exv4w1



 






Exhibit 4.1



 




Bally Total Fitness Holding Corporation




and




LaSalle Bank National Association




as Rights Agent




Rights Agreement




Dated
as of October 18, 2005



 





 









 








RIGHTS AGREEMENT




     Rights
Agreement, dated as of October 18, 2005, between Bally Total Fitness Holding
Corporation, a Delaware corporation (the “Company”), and LaSalle Bank National Association,
a national banking association, as Rights Agent (the “Rights Agent”).



RECITALS




     WHEREAS,
on October 18, 2005 the Board of Directors of the Company adopted this Agreement, and
has authorized and declared a dividend of one preferred share purchase right (a “Right”)
for each Common Share (as defined in Section 1.6) of the Company outstanding at the close of
business on October 31, 2005 (the “Record Date”) and has authorized and directed the
issuance of one Right (subject to adjustment as provided herein) with respect to each Common Share
that shall become outstanding between the Record Date and the earliest of the Distribution Date and
the Expiration Date (as such terms are defined in Sections 3.1 and 7.1), each Right initially
representing the right to purchase one one-thousandth (subject to adjustment) of a share of Series
B Junior Participating Preferred Stock, par value $0.01 per share (the “Preferred Shares”),
of the Company having the rights, powers and preferences set forth in the form of Certificate of
Designations attached hereto as Exhibit A, upon the terms and subject to the conditions hereinafter
set forth provided, however, that Rights may be issued with respect to Common
Shares that shall become outstanding after the Distribution Date and prior to the Expiration Date
in accordance with Section 22.



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



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




          1.1.    “Acquiring Person” shall mean any Person (as such term is hereinafter
defined) who or which, together with all Affiliates and Associates (as such terms are
hereinafter defined) of such Person, shall be the Beneficial Owner (as such term is
hereinafter defined) of 15% or more of the Common Shares of the Company then outstanding but
shall not include (i) an Exempt Person (as such term is hereinafter defined) or (ii) if, as
of the date hereof, any Person is the Beneficial Owner of 15% or more of the Common Shares
outstanding (an “Existing Holder”), such Existing Holder shall not be or become an
“Acquiring Person” unless and until such time as such Existing Holder shall become the
Beneficial Owner of one or more additional Common Shares of the Company (other than pursuant
to a dividend or distribution paid or made by the Company on the outstanding Common Shares
in Common Shares or pursuant to a split or subdivision of the outstanding Common Shares),
unless, upon becoming the Beneficial Owner of such additional Common Shares, such Existing
Holder is not then the Beneficial Owner of 15% or more of the Common Shares then
outstanding. Notwithstanding the foregoing, no Person shall become an “Acquiring Person” as
the result of an acquisition of Common Shares by the Company which, by reducing the number
of shares outstanding, increases the proportionate number of shares beneficially owned by
such Person to 15% or more of the Common Shares of the Company then



[Signature Page to Rights Agreement]





 









 









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 solely
by reason of share purchases by the Company and shall, after such share purchases by the
Company, become the Beneficial Owner of one or more additional Common Shares of the Company
(other than pursuant to a dividend or distribution paid or made by the Company on the
outstanding Common Shares in Common Shares or pursuant to a split or subdivision of the
outstanding Common Shares), then such Person shall be deemed to be an “Acquiring Person”
unless upon becoming the Beneficial Owner of such additional shares of Common Stock such
Person does not beneficially own 15% or more of the shares of Common Stock then outstanding.
Notwithstanding the foregoing, if the Board of Directors of the Company determines in good
faith that a Person who would otherwise be an “Acquiring Person,” as defined pursuant to the
foregoing provisions of this Section 1.1, has become such inadvertently (including, without
limitation, because (A) such Person was unaware that it beneficially owned a percentage of
Common Stock that would otherwise cause such Person to be an “Acquiring Person” or (B) such
Person was aware of the extent of its Beneficial Ownership of Common Stock but had no actual
knowledge of the consequences of such Beneficial Ownership under this Agreement), and
without any intention of changing or influencing control of the Company, and such Person
divests as promptly as practicable a sufficient number of Common Shares so that such Person
would no longer be an Acquiring Person, as defined pursuant to the foregoing provisions of
this Section 1.1, then such Person shall not be deemed to be or have become an “Acquiring
Person” at any time for any purposes of this Agreement. For all purposes of this Agreement,
any calculation of the number of Common Shares outstanding at any particular time, including
for purposes of determining the particular percentage of such outstanding Common Shares of
which any Person is the Beneficial Owner, shall be made in accordance with the last sentence
of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), as in effect on the date of this
Agreement.




          1.2.    “Affiliate” and “Associate” shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations, under the
Exchange Act, as in effect on the date of this Agreement.




          1.3.    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 (as determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act as in effect on the date of this Agreement);



               (ii) which such Person or any of such Person’s Affiliates or Associates, directly or
indirectly, has (A) the right to acquire (whether such right is exercisable immediately, or only
after the passage of time, compliance with regulatory requirements, fulfillment of a condition or
otherwise) pursuant to any agreement, arrangement or understanding, whether or not in writing
(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, warrants or options, or



