Company shall at any time after the date of this Agreement (A)
declare a dividend on the Preferred Shares payable in Preferred Shares, (B)
subdivide the outstanding Preferred Shares, (C) combine the outstanding
Preferred Shares into a smaller number of Preferred Shares or (D) issue any
shares of its capital stock in a reclassification of the Preferred Shares
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a), the Purchase Price in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification, and the number and kind of shares
of capital stock issuable on such date, shall be proportionately adjusted so
that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, such holder would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right.

     

    (ii)
Subject to Section 24 hereof, in the event any Person becomes an Acquiring
Person, each holder of a Right shall thereafter have a right to receive, upon
exercise thereof at a price equal to the then current Purchase Price multiplied
by the number of one one-hundredths of a Preferred Share for which a Right is
then exercisable, in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of Common Shares of the Company as shall equal the
result obtained by (A) multiplying the then current Purchase Price by the number
of one one-hundredths of a Preferred Share for which a Right is then exercisable
and dividing that product by (B) 50% of the then current per share market price
of the Common Shares of the Company (determined pursuant to Section 11(d)
hereof) on the date of the occurrence of such event. In the event that any
Person shall become an Acquiring Person and the Rights shall then be
outstanding, the Company shall not take any action which would eliminate or
diminish the benefits intended to be afforded by the Rights.

     

     

    
      
        -7-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    From and
after the occurrence of such event, any Rights that are or were acquired or
beneficially owned by any Acquiring Person (or any Associate or Affiliate of
such Acquiring Person) shall be null and void, and any holder of such Rights
shall thereafter have no right to exercise such Rights under any provision of
this Agreement. No Right Certificate shall be issued pursuant to Section 3
hereof that represents Rights beneficially owned by an Acquiring Person whose
Rights would be null and void pursuant to the preceding sentence or any
Associate or Affiliate thereof; no Right Certificate shall be issued at any time
upon the transfer of any Rights to an Acquiring Person whose Rights would be
null and void pursuant to the preceding sentence or any Associate or Affiliate
thereof or to any nominee of such Acquiring Person, Associate or Affiliate; and
any Right Certificate delivered to the Rights Agent for transfer to an Acquiring
Person whose Rights would be null and void pursuant to the preceding sentence
shall be cancelled.

     

    (iii) In
the event that there shall not be sufficient Common Shares issued but not
outstanding or authorized but unissued to permit the exercise in full of the
Rights in accordance with subparagraph (ii) above, the Company shall take all
such action as may be necessary to authorize additional Common Shares for
issuance upon exercise of the Rights. In the event the Company shall, after good
faith effort, be unable to take all such action as may be necessary to authorize
such additional Common Shares, the Company shall substitute, for each Common
Share that would otherwise be issuable upon exercise of a Right, a number of
Preferred Shares or fraction thereof such that the current per share market
price of one Preferred Share multiplied by such number or fraction is equal to
the current per share market price of one Common Share as of the date of
issuance of such Preferred Shares or fraction thereof.

     

    (b) In
case the Company shall fix a record date for the issuance of rights, options or
warrants to all holders of Preferred Shares entitling them (for a period
expiring within 45 calendar days after such record date) to subscribe for or
purchase Preferred Shares (or shares having the same rights, privileges and
preferences as the Preferred Shares (“equivalent preferred
shares”)) or securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent preferred share
(or having a conversion price per share, if a security convertible into
Preferred Shares or equivalent preferred shares) less than the then current per
share market price of the Preferred Shares (as determined pursuant to Section
11(d)) on such record date, the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of Preferred Shares outstanding on such record date plus the number of
Preferred Shares which the aggregate offering price of the total number of
Preferred Shares and/or equivalent preferred shares so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the denominator of
which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors, whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent and holders of the Rights.
Preferred Shares owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and, in the
event that such rights, options or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in effect
if such record date had not been fixed.

     

    (c) In
case the Company shall fix a record date for the making of a distribution to all
holders of the Preferred Shares (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation) of evidences of indebtedness or assets (other than a
regular quarterly cash dividend or a dividend payable in Preferred Shares) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the then-current per
share market price of the Preferred Shares on such record date, less the fair
market value (as determined in good faith by the Board of Directors, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and holders of the Rights) of the portion
of the assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to one Preferred Share and the
denominator of which shall be such then-current per share market price of the
Preferred Shares on such record date; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company to be
issued upon exercise of one Right. Such adjustments shall be made successively
whenever such a record date is fixed; and, in the event that such distribution
is not so made, the Purchase Price shall again be adjusted to be the Purchase
Price which would then be in effect if such record date had not been
fixed.

     

     

    
      
        -8-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (d) (i)
For the purpose of any computation hereunder, the “current per share market
price” of any security (a “Security” for the
purpose of this Section 11(d)(i)) on any date shall be deemed to be the average
of the daily closing prices per share of such Security for the 30 consecutive
Trading Days immediately prior to but not including such date; provided, however, that, in the
event that the current per share market price of the Security is determined
during a period following the announcement by the issuer of such Security of (A)
a dividend or distribution on such Security payable in shares of such Security
or Securities convertible into such shares, or (B) any subdivision, combination
or reclassification of such Security and prior to the expiration of 30 Trading
Days after but not including the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, reported at or prior to 4:00 P.M. Eastern time or,
in case no such sale takes place on such day, the average of the bid and asked
prices, regular way, reported as of 4:00 P.M. Eastern time, in either case, as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last
quoted price reported at or prior to 4:00 P.M. Eastern time or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported as of 4:00 P.M. Eastern time by NASDAQ or such other system
then in use, or, if on any such date the Security is not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Security selected by the Board
of Directors. The term “Trading Day” shall
mean a day on which the principal national securities exchange on which the
Security is listed or admitted to trading is open for the transaction of
business, or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day.

     

    (ii) For
the purpose of any computation hereunder, the “current per share market price”
of the Preferred Shares shall be determined in accordance with the method set
forth in Section 11(d)(i). If the Preferred Shares are not publicly traded, the
“current per share market price” of the Preferred Shares shall be conclusively
deemed to be the current per share market price of the Common Shares as
determined pursuant to Section 11(d)(i) hereof (appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof), multiplied by one hundred. If neither the Common Shares nor
the Preferred Shares are publicly held or so listed or traded, “current per
share market price” shall mean the fair value per share as determined in good
faith by the Board of Directors, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights for all purposes.

     

    (e) No
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Purchase Price; provided, however, that any
adjustments which by reason of this Section 11(e) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 11 shall be made to the nearest cent or to
the nearest one one-millionth of a Preferred Share or one ten-thousandth of any
other share or security as the case may be. Notwithstanding the first sentence
of this Section 11(e), any adjustment required by this Section 11 shall be made
no later than the earlier of (i) three years from the date of the transaction
which requires such adjustment or (ii) the date of the expiration of the right
to exercise any Rights.

     

     

     

     

     

     

    
      
        -9-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (f) If,
as a result of an adjustment made pursuant to Section 11(a) hereof, the holder
of any Right thereafter exercised shall become entitled to receive any shares of
capital stock of the Company other than Preferred Shares, thereafter the number
of such other shares so receivable upon exercise of any Right shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Shares contained in
Section 11(a) through (c) hereof, inclusive, and the provisions of Sections 7,
9, 10 and 13 hereof with respect to the Preferred Shares shall apply on like
terms to any such other shares.

     

    (g) All
Rights originally issued by the Company subsequent to any adjustment made to the
Purchase Price hereunder shall evidence the right to purchase, at the adjusted
Purchase Price, the number of one one-hundredths of a Preferred Share
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.

     

    (h)
Unless the Company shall have exercised its election as provided in Section
11(i) hereof, upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c) hereof, each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of one
one-hundredths of a Preferred Share (calculated to the nearest one one-millionth
of a Preferred Share) obtained by (A) multiplying (x) the number of one
one-hundredths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (B) dividing the product so obtained by the
Purchase Price in effect immediately after such adjustment of the Purchase
Price.

     

    (i) The
Company may elect, on or after the date of any adjustment of the Purchase Price,
to adjust the number of Rights in substitution for any adjustment in the number
of one one-hundredths of a Preferred Share purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of one one-hundredths of a Preferred
Share for which a Right was exercisable immediately prior to such adjustment.
Each Right held of record prior to such adjustment of the number of Rights shall
become that number of Rights (calculated to the nearest one ten-thousandth)
obtained by dividing the Purchase Price in effect immediately prior to
adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. The Company shall notify the Rights Agent whenever it
makes a public announcement pursuant to this Section 11(i), and shall promptly
give the Rights Agent a copy of such announcement. This record date may be the
date on which the Purchase Price is adjusted or any day thereafter, but, if the
Right Certificates have been issued, shall be at least 10 days later than the
date of the public announcement. If Right Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein, and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.

     

    (j)
Irrespective of any adjustment or change in the Purchase Price or in the number
of one one-hundredths of a Preferred Share issuable upon the exercise of the
Rights, the Right Certificates theretofore and thereafter issued may continue to
express the Purchase Price and the number of one one-hundredths of a Preferred
Share which were expressed in the initial Right Certificates issued
hereunder.

     

    (k)
Before taking any action that would cause an adjustment reducing the Purchase
Price below one one-hundredth of the then par value, if any, of the Preferred
Shares issuable upon exercise of the Rights, the Company shall take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Preferred Shares at such adjusted Purchase Price.

     

     

     

    
      
        -10-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (l) In
any case in which this Section 11 shall require that an adjustment in the
Purchase Price be made effective as of a record date for a specified event, the
Company may elect to defer (with prompt written notice of such election to the
Rights Agent) until the occurrence of such event the issuing to the holder of
any Right exercised after such record date of the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
over and above the Preferred Shares and other capital stock or securities of the
Company, if any, issuable upon such exercise on the basis of the Purchase Price
in effect prior to such adjustment; provided, however, that the
Company shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder’s right to receive such additional shares upon the
occurrence of the event requiring such adjustment.

     

    (m)
Anything in this Section 11 to the contrary notwithstanding, the Company shall
be entitled to make such reductions in the Purchase Price, in addition to those
adjustments expressly required by this Section 11, as and to the extent that it,
in its sole discretion, shall determine to be advisable in order that any
consolidation or subdivision of the Preferred Shares, issuance wholly for cash
of any Preferred Shares at less than the current market price, issuance wholly
for cash of Preferred Shares or securities which by their terms are convertible
into or exchangeable for Preferred Shares, dividends on Preferred Shares payable
in Preferred Shares or issuance of rights, options or warrants referred to in
Section 11(b) hereof, hereafter made by the Company to holders of the Preferred
Shares shall not be taxable to such stockholders.

     

    (n) In
the event that, at any time after the date of this Agreement and prior to the
Distribution Date, the Company shall (i) declare or pay any dividend on the
Common Shares payable in Common Shares, or (ii) effect a subdivision,
combination or consolidation of the Common Shares (by reclassification or
otherwise than by payment of dividends in Common Shares) into a greater or
lesser number of Common Shares, then, in any such case, (A) the number of one
one-hundredths of a Preferred Share purchasable after such event upon proper
exercise of each Right shall be determined by multiplying the number of one
one-hundredths of a Preferred Share so purchasable immediately prior to such
event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.

     

    Section
12. Certificate of Adjusted Purchase
Price or Number of Shares. Whenever an adjustment is made as provided in
Section 11 or 13 hereof, or any event affecting the Rights or their
exercisability (including, without limitation, an event which causes the Rights
to become null and void), the Company shall promptly (a) prepare a certificate
setting forth such adjustment and a brief, reasonably detailed statement of the
facts, computations and methodology accounting for such adjustment or describing
such event, (b) file with the Rights Agent and with each transfer agent for the
Common Shares or the Preferred Shares a copy of such certificate and (c) if such
adjustment occurs at any time after the Distribution Date, mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25
hereof. Notwithstanding the foregoing sentence, the failure of the Company to
give such notice shall not affect the validity of or the force or effect of the
requirement for such adjustment. The Rights Agent shall be fully protected in
relying on any certificate prepared by the Company pursuant to Sections 11 and
13 and on any adjustment therein contained and shall have no duty with respect
to and shall not be deemed to have knowledge of any such adjustment unless and
until it shall have received such certificate.

     

    Section
13. Consolidation, Merger or Sale or
Transfer of Assets or Earning Power. In the event, directly or
indirectly, at any time after a Person has become an Acquiring Person, (a) the
Company shall consolidate with, or merge with and into, any other Person, (b)
any Person shall consolidate with the Company, or merge with and into the
Company and the Company shall be the continuing or surviving corporation of such
merger and, in connection with such merger, all or part of the Common Shares
shall be changed into or exchanged for stock or other securities of any other
Person (or the Company) or cash or any other property, or (c) the Company shall
sell or otherwise transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer), in one or more transactions, assets or earning power
aggregating 50% or more of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person other than the Company or
one or more of its wholly-owned Subsidiaries, then, and in each such case,
proper provision shall be made so that (i) each holder of a Right (except as
otherwise provided herein) shall thereafter have the right to receive, upon the
exercise thereof at a price equal to the then current Purchase Price multiplied
by the number of one one-hundredths of a Preferred Share for which a Right is
then exercisable, in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of Common Shares of such other Person (including
the Company as successor thereto or as the surviving corporation) as shall equal
the result obtained by (A) multiplying the then current Purchase Price by the
number of one one-hundredths of a Preferred Share for which a Right is then
exercisable and dividing that product by (B) 50% of the then current per


     

     

    
      
        -11-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    share
market price of the Common Shares of such other Person (determined pursuant to
Section 11(d) hereof) on the date of consummation of such consolidation, merger,
sale or transfer; (ii) the issuer of such Common Shares shall thereafter be
liable for, and shall assume, by virtue of such consolidation, merger, sale or
transfer, all the obligations and duties of the Company pursuant to this
Agreement; (iii) the term “Company” shall thereafter be deemed to refer to such
issuer; and (iv) such issuer shall take such steps (including, but not limited
to, the reservation of a sufficient number of its Common Shares in accordance
with Section 9 hereof) in connection with such consummation as may be necessary
to assure that the provisions hereof shall thereafter be applicable, as nearly
as reasonably may be, in relation to the Common Shares of the Company thereafter
deliverable upon the exercise of the Rights. The Company shall not consummate
any such consolidation, merger, sale or transfer unless, prior thereto, the
Company and such issuer shall have executed and delivered to the Rights Agent a
supplemental agreement so providing. The Company shall not enter into any
transaction of the kind referred to in this Section 13 if at the time of such
transaction there are any rights, warrants, instruments or securities
outstanding or any agreements or arrangements which, as a result of the
consummation of such transaction, would eliminate or substantially diminish the
benefits intended to be afforded by the Rights. The provisions of this Section
13 shall similarly apply to successive mergers or consolidations or sales or
other transfers.