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otherwise; provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to beneficially own, (w) 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, (x) securities which such Person has a
right to acquire upon the exercise of Rights at any time prior to the time that any Person becomes
an Acquiring Person, (y) securities issuable upon the exercise of Rights from and after the time
that any Person becomes an Acquiring Person if such Rights were acquired by such Person or any of
such Person’s Affiliates or Associates prior to the Distribution Date or pursuant to Section 3.1 or
Section 22 (“Original Rights”) or pursuant to Section 11.9 or Section 11.15 with respect to
an adjustment to Original Rights or (z) securities which such Person or any of such Person’s
Affiliates or Associates may acquire, does or do acquire or may be deemed to acquire or may be
deemed to have the right to acquire, pursuant to any merger or other acquisition agreement between
the Company and such Person (or one or more of such Person’s Affiliates or Associates) if prior to
such Person becoming an Acquiring Person the Board of Directors of the Company has approved such
agreement and determined that such Person shall not be or be deemed to be the beneficial owner of
such securities within the meaning of this Section 1.3; or (B) the right to vote pursuant to any
agreement, arrangement or understanding (whether or not in writing); provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own,
any security under this clause (B) 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 of 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 (or any
Affiliate or Associate thereof) and with respect to 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), whether or not in writing, for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy or consent as described in the proviso to Section
1.3(ii)(B)) or disposing of any securities of the Company; provided, however, that
no Person who is an officer, director or employee of an Exempt Person shall be deemed, solely by
reason of such Person’s status or authority as such, to be the “Beneficial Owner” of, to have
“Beneficial Ownership” of or to “beneficially own” any securities that are “beneficially owned” (as
defined in this Section 1.3), including, without limitation, in a fiduciary capacity, by an Exempt
Person or by any other such officer, director or employee of an Exempt Person.




          1.4.    “Business Day” shall mean any day other than a Saturday, Sunday, or a
day on which banking institutions in New York, New York are authorized or obligated by law
or executive order to close.




          1.5.    “close of business” on any given date shall mean 5:00 p.m., Central
time, on such date; provided, however, that if such date is not a Business Day it
shall mean 5:00 p.m., Central time, on the next succeeding Business Day.



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          1.6.    “Common Shares” when used with reference to the Company shall mean the
shares of common stock, par value $0.01 per share, of the Company. “Common Shares” when
used with reference to any Person other than the Company shall mean the capital stock with
the greatest voting power, or the equity securities or other equity interest having power to
control or direct the management, of such other Person or, if such Person is a Subsidiary
(as such term is hereinafter defined) of another Person, the Person or Persons which
ultimately control such first-mentioned Person, and which has issued and outstanding such
capital stock, equity securities or equity interest.




          1.7.    “Exempt Person” shall mean the Company, any Subsidiary of the Company,
in each case including, without limitation, its fiduciary capacity, or any employee benefit
plan of the Company or of any Subsidiary of the Company or any entity or trustee holding
shares of capital stock of the Company for or pursuant to the terms of any such plan, or for
the purpose of funding other employee benefits for employees of the Company or any
Subsidiary of the Company.




          1.8.   
“Final Expiration Date” shall mean July 15, 2006 unless the Rights are
previously redeemed, exchanged or terminated or unless the continuation of the Rights is
previously approved by the stockholders of the Company by a vote of the majority of the
shares present and entitled to vote at a stockholders meeting prior
to July 15, 2006 (the
“First Meeting”). If the stockholders approve the continuation of Rights at the
First Meeting, the Final Expiration Date will be October 18, 2015, subject to stockholder
ratification of the Rights Plan by a vote of the majority of shares present and entitled to
vote at a stockholders meeting to be held every subsequent two years
no later than July 31st of
the applicable year beginning in 2008.




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




          1.10.    “Shares Acquisition Date” shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without limitation, the
filing of a report pursuant to Section 13(d) of the Exchange Act or pursuant to a comparable
successor statute) by the Company or an Acquiring Person that an Acquiring Person has become
such or that discloses information which reveals the existence of an Acquiring Person or
such earlier date as a majority of the Board of Directors shall become aware of the
existence of an Acquiring Person.




          1.11.    “Subsidiary” of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or equity interests
is owned, of record or beneficially, directly or indirectly, by such Person.




          1.12.    A “Trigger Event” shall be deemed to have occurred upon any Person
becoming an Acquiring Person.




          1.13.    The following terms shall have the meanings defined for such terms in the
Sections set forth below:



4









 





	 	 	 
	Term
 


	 	Section
 



	 
	Adjustment Shares
	 	11.1.2
	common stock equivalent
	 	11.1.3
	Company
	 	Recitals
	current per share market price
	 	11.4
	Current Value
	 	11.1.3
	Distribution Date
	 	3.1
	equivalent preferred stock
	 	11.2
	Exchange Act
	 	1.1
	Exchange Consideration
	 	27.1
	Existing Holder
	 	1.1
	Expiration Date
	 	7.1
	Final Expiration Date
	 	7.1
	Nasdaq
	 	9
	Original Rights
	 	1.3
	Preferred Shares
	 	Recitals
	Principal Party
	 	13.2
	Purchase Price
	 	4
	Record Date
	 	Recitals
	Redemption Date
	 	7.1
	Redemption Price
	 	23.1
	Right
	 	Recitals
	Right Certificate
	 	3.1
	Rights Agent
	 	Recitals
	Security
	 	11.4
	Spread
	 	11.1.3
	Substitution Period
	 	11.1.3
	Summary of Rights
	 	3.2
	Trading Day
	 	11.4






     Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent
to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3,
shall prior to the Distribution Date also be the holders of the Common Shares) 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. In the
event 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. Contemporaneously with such
appointment, if any, the Company shall notify the Rights Agent thereof.



     Section 3. Issuance of Right Certificates.