     

    Section
14. Fractional Rights and Fractional
Shares. (a) The Company shall not be required to issue fractions of
Rights or to distribute Right Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price for any
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case, as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Rights are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or, if
the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use or, if on any such date the Rights are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors. If on any such date no such market maker is
making a market in the Rights, the fair value of the Rights on such date as
determined in good faith by the Board of Directors shall be used.

     

    (b) The
Company shall not be required to issue fractions of Preferred Shares (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share) upon exercise of the Rights or to distribute certificates which evidence
fractional Preferred Shares (other than fractions which are integral multiples
of one one-hundredth of a Preferred Share). Fractions of Preferred Shares in
integral multiples of one one-hundredth of a Preferred Share may, at the
election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by it; provided that such
agreement shall provide that the holders of such depositary receipts shall have
all the rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares represented by such depositary
receipts. In lieu of fractional Preferred Shares that are not integral multiples
of one one-hundredth of a Preferred Share, the Company shall pay to the
registered holders of Right Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one Preferred Share. For the purposes of this Section 14(b), the
current market value of a Preferred Share shall be the closing price of a
Preferred Share (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise.

     

     

     

     

     

     

     

     

     

    
      
        -12-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

    (c) The
holder of a Right, by the acceptance of the Right, expressly waives such
holder’s right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).

     

    (d)
Whenever a payment for fractional Rights or fractional shares or other
securities of the Company is to be made by the Rights Agent, the Company shall
(i) promptly prepare and deliver to the Rights Agent a certificate setting forth
in reasonable detail the facts related to such payment and the prices and/or
formulas utilized in calculating such payments, and (ii) provide sufficient
monies to the Rights Agent in the form of fully collected funds to make such
payments. The Rights Agent shall be fully protected in relying upon such a
certificate and shall have no duty with respect to, and shall not be deemed to
have knowledge or any payment for fractional Rights or fractional shares or
other securities of the Company under any section of this Rights Agreement
relating to the payment of fractions Rights or fractions shares or other
securities of the Company unless and until the Rights Agent shall have received
such a certificate and sufficient monies.

     

    Section
15. Rights of Action. All rights
of action in respect of this Agreement, excepting the rights of action given to
the Rights Agent hereunder, are vested in the respective registered holders of
the Right Certificates (and, prior to the Distribution Date, the registered
holders of the Common Shares); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Shares), without
the consent of the Rights Agent or of the holder of any other Right Certificate
(or, prior to the Distribution Date, of the Common Shares), may, in such
holder’s own behalf and for such holder’s own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, such holder’s right to exercise the
Rights evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement, and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement.

     

    Section
16. Agreement of Right Holders.
Every holder of a Right, by accepting the same, consents and agrees with the
Company and the Rights Agent and with every other holder of a Right
that:

     

    (a) prior
to the Distribution Date, the Rights will not be evidenced by a Rights
Certificate and will be transferable only in connection with the transfer of the
Common Shares;

     

    (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 with all required certifications completed;

     

    (c) the
Company and the Rights Agent may deem and treat the Person in whose name the
Right Certificate (or, prior to the Distribution Date, the associated Common
Shares) is registered as the absolute owner thereof and of the Rights evidenced
thereby (notwithstanding any notations of ownership or writing on the Right
Certificate or the associated Common Shares certificate (if any) made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any notice to the
contrary; and

     

    (d)
notwithstanding anything in this Agreement to the contrary, neither the Company
nor the Rights Agent shall have any liability to any holder of a Right or other
Person as a result of its inability to perform any of its obligations under this
Agreement by reason of any order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.

     

    Section
17. Right Certificate Holder Not Deemed a
Stockholder. No holder, as such, of any Right Certificate shall be
entitled to vote, receive dividends in respect of or be deemed for any purpose
to be the holder of the Preferred Shares or any other securities of the Company
which may at any time be issuable on the exercise of the Rights represented
thereby, nor shall anything contained herein or in any Right Certificate be
construed to confer upon the holder of any Right Certificate, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to receive
notice of meetings or other actions affecting stockholders (except as provided
in Section 25 hereof), or to receive dividends or subscription rights in respect
of such stock or securities, or otherwise, until the Right or Rights evidenced
by such Right Certificate shall have been exercised in accordance with the
provisions hereof.

     

     

     

    
      
        -13-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
18. Concerning the Rights Agent.
The Company agrees to pay to the Rights Agent reasonable compensation for all
services rendered by it hereunder, and, from time to time, on demand of the
Rights Agent, its reasonable expenses and counsel fees and other disbursements
incurred in the preparation, negotiation, delivery, administration, amendment
and execution of this Agreement and the exercise and performance of its duties
hereunder, which compensation is generally described on Exhibit C attached
hereto. The Company also agrees to indemnify the Rights Agent for, and to hold
it harmless against, any loss, liability, damage, judgment, fine, penalty,
claim, demand, settlement, cost or expense (including, without limitation, the
reasonable fees and expenses of legal counsel) incurred without gross
negligence, bad faith or willful misconduct on the part of the Rights Agent
(which gross negligence, bad faith or willful misconduct must be determined by a
final, non-appealable order, judgment, decree or ruling of a court of competent
jurisdiction) for any action taken, suffered or omitted by the Rights Agent in
connection with the acceptance, administration, exercise and performance of its
duties under this Agreement, including, without limitation, the costs and
expenses of defending against any claim of liability arising therefrom, directly
or indirectly. The costs and expenses incurred in enforcing this right of
indemnification shall be paid by the Company. The provisions of this Section 18
and Section 20 below shall survive the termination of this Agreement, the
exercise or expiration of the Rights and the resignation, replacement or removal
of the Rights Agent.

     

    The
Rights Agent shall be authorized and protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection with,
its acceptance and administration of this Agreement and the exercise and
performance of its duties hereunder in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, guaranteed, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof. The Rights Agent shall not be deemed to have
knowledge of any event of which it was supposed to receive notice thereof
hereunder, and the Rights Agent shall be fully protected and shall incur no
liability for failing to take any action in connection therewith unless and
until it has received such notice in writing.

     

    Section
19. Merger or Consolidation or Change of
Name of Rights Agent. Any Person into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any Person resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any Person succeeding to the
stock transfer business of the Rights Agent or any successor Rights Agent, shall
be the successor to the Rights Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto; provided that such
Person would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and, in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and, in
all such cases, such Right Certificates shall have the full force provided in
the Right Certificates and in this Agreement.

     

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

     

     

     

    
      
        -14-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
20. Duties of Rights Agent. The
Rights Agent undertakes to perform only the duties and obligations expressly
imposed by this Agreement (and no implied duties) upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:

     

    (a) The
Rights Agent may consult with legal counsel (who may be legal counsel for the
Company or an employee of the Rights Agent), and the advice or opinion of such
counsel shall be full and complete authorization and protection to the Rights
Agent and the Rights Agent shall incur no liability for or in respect of any
action taken, suffered or omitted by it in good faith and in accordance with
such advice or opinion.

     

    (b)
Whenever in the performance of its duties under this Agreement the Rights Agent
shall deem it necessary or desirable that any fact or matter be proved or
established by the Company prior to taking, suffering or omitting to take any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
President, the Treasurer, the Secretary or the Clerk of the Company and
delivered to the Rights Agent; and such certificate shall be full and complete
authorization and protection to the Rights Agent and the Rights Agent shall
incur no liability for or in respect of any action taken, suffered or omitted by
it in good faith under the provisions of this Agreement in reliance upon such
certificate.

     

    (c) The
Rights Agent shall be liable hereunder to the Company and any other Person only
for its own gross negligence, bad faith or willful misconduct (each as
determined by a final, non-appealable order, judgment, decree or ruling of a
court of competent jurisdiction). Anything to the contrary notwithstanding, in
no event shall the Rights Agent be liable for special, punitive, indirect,
consequential or incidental loss or damage of any kind whatsoever (including but
not limited to lost profits), even if the Rights Agent has been advised of the
likelihood of such loss or damage. Any liability of the Rights Agent under this
Agreement will be limited to the amount of annual fees paid by the Company to
the Rights Agent.

     

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

     

    (e) The
Rights Agent shall not have any liability for or be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming null and void pursuant to Section 11(a)(ii)
hereof) or any adjustment in the terms of the Rights (including the manner,
method or amount of any such adjustments thereof) provided for in Section 3, 11,
13, 23 or 24 hereof, or the ascertaining of the existence of facts that would
require any such change or adjustment (except with respect to the exercise of
Rights evidenced by Right Certificates after actual notice that such change or
adjustment is required); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Preferred Shares to be issued pursuant to this Agreement or any Right
Certificate or as to whether any Preferred Shares will, when issued, be validly
authorized and issued, fully paid and nonassessable.

     

    (f) The
Company agrees that it will perform, execute, acknowledge and deliver or cause
to be performed, executed, acknowledged and delivered all such further and other
acts, instruments and assurances as may reasonably be required by the Rights
Agent for the carrying out or performing by the Rights Agent of the provisions
of this Agreement.

     

    (g) The
Rights Agent is hereby authorized and directed to accept instructions with
respect to the performance of its duties hereunder from any one of the Chairman
of the Board, the President, the Secretary, the Clerk or the Treasurer of the
Company, and to apply to such officers for advice or instructions in connection
with its duties, and such instructions shall be full authorization and
protection to the Rights Agent and the Rights Agent shall not be liable for or
in respect of any action taken, suffered or omitted by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions. The Rights Agent shall be fully authorized
and protected in relying upon the most recent instructions received by any such
officer. Any application by the Rights Agent for written instructions from the
Company may, at the option of the Rights Agent, set forth in writing any action
proposed to be taken, suffered or omitted by the Rights Agent under this Rights
Agreement and the date on and/or after which such action shall be taken or
suffered or such omission shall be effective. The Rights Agent shall not be
liable for any action taken or suffered by, or omission of, the Rights Agent in
good faith in accordance with a proposal included in any such application on or
after the date specified in such application (which date shall not be less than
five Business Days after the date any officer of the Company actually receives
such application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking any such action (or the effective date in
the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken,
suffered or omitted.

     

     

    
      
        -15-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (h) The
Rights Agent and any shareholder, affiliate, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though the Rights Agent were not the Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent (or
any such shareholder, affiliate, director, officer or employee) from acting in
any other capacity for the Company or for any other Person.

     

    (i) The
Rights Agent may execute and exercise any of the rights or powers hereby vested
in it or perform any duty hereunder either itself (through its directors,
officers and employees) or by or through its attorneys or agents, and the Rights
Agent shall not be answerable or accountable for any act, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Company or to
any holders of Rights or to any other Person resulting from any such act,
default, neglect or misconduct, absent gross negligence, bad faith or willful
misconduct in the selection and continued employment thereof (each as determined
by a final, non-appealable order, judgment, decree or ruling of a court of
competent jurisdiction).

     

    (j) If,
with respect to any Rights Certificate surrendered to the Rights Agent for
exercise or transfer, the certificate contained in the form of assignment or the
form of election to purchase set forth on the reverse thereof, as the case may
be, has either not been completed or indicates an affirmative response to clause
1 and/or 2 thereof, the Rights Agent shall not take any further action with
respect to such requested exercise or transfer without first consulting with the
Company.

     

    (k) No
provision of this Rights Agreement shall require the Rights Agent to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder or in the exercise of its rights if it believes
that repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.

     

    Section
21. Change of Rights Agent. The
Rights Agent or any successor Rights Agent may resign and be discharged from its
duties under this Agreement upon 30 days’ notice in writing mailed to the
Company and to each transfer agent of the Common Shares or Preferred Shares
known to the Rights Agent by registered or certified mail, and to the holders of
the Right Certificates by first-class mail. The Company may remove the Rights
Agent or any successor Rights Agent upon 30 days’ notice in writing, mailed to
the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of 30 days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Right Certificate (which holder shall, with such notice,
submit such holder’s Right Certificate for inspection by the Company), then the
incumbent Rights Agent or the registered holder of any Right Certificate may
apply to any court of competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the Company or by such a
court, shall be (i) a Person organized and doing business under the laws of the
United States or of the State of Tennessee (or of any other state of the United
States so long as such Person is authorized to do business as a banking
institution in the State of Tennessee), in good standing, having an office in
the State of Tennessee, which is authorized under such laws to exercise stock
transfer powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million or (ii) an affiliate of an
institution that satisfies the requirements set forth in clause (i) of this
sentence. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Shares
or Preferred Shares, and mail a notice thereof in writing to the registered
holders of the Right Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.

     

     

     

    
      
        -16-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
22. Issuance of New Right
Certificates. Notwithstanding any of the provisions of this Agreement or
of the Rights to the contrary, the Company may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by the Board of
Directors to reflect any adjustment or change in the Purchase Price 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
Agreement.