          3.1.    Rights Evidenced by Share Certificates. Until the earlier of the close
of business on (i) the tenth day after the Shares Acquisition Date or (ii) the tenth
Business Day after the date of the commencement of, or first public announcement of the
intent of any Person (other than an Exempt Person) to commence, a tender or exchange offer
the



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consummation of which would result in any Person (other than an Exempt Person) becoming
the Beneficial Owner of Common Shares aggregating 15% or more of the then outstanding Common
Shares of the Company (the earlier of (i) and (ii) being herein referred to as the
“Distribution Date”), (x) the Rights (unless earlier expired, redeemed or
terminated) will be evidenced (subject to the provisions of Section 3.2) by the certificates
for Common Shares registered in the names of the holders thereof (which certificates for
Common Shares shall also be deemed to be Right Certificates) and not by separate
certificates, and (y) the Rights (and the right to receive certificates therefor) will be
transferable only in connection with the transfer of the underlying Common Shares. The
preceding sentence notwithstanding, prior to the occurrence of a Distribution Date specified
as a result of an event described in clause (ii) above (or such later Distribution Date as
the Board of Directors of the Company may select pursuant to this sentence), the Board of
Directors may postpone, one or more times, the Distribution Date which would occur as a
result of an event described in clause (ii) beyond the date set forth in such clause (ii).
Nothing herein shall permit such a postponement of a Distribution Date after a Person
becomes an Acquiring Person. As soon as practicable after the Distribution Date, the
Company will prepare and execute, the Rights Agent will countersign and the Company (or, if
requested, the Rights Agent) will send, by first-class, postage-prepaid mail, to each record
holder of Common Shares as of the close of business on the Distribution Date (other than any
Acquiring Person or any Associate or Affiliate of an Acquiring Person), at the address of
such holder shown on the records of the Company, one or more certificates for Rights, in
substantially the form of Exhibit B hereto (a “Right Certificate”), evidencing one
Right (subject to adjustment as provided herein) for each Common Share so held. As of the
Distribution Date, the Rights will be evidenced solely by such Right Certificates.




          3.2.    Summary of Rights. On the Record Date or as soon as practicable
thereafter, the Company will send or cause to be sent a copy of a Summary of Rights to
Purchase Preferred Shares, in substantially the form attached hereto as Exhibit C (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
outstanding as of the close of business on the Record Date, until the Distribution Date (or
the earlier Expiration Date), the Rights will be evidenced by such certificates for Common
Shares registered in the names of the holders thereof together with a copy of the Summary of
Rights and the registered holders of the Common Shares shall also be registered holders of
the associated Rights. Until the Distribution Date (or the earlier Expiration Date), the
surrender for transfer of any certificate for Common Shares outstanding at the close of
business on the Record Date, with or without a copy of the Summary of Rights, shall also
constitute the transfer of the Rights associated with the Common Shares represented thereby.




          3.3.    New Certificates After Record Date. Certificates for Common Shares
which become outstanding (whether upon issuance out of authorized but unissued Common
Shares, disposition out of treasury or transfer or exchange of outstanding Common Shares)
after the Record Date but prior to the earliest of the Distribution Date



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or the Expiration Date, shall have impressed, printed, stamped, written or otherwise
affixed onto them the following legend:




This certificate also evidences and entitles the holder hereof to certain rights as
set forth in an Agreement between Bally Total Fitness Holding Corporation (the
“Corporation”) and LaSalle Bank National Association, as Rights Agent, dated
as of October 18, 2005, as the same may be amended 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 the
Corporation. Under certain circumstances, as set forth in the Agreement, such
Rights will be evidenced by separate certificates and will no longer be evidenced by
this certificate. The Corporation will mail to the holder of this certificate a
copy of the Agreement without charge after receipt of a written request therefor.
As described in the Agreement, Rights which are owned by, transferred to or have
been owned by Acquiring Persons or Associates or Affiliates thereof (as defined in
the Agreement) shall become null and void and will no longer be transferable.


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




     Notwithstanding this Section 3.3, the omission of a legend shall not affect the enforceability
of any part of this Agreement or the rights of any holder of the Rights.



     Section 4. Form of Right Certificates. The Right Certificates (and the forms of
election to purchase shares, certification and assignment to be printed on the reverse thereof)
shall be substantially the same as Exhibit B hereto and may have such marks of identification or
designation and such legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any stock exchange or trading system on which the Rights may from
time to time be listed or quoted, or to conform to usage. Subject to the terms and conditions
hereof, the Right Certificates, whenever issued, shall be dated as of the Record Date, and shall
show the date of countersignature by the Rights Agent, and on their face shall entitle the holders
thereof to purchase such number of one one-thousandths of a Preferred Share as shall be set forth
therein at the price per one one-thousandth of a Preferred Share set forth therein (the
“Purchase Price”), but the number of such one one-thousandths of a Preferred Share and the
Purchase Price shall be subject to adjustment as provided herein.



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     Section 5. Countersignature and Registration. The Right Certificates shall be executed
on behalf of the Company by its Chairman of the Board of Directors, the Chief Executive Officer,
President or any Vice President, either manually or by facsimile signature, and shall have affixed
thereto the Company’s seal or a facsimile thereof which shall be attested by the Secretary or any
Assistant Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be countersigned, either manually or by facsimile signature, by an authorized
signatory of the Rights Agent, but it shall not be necessary for the same signatory to countersign
all of the Right Certificates hereunder. No Right Certificate shall be valid for any purpose
unless so countersigned. In case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be
countersigned by the Rights Agent, and issued and delivered by the Company with the same force and
effect as though the person who signed such Right Certificates had not ceased to be such officer of
the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at
the actual date of the execution of such Right Certificate, shall be a proper officer of the
Company to sign such Right Certificate, although at the date of the execution of this Agreement any
such person was not such an officer.



     Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its 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, the
certificate number of 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 11.1.2 and
Section 14, at any time after the close of business on the Distribution Date, and at or prior to
the close of business on the Expiration Date, any Right Certificate or Right Certificates (other
than Right Certificates representing Rights that have become null and void pursuant to Section
11.1.2 or that have been exchanged pursuant to Section 27) may be transferred, split up or combined
or exchanged for another Right Certificate or Right Certificates, entitling the registered holder
to purchase a like number of one one-thousandths 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 or combine or exchange any Right Certificate shall make such request
in writing delivered to the Rights Agent, and shall surrender, together with any required form of
assignment and certificate duly completed, the Right Certificate or Right Certificates to be
transferred, split up or combined or exchanged at the office of the Rights Agent designated for
such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any such surrendered Right Certificate or Right
Certificates until the registered holder shall have properly completed and signed the certificate
contained in the form of assignment on the reverse side of such Right Certificate or Right
Certificates and shall have 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. Thereupon the Rights Agent shall countersign and deliver to the
person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so
requested. The Company may require payment from the holders of Right



8









 




Certificates of a sum sufficient to cover any tax or governmental charge that may be imposed
in connection with any transfer, split up or combination or exchange of such Right Certificates.




     Subject to the provisions of Section 11.1.2, at any time after the Distribution Date and prior
to the Expiration Date, upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and,
at the Company’s or the Rights Agent’s request, reimbursement to the Company and the Rights Agent
of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right
Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered
owner in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.



     Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.




          7.1.    Exercise of Rights. Subject to Section 11.1.2 and except as otherwise
provided herein, the registered holder of any Right Certificate may exercise the Rights
evidenced thereby 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 and certification on the
reverse side thereof duly executed, to the Rights Agent at the office of the Rights Agent
designated for such purpose, together with payment of the aggregate Purchase Price for the
total number of one one-thousandths of a Preferred Share (or other securities, cash or other
assets) as to which the Rights are exercised, at or prior to the time (the “Expiration
Date”) that is the earliest of (i) the Final Expiration Date, (ii) the time at which the
Rights are redeemed as provided in Section 23 (the “Redemption Date”), (iii) the
closing of any merger or other acquisition transaction involving the Company pursuant to an
agreement of the type described in Section 13.3 at which time the Rights are deemed
terminated, or (iv) the time at which the Rights are exchanged as provided in Section 27.




          7.2.    Purchase. The Purchase Price for each one one-thousandth of a
Preferred Share pursuant to the exercise of a Right shall be initially $13.00, shall be
subject to adjustment from time to time as provided in Sections 11, 13 and 26 and shall be
payable in lawful money of the United States of America in accordance with Section 7.3.




          7.3.    Payment Procedures. 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 aggregate Purchase Price for the total number of one
one-thousandths of a Preferred Share to be purchased and an amount equal to any applicable
transfer tax or governmental charge required to be paid by the holder of such Right
Certificate in accordance with Section 9, in cash or by certified or 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 (or make available, if
the Rights Agent is the transfer agent) certificates for the number of Preferred Shares to
be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with
all such requests, or (B) if the Company shall have elected



9









 






to deposit the total number of Preferred Shares issuable upon exercise of the Rights
hereunder with a depository agent, requisition from the depository agent depository receipts
representing interests in such number of one one-thousandths of a Preferred Share as are to
be purchased (in which case certificates for the Preferred Shares represented by such
receipts shall be deposited by the transfer agent with the depository agent) and the Company
hereby directs the depository agent to comply with all such requests, (ii) when appropriate,
requisition from the Company the amount of cash to be paid in lieu of the issuance of
fractional shares in accordance with Section 14 or otherwise in accordance with Section
11.1.3, (iii) promptly after receipt of such certificates or depository 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. 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 11.1.3, 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 necessary to comply with this Agreement.




          7.4.    Partial Exercise. 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 and delivered to the registered holder of such Right Certificate or to
his duly authorized assigns, subject to the provisions of Section 14.




          7.5.    Full Information Concerning Ownership. 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 of Rights upon the occurrence of
any purported exercise as set forth in this Section 7 unless the certificate contained in
the form of election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise shall have been duly and properly completed and signed by the
registered holder thereof and the Company shall have been provided with 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 canceled form, or, if surrendered to the Rights Agent, shall be canceled 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 canceled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Right Certificates, and in such case shall deliver a certificate
of destruction thereof to the Company.



10









 





     Section 9. Reservation and Availability of Capital Stock. The Company covenants and
agrees that from and after the Distribution Date it will cause to be reserved and kept available
out of its authorized and unissued Preferred Shares (and, following the occurrence of a Trigger
Event, out of its authorized and unissued Common Shares or other securities or out of its shares
held in its treasury) the number of Preferred Shares (and, following the occurrence of a Trigger
Event, Common Shares and/or other securities) that will be sufficient to permit the exercise in
full of all outstanding Rights.



     So long as the Preferred Shares (and, following the occurrence of a Trigger Event, Common
Shares and/or other securities) issuable upon the exercise of Rights may be listed on any national
securities exchange or traded in the over-the-counter market and quoted on the National Association
of Securities Dealers, Inc. Automated Quotation System (“Nasdaq”) (including the National
Market or Small Cap Market), the Company shall use its best efforts to cause, from and after such
time as the Rights become exercisable, all shares reserved for such issuance to be listed or
admitted to trading on such exchange or quoted on Nasdaq upon official notice of issuance upon such
exercise.



     The Company covenants and agrees that it will take all such action as may be necessary to
ensure that all Preferred Shares (and, following the occurrence of a Trigger Event, Common Shares
and/or other securities) delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.