     

    Section
23. Redemption. (a) The Board of
Directors may, at its option, at any time prior to such time as any Person
becomes an Acquiring Person, redeem all but not less than all the then
outstanding Rights at a redemption price of $0.01 per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the “Redemption Price”).
The redemption of the Rights by the Board of Directors may be made effective at
such time, on such basis and with such conditions as the Board of Directors, in
its sole discretion, may establish.

     

    (b)
Immediately upon the action of the Board of Directors ordering the redemption of
the Rights pursuant to paragraph (a) of this Section 23, and without any further
action and without any notice, the right to exercise the Rights will terminate
and the only right thereafter of the holders of Rights shall be to receive the
Redemption Price. The Company shall promptly give public notice of any such
redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights, the Company shall mail a notice of
redemption to all the holders of the then outstanding Rights at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares (with prompt written notice thereof to the Rights Agent). Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
Neither the Company nor any of its Affiliates or Associates may redeem, acquire
or purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in Section 24 hereof, and other
than in connection with the purchase of Common Shares prior to the Distribution
Date.

     

    Section
24. Exchange. (a) The Board of
Directors may, at its option, at any time after any Person becomes an Acquiring
Person, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become null and void pursuant to the
provisions of Section 11(a)(ii) hereof) for Common Shares at an exchange ratio
of one Common Share per Right, appropriately adjusted to reflect any adjustment
in the number of Rights pursuant to Section 11(i) (such exchange ratio being
hereinafter referred to as the “Exchange Ratio”).
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any such
Subsidiary, or any entity holding Common Shares for or pursuant to the terms of
any such plan), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.

     

    (b)
Immediately upon the action of the Board of Directors ordering the exchange of
any Rights pursuant to paragraph (a) of this Section 24 and without any further
action and without any notice, the right to exercise such Rights shall terminate
and the only right thereafter of a holder of such Rights shall be to receive
that number of Common Shares equal to the number of such Rights held by such
holder multiplied by the Exchange Ratio. The Company shall promptly give public
notice (with prompt written notice of such exchange to the Rights Agent) of any
such exchange; provided, however, that the
failure to give, or any defect in, such notice shall not affect the validity of
such exchange. The Company promptly shall mail a notice of any such exchange to
all of the holders of such Rights at their last addresses as they appear upon
the registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Common Shares for Rights will be effected, and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become null and void pursuant to
the provisions of Section 11(a)(ii) hereof) held by each holder of
Rights.

     

     

     

    
      
        -17-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c) In
the event that there shall not be sufficient Common Shares issued but not
outstanding or authorized but unissued to permit any exchange of Rights as
contemplated in accordance with this Section 24, the Company shall take all such
action as may be necessary to authorize additional Common Shares for issuance
upon exchange of the Rights. In the event the Company shall, after good faith
effort, be unable to take all such action as may be necessary to authorize such
additional Common Shares, the Company shall substitute, for each Common Share
that would otherwise be issuable upon exchange of a Right, a number of Preferred
Shares or fraction thereof such that the current per share market price of one
Preferred Share multiplied by such number or fraction is equal to the current
per share market price of one Common Share as of the date of issuance of such
Preferred Shares or fraction thereof.

     

    (d) The
Company shall not be required to issue fractions of Common Shares or to
distribute certificates which evidence fractional Common Shares. In lieu of such
fractional Common Shares, the Company shall pay to the registered holders of the
Right Certificates with regard to which such fractional Common Shares would
otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole Common Share. For the purposes of this paragraph
(d), the current market value of a whole Common Share shall be the closing price
of a Common Share (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of exchange
pursuant to this Section 24.

     

    Section
25. Notice of Certain Events. (a)
In case the Company shall, at any time after the Distribution Date, propose (i)
to pay any dividend payable in stock of any class to the holders of the
Preferred Shares or to make any other distribution to the holders of the
Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer
to the holders of the Preferred Shares rights or warrants to subscribe for or to
purchase any additional Preferred Shares or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of the
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action,
and, in the case of any such other action, at least 10 days prior to the date of
the taking of such proposed action or the date of participation therein by the
holders of the Common Shares and/or Preferred Shares, whichever shall be the
earlier.

     

    (b) In
case the event set forth in Section 11(a)(ii) hereof shall occur, then the
Company shall, as soon as practicable thereafter, give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of the occurrence of
such event, which notice shall describe such event and the consequences of such
event to holders of Rights under Section 11(a)(ii) hereof, and, upon
consummating such transaction, shall similarly give notice thereof to the Rights
Agent and to each holder of Rights.

     

     

    
      
        -18-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
26. Notices. Notices or demands
authorized by this Agreement to be given or made by the Rights Agent or by the
holder of any Right Certificate to or on the Company shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as follows:

     

    Fred’s,
Inc.

    4300 New
Getwell Road

    Memphis,
TN 38118

    Attention:
Corporate Secretary

    


    With a
copy to:

     

    Baker,
Donelson, Bearman, Caldwell & Berkowitz, PC

    165
Madison Avenue, Suite 2000

    Memphis,
TN 38103

    Attention:
Samuel D. Chafetz, Esq.

     

    Subject
to the provisions of Section 21 hereof, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of record of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:

     

    Regions
Bank

    Corporate
Trust Department

    1901
6th
Avenue North, 28th
Floor

    Birmingham,
AL 35203

    Attention:
Nathan Lucas

    205-264-5519
– Direct

    205-264-5265
– Fax

    Nathan.lucas@regions.com

     

    Notices
or demands authorized by this Agreement to be given or made by the Company or
the Rights Agent to the holder of record of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.

     

    Section
27. Supplements and Amendments.
The Company may from time to time supplement or amend this Agreement without the
approval of any holders of Right Certificates in order to cure any ambiguity, to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, or to make any other provisions
with respect to the Rights which the Company may deem necessary or desirable,
any such supplement or amendment to be evidenced by a writing signed by the
Company and the Rights Agent; provided, however, that, from
and after such time as any Person becomes an Acquiring Person, this Agreement
shall not be amended in any manner which would adversely affect the interests of
the holders of Rights. Without limiting the foregoing, the Company may at any
time prior to such time as any Person becomes an Acquiring Person amend this
Agreement to lower the thresholds set forth in Section 1(a) and 3(a) hereof to
not less than 10% (the “Reduced Threshold”); provided, however, that no
Person who beneficially owns a number of Common Shares equal to or greater than
the Reduced Threshold shall become an Acquiring Person unless such Person shall,
after the public announcement of the Reduced Threshold, increase its beneficial
ownership of the then outstanding Common Shares (other than as a result of an
acquisition of Common Shares by the Company) to an amount equal to or greater
than the greater of (x) the Reduced Threshold or (y) the sum of (i) the lowest
beneficial ownership of such Person as a percentage of the outstanding Common
Shares as of any date on or after the date of the public announcement of such
Reduced Threshold plus (ii) .001%. Notwithstanding anything contained in this
Agreement to the contrary, the Rights Agent may, but shall not be obligated to,
enter into any supplement or amendment that affects the Rights Agent’s own
rights, duties, obligations or immunities under this Agreement.

     

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

     

    Section
29. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any Person other than
the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares) any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares).

     

     

     

    
      
        -19-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
30. Determinations and Actions by the
Board of Directors. The Board of Directors shall have the exclusive power
and authority to administer this Agreement and to exercise the rights and powers
specifically granted to the Company’s Board of Directors or to the Company, or
as may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power to (i) interpret the
provisions of this Agreement and (ii) make all determinations deemed necessary
or advisable for the administration of this Agreement (including, without
limitation, a determination to redeem or not redeem the Rights or to amend or
not amend this Agreement). All such actions, calculations, interpretations and
determinations that are done or made by the Board of Directors in good faith
shall be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights, as such, and all other parties. Notwithstanding anything
contained herein to the contrary, the Rights Agent is entitled always to assume
that the Company’s Board of Directors acted in good faith and shall be fully
protected and incur no liability in reliance thereon.

     

    Section
31. Severability. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or other authority to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.

     

    Section
32. Governing Law. This Agreement
and each Right Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of Tennessee and for all purposes shall be
governed by and construed in accordance with the laws of such
State.

     

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

     

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

     

    Section
35. Force Majeure.  No party to this Agreement
shall be liable to any other party for losses arising out of, or the inability
to perform its obligations under the terms of this Agreement, due to acts of
God, which shall include, but shall not be limited to, fire, floods, strikes,
mechanical failure, war, riot, nuclear accident, earthquake, terrorist
attack, computer
piracy, cyber-terrorism or other acts beyond the control of the parties
hereto.

     

    Section
36. USA PATRIOT
ACT.  The Company is not (nor will be) a person with whom
Rights Agent is restricted from doing business with under regulations of the
Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury of
the United States of America (including, those persons named on OFAC’s Specially
Designated and Blocked Persons list) or under any statute, executive order
(including, the September 24, 2001 Executive Order Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support
Terrorism), or other governmental action and is not and shall not engage in any
dealings or transactions or otherwise be associated with such
persons.  In addition, the Company hereby agrees to provide to Rights
Agent with any additional information that Rights Agent deems necessary from
time to time in order to ensure compliance with all applicable laws concerning
money laundering and similar activities. The following notification is provided
to the Company pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C.
Section 5318 (“Patriot Act”):  IMPORTANT INFORMATION ABOUT PROCEDURES
FOR OPENING A NEW ACCOUNT.  To help the government fight the funding
of terrorism and money laundering activities, Federal law requires all financial
institutions to obtain, verify, and record information that identifies each
person or entity that opens an account, including any deposit account, treasury
management account, loan, other extension of credit, or other financial services
product.

     

    Section
37. Representations and
Warranties.  The Company hereby makes the following
representations and warranties to Rights Agent:

    


    (a)           It
is duly organized, validly existing, and in good standing under the laws of
Tennessee, and has full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.

     

     

     

    
      
        -20-

      

      
        
        

        
        

      

      
        
        

      

    

     

    (b)           This
Agreement has been duly approved by all necessary action, including any
necessary shareholder or membership approval, has been executed by its duly
authorized officers, and constitutes its valid and binding agreement enforceable
in accordance with its terms.

    


    (c)           The
execution, delivery, and performance of this Agreement will not violate,
conflict with, or cause a default under its charter, bylaws, or other
organizational document, as applicable, any applicable law or regulation, any
court order or administrative ruling or decree to which it is a party or any of
its property is subject, or any agreement, contract, indenture, or other binding
arrangement to which it is a party or any of its property is
subject.

    


    (d)           The
applicable persons designated on Exhibit D hereto have been duly appointed to
act as its representatives hereunder and have full power and authority to
execute and deliver any written directions, to amend, modify or waive any
provision of this Agreement and to take any and all other actions on behalf of
the Company under this Agreement, all without further consent or direction from,
or notice to, it or any other party.

     

    


     

     

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

     

    
      	 
      	 
      	 
      
	
              Attest:

            	 
      	
              FREDS,
      INC.

            
	 
      	 
      	 
      
	
              By
       Name:

            	 
      	
              By
       Name:

            
	
              Title:

            	 
      	
              Title

            
	 
      	 
      	 
      
	
              Attest:

            	 
      	
              REGIONS
      BANK

            
	 
      	 
      	 
      
	
              By
       Name:

            	 
      	
              By
       Name:

            
	
              Title:

            	 
      	
              Title

            


    

     

     

     

     

     

     

    
 

    


    
      
        
          
            -21-

          

           


        

        
           


          
            

          

        

        
           


        

      

    

    


    Exhibit
A

     

     

    


    Form of
Right Certificate

    
      	 
      	 
      	 
      	 
      	 
      
	 
      
	
              Certificate
      No. R-

            	 
      	 
      	 
      	
              _________  
  Rights

            


    

    


    NOT
EXERCISABLE AFTER OCTOBER 12, 2018 OR EARLIER IF

    REDEMPTION
OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT

    TO
REDEMPTION AT $0.01 PER RIGHT AND TO EXCHANGE

    ON THE
TERMS SET FORTH IN THE AGREEMENT.

    


    Rights
Certificate

    


    Fred’s,
Inc.

    


     

    This
certifies that ___________________, or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Agreement, dated
as of October 10, 2008 (the “Agreement”), between Fred’s, Inc., a Tennessee
corporation (the “Company”), and Regions Bank (the “Rights Agent”), to purchase
from the Company at any time after the Distribution Date (as such term is
defined in the Agreement) and prior to 5:00 P.M., Memphis time, on October 12,
2018 at the office of the Rights Agent designated for such purpose, or at the
office of its successor as Rights Agent, one one-hundredth of a fully paid
non-assessable share of Series A Junior Participating Preferred Stock, no par
value per share, of the Company (the “Preferred Shares”), at a purchase price of
$100.00 per one one-hundredth of a Preferred Share (the “Purchase Price”), upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase duly executed. The number of Rights evidenced by this Right
Certificate (and the number of one one-hundredths of a Preferred Share which may
be purchased upon exercise hereof) set forth above, and the Purchase Price set
forth above, are the number and Purchase Price as of October 12, 2008, based on
the Preferred Shares as constituted at such date. As provided in the Agreement,
the Purchase Price and the number of one one-hundredths of a Preferred Share
which may be purchased upon the exercise of the Rights evidenced by this Right
Certificate are subject to modification and adjustment upon the happening of
certain events.

     

    This
Right Certificate is subject to all of the terms, provisions and conditions of
the Agreement, which terms, provisions and conditions are hereby incorporated
herein by reference and made a part hereof and to which Agreement reference is
hereby made for a full description of the rights, limitations of rights,
obligations, duties and immunities hereunder of the Rights Agent, the Company
and the holders of the Right Certificates. Copies of the Agreement are on file
at the principal executive offices of the Company and the offices of the Rights
Agent.

     

    This
Right Certificate, with or without other Right Certificates, upon surrender at
the office 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
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.

     

    Subject
to the provisions of the Agreement, the Rights evidenced by this Right
Certificate (i) may be redeemed by the Company at a redemption price of $0.01
per Right or (ii) may be exchanged in whole or in part for Preferred Shares or
shares of the Company’s Common Stock, par value $0.01 per share.