     From and after such time as the Rights become exercisable, the Company shall use its best
efforts, if then necessary to permit the issuance of Preferred Shares upon the exercise of Rights,
to register and qualify such Preferred Shares under the Securities Act and any applicable state
securities or “Blue Sky” laws (to the extent exemptions therefrom are not available), cause such
registration statement and qualifications to become effective as soon as possible after such filing
and keep such registration and qualifications effective until the earlier of the date as of which
the Rights are no longer exercisable for such securities and the Expiration Date. The Company may
temporarily suspend, for a period of time not to exceed 90 days, the exercisability of the Rights
in order to prepare and file a registration statement under the Securities Act and permit it to
become effective. Upon any such suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. Notwithstanding any provision
of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless
the requisite qualification in such jurisdiction shall have been obtained and until a registration
statement under the Securities Act (if required) shall have been declared effective.



     The Company further covenants and agrees that it will pay when due and payable any and all
Federal and state transfer taxes and governmental charges which may be payable in respect of the
issuance or delivery of the Right Certificates or of any Preferred Shares (or Common Shares and/or
other securities, as the case may be) upon the exercise of Rights. The Company shall not, however,
be required to pay any transfer tax or governmental 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 for the Preferred Shares (or Common Shares and/or



11









 




other securities, as the case may be) in a name other than that of, the registered holder of
the Right Certificate evidencing Rights surrendered for exercise or to issue or deliver any
certificates for Preferred Shares (or Common Shares and/or other securities, as the case may be) in
a name other than that of the registered holder upon the exercise of any Rights until any such
transfer tax or governmental charge shall have been paid (any such transfer tax or governmental
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 satisfaction that no such transfer tax or governmental charge
is due.




     Section 10. Preferred Shares Record Date. Each Person in whose name any certificate
for Preferred Shares (or Common Shares and/or other securities, as the case may be) is issued upon
the exercise of Rights shall for all purposes be deemed to have become the holder of record of the
Preferred Shares (or Common Shares and/or other securities, as the case may be) represented thereby
on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such
Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes
and governmental charges) was made; provided, however, that if the date of such
surrender and payment is a date upon which the Preferred Shares (or Common Shares and/or other
securities, as the case may be) transfer books of the Company are closed, such Person shall be
deemed to have become the record holder of such shares (fractional or otherwise) on, and such
certificate shall be dated, the next succeeding Business Day on which the Preferred Shares (or
Common Shares and/or other securities, as the case may be) transfer books of the Company are open.
Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate 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 or to receive dividends or other
distributions, 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 or other securities or property purchasable upon
exercise of each Right and the number of Rights outstanding are subject to adjustment from time to
time as provided in this Section 11.



               11.1.    Post-Execution Events.



               11.1.1.      Corporate Dividends, Reclassifications, Etc. In the event the Company
shall at any time after the date of this Agreement (A) declare and pay 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 11.1, 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, he would have owned



12









 




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. If an event occurs
which would require an adjustment under both Section 11.1.1 and Section 11.1.2, the adjustment
provided for in this Section 11.1.1 shall be in addition to, and shall be made prior to, the
adjustment required pursuant to, Section 11.1.2.




               11.1.2.      Acquiring Person Events; Triggering Events. Subject to Sections 23.1 and
27, in the event that a Trigger Event occurs, then, from and after the first occurrence of such
event, each holder of a Right, except as provided below, shall thereafter have a right to receive,
upon exercise thereof at a price per Right equal to the then current Purchase Price multiplied by
the number of one one-thousandths of a Preferred Share for which a Right is then exercisable
(without giving effect to this Section 11.1.2), in accordance with the terms of this Agreement and
in lieu of Preferred Shares, such number of Common Shares as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the then number of one one-thousandths of a
Preferred Share for which a Right is then exercisable (without giving effect to this Section
11.1.2) and (y) dividing that product by 50% of the current per share market price of the Common
Shares (determined pursuant to Section 11.4) on the first of the date of the occurrence of, or the
date of the first public announcement of, a Trigger Event (the “Adjustment Shares”);
provided that the Purchase Price and the number of Adjustment Shares shall thereafter be
subject to further adjustment as appropriate in accordance with Section 11.6. Notwithstanding the
foregoing, upon the occurrence of a Trigger Event, any Rights that are or were acquired or
beneficially owned by (1) any Acquiring Person or any Associate or Affiliate thereof, (2) a
transferee of any Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee
after the Acquiring Person becomes such, or (3) a transferee of any Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring
Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or
to any Person with whom the Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of
the Company has determined is part of a plan, arrangement or understanding which has as a primary
purpose or effect avoidance of this Section 11.1.2, and subsequent transferees, shall become null
and void without any further action, and any holder (whether or not such holder is an Acquiring
Person or an Associate or Affiliate of an Acquiring Person) of such Rights shall thereafter have no
right to exercise such Rights under any provision of this Agreement or otherwise. From and after
the Trigger Event, no Right Certificate shall be issued pursuant to Section 3 or Section 6 that
represents Rights that are or have become null and void pursuant to the provisions of this
paragraph, and any Right Certificate delivered to the Rights Agent that represents Rights that are
or have become null and void pursuant to the provisions of this paragraph shall be canceled.



     The Company shall use all reasonable efforts to ensure that the provisions of this Section
11.1.2 are complied with, but shall have no liability to any holder of Right Certificates or other
Person as a result of the Company’s failure to make any determinations with respect to any
Acquiring Person or its Affiliates, Associates or transferees hereunder.



13









 





     From and after the occurrence of an event specified in Section 13.1, any Rights that
theretofore have not been exercised pursuant to this Section 11.1.2 shall thereafter be exercisable
only in accordance with Section 13 and not pursuant to this Section 11.1.2.