     

    No
fractional Preferred Shares will be issued upon the exercise of any Right or
Rights evidenced hereby (other than fractions which are integral multiples of
one one-hundredth of a Preferred Share, which may, at the election of the
Company, be evidenced by depositary receipts), but, in lieu thereof, a cash
payment will be made, as provided in the Agreement.

     

    No holder
of this Right Certificate, as such, shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Agreement), or
to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by this Right Certificate shall have been exercised as provided
in the Agreement.

     

     

     

    
      
        -22-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      	 
      	 
      	 
      
	
              ATTEST:

            	 
      	
              FRED’S
      INC.

            
	 
      	 
      	 
      
	
              Name:

            	 
      	
              By
       Name:

            
	
              Title:

            	 
      	
              Title:

            
	
              Countersigned:

            	 
      	 
      
	 
      	 
      	 
      
	
              REGIONS
      BANK

            	 
      	 
      
	 
      	 
      	 
      
	
              By
       Name:

            	 
      	 
      
	
              Title:

            	 
      	 
      


    

    


     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    


    
      
        
          
            -23-

          

           


        

        
           


          
            

          

        

        
           


        

      

    

    


    Form of
Reverse Side of Right Certificate

    


    FORM OF
ASSIGNMENT

    


    (To be
executed by the registered holder if such

    holder
desires to transfer the Right Certificate.)

    


    FOR VALUE
RECEIVED hereby sells, assigns and transfers unto _________________ (Please
print name and address of transferee) this Right Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ______________________ Attorney, to transfer the within Right
Certificate on the books of the within-named Company, with full power of
substitution.

    


    Dated:__________________

     

     

     

    ____________________________

    Signature

     

     

     

    Signature
Guaranteed:

     

    All
Guarantees must be made by a financial institution (such as a bank or broker)
which is a participant in the Securities Transfer Agents Medallion Program
(“STAMP”), the New York Stock Exchange, Inc. Medallion Signature Program
(“MSP”), or the Stock Exchanges Medallion Program (“SEMP”) and must not be
dated. Guarantees by a notary public are not acceptable.

     

    The
undersigned hereby certifies that the Rights evidenced by this Right Certificate
are not beneficially owned by an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Agreement).

     

     

     

    
      ____________________________

      Signature

       

    

    
 

    


    Form of
Reverse Side of Right Certificate — continued

    


    FORM OF
ELECTION TO PURCHASE

    


    (To be
executed if holder desires to exercise

    Rights
represented by the Right Certificate.)

    


    To:
FRED’S, INC.

     

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

     

    Please
insert social security

    or other
identifying number

    


    


    (Please
print name and address)

    ____________________________________________________________________________________________

    


     

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

     

     

     

    
      
        -24-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Please
insert social security

    or other
identifying number

    


    


    (Please
print name and address)

    ____________________________________________________________________________________________

     

     

    Dated:
____________________

     

     

    
      
        ____________________________

        Signature

         

      

    

     

    Signature
Guaranteed:

     

    All
Guarantees must be made by a financial institution (such as a bank or broker)
which is a participant in the Securities Transfer Agents Medallion Program
(“STAMP”), the New York Stock Exchange, Inc. Medallion Signature Program
(“MSP”), or the Stock Exchanges Medallion Program (“SEMP”) and must not be
dated. Guarantees by a notary public are not acceptable.

     

    The
undersigned hereby certifies that the Rights evidenced by this Right Certificate
are not beneficially owned by an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Agreement).

     

     

    
      ____________________________

      Signature

    

    


    


     

    


    


    NOTICE

     

    The
signature in the Form of Assignment or Form of Election to Purchase, as the case
may be, must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.

     

    In the
event the certification set forth above in the Form of Assignment or the Form of
Election to Purchase, as the case may be, is not completed, the Company and the
Rights Agent will deem the beneficial owner of the Rights evidenced by this
Right Certificate to be an Acquiring Person or an Affiliate or Associate thereof
(as defined in the Agreement) and such Assignment or Election to Purchase will
not be honored.

     

     

     

     

     

     

     

     

     

     

     

    


    
      
        
          
            -25-

          

           


        

        
           


          
            

          

        

        
           


        

      

    

    


    Exhibit
B

     

    


    SUMMARY
OF RIGHTS TO PURCHASE

    PREFERRED
SHARES

    


    


    On
October 10, 2008, the Board of Directors of our Company, Fred’s, Inc., a
Tennessee corporation, declared a dividend of one preferred share purchase right
(a “Right”) for each outstanding share of common stock, no par value per share.
The dividend is payable on October 12, 2008 to the stockholders of record on
that date.

     

    Our Board
has adopted this Rights Agreement to protect stockholders from coercive or
otherwise unfair takeover tactics. In general terms, it works by imposing a
significant penalty upon any person or group which acquires 15% or more of our
outstanding shares of common stock without the approval of our Board, with
exceptions for the Company, and its affiliates. The Rights Agreement should not
interfere with any merger or other business combination approved by our
Board.

     

    For those
interested in the specific terms of the Rights Agreement as made between our
Company and Regions Bank, an Alabama banking corporation, as the Rights Agent,
on October 10, 2008, we provide the following summary description. Please note,
however, that this description is only a summary, and is not complete, and
should be read together with the entire Rights Agreement, which has been filed
with the Securities and Exchange Commission as an exhibit to a Registration
Statement on Form 8-K dated ________________ , 2008. A copy of the agreement is
available free of charge from our Company.

     

    The Rights.

     

    Our Board
authorized the issuance of a Right with respect to each outstanding share of
common stock on October 12, 2008. The Rights will initially trade with, and will
be inseparable from, the shares of common stock. The Rights are evidenced only
by certificates that represent shares of common stock, or in the case of
uncertificated shares, the book-entry records representing shares of common
stock. New Rights will accompany any new shares of common stock we issue after
October 12, 2008 until the Distribution Date described below.

     

    Exercise
Price.

     

    Each
Right will allow its holder to purchase from our Company one one-hundredth of a
share of Series A Junior Participating Preferred Stock (“Preferred Share”) for
$100.00, once the Rights become exercisable. This portion of a Preferred Share
will give the stockholder approximately the same dividend, voting, and
liquidation rights as would one share of common stock. Prior to exercise, the
Right does not give its holder any dividend, voting, or liquidation
rights.

     

    Exercisability.

     

    The
Rights will not be exercisable until

    
      	
              •

            	 
      	
              10
      days after the public announcement that a person or group has become an
      “Acquiring Person” by obtaining beneficial ownership of 15% or more of our
      shares of common stock, or, if earlier,

            
	
              •

            	 
      	
              10
      business days (or a later date determined by our Board before any person
      or group becomes an Acquiring Person) after a person or group begins a
      tender or exchange offer which, if completed, would result in that person
      or group becoming an Acquiring
Person.