               11.1.3.      Insufficient Shares. The Company may at its option substitute for a
Common Share issuable upon the exercise of Rights in accordance with the foregoing Section 11.1.2 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. In the event that upon the occurrence of a Trigger Event there shall
not be sufficient Common Shares authorized but unissued, or held by the Company as treasury shares,
to permit the exercise in full of the Rights in accordance with the foregoing Section 11.1.2, the
Company shall take all such action as may be necessary to authorize additional Common Shares for
issuance upon exercise of the Rights, provided, however, that if the Company
determines that it is unable to cause the authorization of a sufficient number of additional Common
Shares, then, in the event the Rights become exercisable, the Company, with respect to each Right
and to the extent necessary and permitted by applicable law and any agreements or instruments in
effect on the date hereof to which it is a party, shall: (A) determine the excess of (1) the value
of the Adjustment Shares issuable upon the exercise of a Right (the “Current Value”), over
(2) the Purchase Price (such excess, the “Spread”) and (B) with respect to each Right
(other than Rights which have become null and void pursuant to Section 11.1.2), make adequate
provision to substitute for the Adjustment Shares, upon payment of the applicable Purchase Price,
(1) cash, (2) a reduction in the Purchase Price, (3) Preferred Shares or other equity securities of
the Company (including, without limitation, shares, or fractions of shares, of preferred stock
which, by virtue of having dividend and liquidation rights substantially comparable to those of the
Common Shares, the Board of Directors of the Company has deemed in good faith to have substantially
the same value as Common Shares) (each such share of preferred stock or fractions of shares of
preferred stock constituting a “common stock equivalent”), (4) debt securities of the
Company, (5) other assets or (6) any combination of the foregoing having an aggregate value equal
to the Current Value, where such aggregate value has been determined by the Board of Directors of
the Company based upon the advice of a nationally recognized investment banking firm selected in
good faith by the Board of Directors of the Company; provided, however, that if the
Company shall not have made adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the occurrence of a Trigger Event, then the Company shall be obligated
to deliver, to the extent necessary and permitted by applicable law and any agreements or
instruments in effect on the date hereof to which it is a party, upon the surrender for exercise of
a Right and without requiring payment of the Purchase Price, Common Shares (to the extent
available) and then, if necessary, such number or fractions of Preferred Shares (to the extent
available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to
the Spread. If the Board of Directors of the Company shall determine in good faith that it is
unlikely that sufficient additional Common Shares could be authorized for issuance upon exercise in
full of the Rights, the thirty (30) day period set forth above may be extended and re-extended to
the extent necessary, but not more than ninety (90) days following the occurrence of a Trigger
Event, in order that the Company may seek stockholder approval for the authorization of such
additional shares (such period as may be extended, the “Substitution Period”). To the
extent that the Company determines that some action need be taken pursuant to the second and/or
third sentences of this Section 11.1.3, the Company (x) shall provide that such action shall



14









 




apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the
Rights until the expiration of the Substitution Period in order to seek any authorization of
additional shares and/or to decide the appropriate form of distribution to be made pursuant to such
first sentence and to determine the value thereof. In the event of any such suspension, the
Company shall issue a public announcement stating that the exercisability of the Rights has been
temporarily suspended as well as a public announcement at such time as the suspension is no longer
in effect. For purposes of this Section 11.1.3, the value of a Common Share shall be the current
per share market price (as determined pursuant to Section 11.4) on the date of the occurrence of a
Trigger Event and the value of any “common stock equivalent” shall be deemed to have the same value
as the Common Shares on such date. The Board of Directors of the Company may, but shall not be
required to, establish procedures to allocate the right to receive Common Shares upon the exercise
of the Rights among holders of Rights pursuant to this Section 11.1.3.





          11.2.    Dilutive Rights Offering. 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 securities having the same rights, privileges and
preferences as the Preferred Shares (“equivalent preferred stock”)) or securities
convertible into Preferred Shares or equivalent preferred stock at a price per Preferred
Share or per share of equivalent preferred stock (or having a conversion or exercise price
per share, if a security convertible into or exercisable for Preferred Shares or equivalent
preferred stock) less than the current per share market price of the Preferred Shares (as
determined pursuant to Section 11.4) 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 and shares of equivalent preferred stock outstanding on such
record date plus the number of Preferred Shares and shares of equivalent preferred stock
which the aggregate offering price of the total number of Preferred Shares and/or shares of
equivalent preferred stock to be offered (and/or the aggregate initial conversion price of
the convertible securities so to be offered) would purchase at such current per share market
price and the denominator of which shall be the number of Preferred Shares and shares of
equivalent preferred stock outstanding on such record date plus the number of additional
Preferred Shares and/or shares of equivalent preferred stock to be offered for subscription
or purchase (or into which the convertible securities so to be offered are initially
convertible); provided, however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of the shares of capital
stock of the Company issuable upon exercise of one Right. In case such subscription price
may be paid in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of Directors
of the Company, whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and the holders of the Rights. Preferred
Shares and shares of equivalent preferred stock owned by or held for the account of the
Company or any Subsidiary of the Company shall not be deemed outstanding for the purpose of
any such computation. Such adjustments shall be made successively whenever such a record
date is fixed; and in the event that such rights or warrants are not so issued, the Purchase
Price shall be



15









 






adjusted to be the Purchase Price which would then be in effect if such record date had
not been fixed.




          11.3.    Distributions. 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, cash, securities or
assets (other than a regular periodic cash dividend at a rate not in excess of 125% of the
rate of the last regular periodic cash dividend theretofore paid or, in case regular
periodic cash dividends have not theretofore been paid, at a rate not in excess of 50% of
the average net income per share of the Company for the four quarters ended immediately
prior to the payment of such dividend, or a dividend payable in Preferred Shares (which
dividend, for purposes of this Agreement, shall be subject to the provisions of Section
11.1.1(A))) or convertible securities, or subscription rights or warrants (excluding those
referred to in Section 11.2), 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 current per share market
price of the Preferred Shares (as determined pursuant to Section 11.4) on such record date,
less the fair market value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the Rights Agent)
of the portion of the cash, assets, securities or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to one Preferred Share and
the denominator of which shall be such current per share market price of the Preferred
Shares (as determined pursuant to Section 11.4); 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.




          11.4.    Current Per Share Market Value.



               11.4.1.      General. For the purpose of any computation hereunder, the “current
per share market price” of any security (a “Security” for the purpose of this Section
11.4.1) on any date shall be deemed to be the average of the daily closing prices per share of such
Security for the thirty (30) consecutive Trading Days (as such term is hereinafter defined)
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 any period
following the announcement by the issuer of such Security of (i) a dividend or distribution on such
Security payable in shares of such Security or securities convertible into such shares or (ii) any
subdivision, combination or reclassification of such Security, and prior to the expiration of
thirty (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, or, in case no such sale takes place on such day, the
average of the



16









 




closing bid and asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or admitted to trading
on the New York Stock Exchange or, if the Security is not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on which the Security is
listed or admitted to trading or, if the Security is not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by 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 of the Company. If on any such date no
such market maker is making a market in the Security, the fair value of the Security on such date
as determined in good faith by the Board of Directors of the Company shall be used. 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.
If the Security is not publicly held or not so listed or traded, or if on any such date the
Security is not so quoted and no such market maker is making a market in the Security, “current per
share market price” shall mean the fair value per share as determined in good faith by the Board of
Directors of the Company or, if at the time of such determination there is an Acquiring Person, by
a nationally recognized investment banking firm selected by the Board of Directors, which shall
have the duty to make such determination in a reasonable and objective manner, whose determination
shall be described in a statement filed with the Rights Agent and shall be conclusive for all
purposes.




               11.4.2.      Preferred Shares. Notwithstanding Section 11.4.1, for the purpose of any
computation hereunder, the “current per share market price” of the Preferred Shares shall be
determined in the same manner as set forth above in Section 11.4.1 (other than the last sentence
thereof). If the current per share market price of the Preferred Shares cannot be determined in
the manner described in Section 11.4.1, the “current per share market price” of the Preferred
Shares shall be conclusively deemed to be an amount equal to 1,000 (as such number may be
appropriately adjusted for such events as stock splits, stock dividends and recapitalizations with
respect to the Common Shares occurring after the date of this Agreement) multiplied by the current
per share market price of the Common Shares (as determined pursuant to Section 11.4.1). If neither
the Common Shares nor the Preferred Shares are publicly held or so listed or traded, or if on any
such date neither the Common Shares nor the Preferred Shares are so quoted and no such market maker
is making a market in either the Common Shares or the Preferred Shares, “current per share market
price” of the Preferred Shares shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, or, if at the time of such determination there is an
Acquiring Person, by a nationally recognized investment banking firm selected by the Board of
Directors of the Company, which shall have the duty to make such determination in a reasonable and
objective manner, which determination shall be described in a statement filed with the Rights Agent
and shall be conclusive for all purposes. For purposes of this Agreement, the “current per share
market price” of one one-thousandth of a Preferred Share shall be equal to the “current per share
market price” of one Preferred Share divided by 1,000.



17









 






          11.5.    Insignificant Changes. 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. Any adjustments which by reason of this Section 11.5 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-thousandth of a Preferred Share or the nearest one-thousandth of a Common Share or other
share or security, as the case may be.




          11.6.    Shares Other Than Preferred Shares. If as a result of an adjustment
made pursuant to Section 11.1, 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 Sections
11.1, 11.2, 11.3, 11.5, 11.8, 11.9 and 11.13, and the provisions of Sections 7, 9, 10, 13
and 14 with respect to the Preferred Shares shall apply on like terms to any such other
shares.




          11.7.    Rights Issued Prior to Adjustment. 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-thousandths of
a Preferred Share purchasable from time to time hereunder upon exercise of the Rights, all
subject to further adjustment as provided herein.




          11.8.    Effect of Adjustments. Unless the Company shall have exercised its
election as provided in Section 11.9, upon each adjustment of the Purchase Price as a result
of the calculations made in Sections 11.2 and 11.3, 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-thousandths of a Preferred Share (calculated
to the nearest one-hundred thousandth of a Preferred Share) obtained by (i) multiplying (x)
the number of one one-thousandths of a Preferred Share covered by a Right immediately prior
to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment
of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in
effect immediately after such adjustment of the Purchase Price.




          11.9.    Adjustment in Number of Rights. 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-thousandths of a Preferred Share issuable 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-thousandth 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-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



18









 






the number of Rights, indicating the record date for the adjustment, and, if known at
the time, the amount of the adjustment to be made. This record date may be the date on
which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates
have been issued, shall be at least ten (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 11.9, the Company may, 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, 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 may bear, at the option of the Company, the adjusted Purchase Price) and shall be
registered in the names of the holders of record of Right Certificates on the record date
specified in the public announcement.




          11.10.    Right Certificates Unchanged. Irrespective of any adjustment or
change in the Purchase Price or the number of one one-thousandths 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 per share and the number of one
one-thousandths of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.




          11.11.    Par Value Limitations. Before taking any action that would cause an
adjustment reducing the Purchase Price below one one-thousandth of the then par value, if
any, of the Preferred Shares or other shares of capital stock 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 or other such shares at such adjusted Purchase Price.




          11.12.    Deferred Issuance. In any case in which this Section 11 shall
require that an adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such event the
issuance to the holder of any Right exercised after such record date of that number of
Preferred Shares and shares of other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Shares and shares of other capital
stock or other securities, assets or cash 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.