            


    

    


    We refer
to the date when the Rights become exercisable as the “Distribution Date.” Until
that date, the common stock certificates, or in the case of uncertificated
shares, the book-entry records evidencing shares of common stock, will also
evidence the Rights, and any transfer of shares of common stock will constitute
a transfer of Rights. After that date, the Rights will separate from the shares
of common stock and be evidenced by book-entry credits or by Rights certificates
that we will mail to all eligible holders of shares of common stock. Any Rights
held by an Acquiring Person are null and void and may not be
exercised.

     

    Our Board
may reduce the threshold at which a person or group becomes an Acquiring Person
from 15% to not less than 10% of the outstanding shares of common
stock.

     

     

     

    
      
        -26-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

    Exceptions
to the Definition of “Acquiring Person.”

     

    If the
Company repurchases some of its own shares of common stock and this causes a
person or group’s holdings to constitute 15% or more of the remaining
outstanding shares of common stock, that person or group will not be an
Acquiring Person so long as it does not make any further acquisition of the
Company’s shares of common stock. Finally, if a person or group acquires 15% or
more of the Company’s shares of common stock inadvertently or as a result of
third parties exercising contractual rights that exist as of October 10, 2008
(and without acquiring by other means 1% or more of the Company’s shares of
common stock since October 10, 2008), and that person or group sells enough
common stock to reduce its holdings below 15% of the Company’s common stock as
promptly as practicable (which, in the contractual rights case, shall not be
longer than 60 days), such person or group will not be an Acquiring
Person.

     

    Consequences of a Person or Group
Becoming an Acquiring Person.

     

    
      	
              •

            	 
      	
              Flip In. If a person or
      group becomes an Acquiring Person, all holders of Rights except the
      Acquiring Person will have the right to receive upon exercise that number
      of shares of common stock having a market value of two times the exercise
      price of the right.

            


    

    


    
      	
              •

            	 
      	
              Flip Over. If our
      Company is later acquired in a merger or similar transaction after the
      Rights Distribution Date, all holders of Rights except the Acquiring
      Person will have the right to receive upon exercise at the then current
      exercise price, that number of shares of common stock of the acquiring
      company which at the time of such transaction will have a market value of
      two times the exercise price of the
Right.

            


    

    


    Preferred Share
Provisions.

     

    Each one
one-hundredth of a Preferred Share, if issued:

     

    
      	
              •

            	 
      	
              will
      not be redeemable.

            
	
              •

            	 
      	
              will
      entitle holders to minimum preferential quarterly dividend payments of
      $0.01, but will entitle holders to an aggregate dividend equal to the
      dividend declared per Common Share.

            
	
              •

            	 
      	
              will
      entitle holders upon liquidation to a minimum preferential liquidation
      payment of $1 per share, but if greater than $1 per share, an aggregate
      payment equal to the payment made per Common Share.

            
	
              •

            	 
      	
              will
      have 1 vote.

            
	
              •

            	 
      	
              if
      shares of our common stock are exchanged via merger, consolidation, or a
      similar transaction, will entitle holders to a per share payment equal to
      the payment made on one share of common
stock.

            


    

     

    The value
of one one-hundredth interest in a Preferred Share should approximate the value
of one share of common stock.

     

    Expiration.

     

    The
Rights will expire on October 12, 2018.

     

    Redemption.

     

    Our Board
may redeem the Rights for $0.01 per Right at any time before any person or group
becomes an Acquiring Person. If our Board redeems any Rights, it must redeem all
of the Rights. Once the Rights are redeemed, the only right of the holders of
Rights will be to receive the redemption price of $0.01 per Right. The
redemption price will be adjusted if we have a stock split or stock dividends of
our common stock.

     

    Exchange.

     

    After a
person or group becomes an Acquiring Person, but before an Acquiring Person owns
50% or more of our outstanding shares of common stock, our Board may extinguish
the Rights by exchanging one share of common stock or an equivalent security for
each Right, other than Rights held by the Acquiring Person.

     

    Anti-Dilution
Provisions.

     

    Our Board
may adjust the purchase price of the Preferred Shares, the number of Preferred
Shares issuable and the number of outstanding Rights to prevent dilution that
may occur from a stock dividend, a stock split, a reclassification of the
Preferred Shares or shares of common stock. No adjustments to the Exercise Price
of less than 1% will be made.

     

    Amendments.

     

    The terms
of the Rights Agreement may be amended by our Board without the consent of the
holders of the Rights. 

     

     

     

     

     

    
      
        -27-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

     

    However,
our Board may not amend the Rights Agreement to lower the threshold at which a
person or group becomes an Acquiring Person to below 10% of our outstanding
shares of common stock. In addition, the Board may not cause a person or group
to become an Acquiring Person by lowering this threshold below the percentage
interest that such person or group already owns. After a person or group becomes
an Acquiring Person, our Board may not amend the agreement in a way that
adversely affects holders of the Rights.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    


    
      
        
          
            -28-

          

           


        

        
           


          
            

          

        

        
           


        

      

    

    


    Exhibit
C

     

    


    Fee
Schedule

    


    


    These
fees are based upon our current understanding of our duties under of the
above-referenced agreement.

    Regions
Bank reserves the rights to adjust its fees should its duties change under the
agreement.

    


    
    

     

    
      	 ACCEPTANCE
      FEE:	 $500.00
	 	 
	 ANNUAL
      ADMINISTRATION FEE:	 $500.00
	 At
      Distribution Date:	 $5000.00
	 	 
	 TRANSACTION
      FEES:	 $15.00
      EACH
	 Wire
      Fee:	 
	 Check
      Disbursement:	 
	 	 
	 LEGAL FEES:	 If
      any, at cost
	 	 
	 OUT
      OF POCKET EXPENSES:	 5%
      of Annual Fee


    

     

    
    

     

    INVESTMENT:     An
additional $500.00 fee will be added to the Annual Administration Fee of any
account not using one of the investment vehicles used by Regions Trust
Department for its short-term investments.

    


    


    


    


    


           The
Acceptance Fee and the Annual Escrow Fee are payable upon execution of the
escrow documents.  In the event the escrow is not funded, the
Acceptance Fee and all related expenses, including attorneys’ fees remain due
and payable, and if paid, will not be refunded.  Annual fees cover a
full year in advance, or any part thereof, and thus are not pro-rated in the
year of termination. All other fees, if any, will be billed to the client in
arrears.

     

     

     

     

     

     

    
 

    
      
        
          
            -29-

          

           


        

        
           


          
            

          

        

        
           


        

      

    

    


    


    Exhibit
D

     

    


    Company

    


    
      	
              1.  

            	
               Taxpayer
      Identification
  Number:__________________________________

            


    

    


    
      	
              2.  

            	
              Company
      Representative:  The following individual/s is hereby designated
      as representative of the Company under the
  Agreement.

            


    

     

    
 

    Name:
_____________________ Specimen Signature:
___________________________

     

    Name: _____________________ Specimen Signature:
___________________________

     

    Name: _____________________ Specimen Signature:
___________________________

     

    Name: _____________________ Specimen Signature:
___________________________

    


    


               

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    -30-