          11.13.    Reduction in Purchase Price. Anything in this Section 11 to the
contrary notwithstanding, the Company shall be entitled to make such reductions in the



19









 






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 of the Preferred Shares at less than the current market price, issuance wholly for cash
of Preferred Shares or securities which by their terms are convertible into or exchangeable
for Preferred Shares, dividends on Preferred Shares payable in Preferred Shares or issuance
of rights, options or warrants referred to hereinabove in this Section 11, hereafter made by
the Company to holders of its Preferred Shares shall not be taxable to such stockholders.




          11.14.    Company Not to Diminish Benefits of Rights. The Company covenants
and agrees that after the earlier of the Shares Acquisition Date or Distribution Date it
will not, except as permitted by Section 23, Section 26 or Section 27, take (or permit any
Subsidiary to take) any action if at the time such action is taken it is reasonably
foreseeable that such action will substantially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights.




          11.15.    Adjustment of Rights Associated with Common Shares. Notwithstanding
anything contained in this Agreement to the contrary, in the event that the Company shall at
any time after the date hereof and prior to the Distribution Date (i) declare or pay any
dividend on the outstanding Common Shares payable in Common Shares, (ii) effect a
subdivision or consolidation of the outstanding Common Shares (by reclassification or
otherwise than by the payment of dividends payable in Common Shares), or (iii) combine the
outstanding Common Shares into a greater or lesser number of Common Shares, then in any such
case, the number of Rights associated with each Common Share then outstanding, or issued or
delivered thereafter but prior to the Distribution Date or in accordance with Section 22
shall be proportionately adjusted so that the number of Rights thereafter associated with
each Common Share following any such event shall equal the result obtained by multiplying
the number of Rights associated with each Common Share immediately prior to such event by a
fraction, the numerator of which shall be the total number of Common Shares outstanding
immediately prior to the occurrence of the event and the denominator of which shall be the
total number of Common Shares outstanding immediately following the occurrence of such
event. The adjustments provided for in this Section 11.15 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 Sections 11 or 13, the Company shall (a) promptly prepare a
certificate setting forth such adjustment, and a brief statement of the computations and facts
accounting for such adjustment, (b) promptly file with the Rights Agent and with each transfer
agent for the Common Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section 25. The Rights
Agent shall be fully protected in relying on any such certificate and on any adjustment therein
contained and shall not be deemed to have knowledge of any such adjustment unless and until it
shall have received such certificate.



20









 





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




          13.1.    Certain Transactions. In the event that, from and after the first
occurrence of a Trigger Event, directly or indirectly, (A) the Company shall consolidate
with, or merge with and into, any other Person and the Company shall not be the continuing
or surviving corporation, (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 the Company or any other Person
or cash or any other property, or (C) the Company shall sell, exchange, mortgage or
otherwise transfer (or one or more of its Subsidiaries shall sell, exchange, mortgage 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 or Persons (other than the Company or one or more wholly-owned
Subsidiaries of the Company in one or more transactions each of which complies with Section
11.14), then, and in each such case, proper provision shall be made so that (i) each holder
of a Right (other than Rights which have become null and void pursuant to Section 11.1.2)
shall thereafter have the right to receive, upon the exercise thereof at a price per Right
equal to the then current Purchase Price multiplied by the number of one one-thousandths of
a Preferred Share for which a Right was exercisable immediately prior to the first
occurrence of a Trigger Event (as subsequently adjusted pursuant to Sections 11.1.1, 11.2,
11.3, 11.8, 11.9 and 11.12), in accordance with the terms of this Agreement and in lieu of
Preferred Shares or Common Shares, such number of validly authorized and issued, fully paid,
non-assessable and freely tradable Common Shares of the Principal Party (as such term is
hereinafter defined) not subject to any liens, encumbrances, rights of first refusal or
other adverse claims, as shall be equal to the result obtained by (x) multiplying the then
current Purchase Price by the number of one one-thousandths of a Preferred Share for which a
Right was exercisable immediately prior to the first occurrence of a Trigger Event (as
subsequently adjusted pursuant to Sections 11.1.1, 11.2, 11.3, 11.8, 11.9 and 11.12) and (y)
dividing that product by 50% of the then current per share market price of the Common Shares
of such Principal Party (determined pursuant to Section 11.4) on the date of consummation of
such consolidation, merger, sale or transfer; provided, that the price per Right so
payable and the number of Common Shares of such Principal Party so receivable upon exercise
of a Right shall thereafter be subject to further adjustment as appropriate in accordance
with Section 11.6 to reflect any events covered thereby occurring in respect of the Common
Shares of such Principal Party after the occurrence of such consolidation, merger, sale or
transfer; (ii) such Principal Party 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 Principal Party; and (iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of its Common Shares
in accordance with Section 9) 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 its Common Shares thereafter deliverable upon the exercise of the
Rights; provided that, upon the subsequent occurrence of any consolidation, merger,
sale or transfer of assets or other extraordinary



21









 






transaction in respect of such Principal Party, each holder of a Right shall thereupon
be entitled to receive, upon exercise of a Right and payment of the Purchase Price as
provided in this Section 13.1, such cash, shares, rights, warrants and other property which
such holder would have been entitled to receive had such holder, at the time of such
transaction, owned the Common Shares of the Principal Party receivable upon the exercise of
a Right pursuant to this Section 13.1, and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as may be necessary to
permit the subsequent exercise of the Rights in accordance with the terms hereof for such
cash, shares, rights, warrants and other property. The Company shall not consummate any
such consolidation, merger, sale or transfer unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a supplemental
agreement confirming that the requirements of this Section 13.1 and Section 13.2 shall
promptly be performed in accordance with their terms and that such consolidation, merger,
sale or transfer of assets shall not result in a default by the Principal Party under this
Agreement as the same shall have been assumed by the Principal Party pursuant to this
Section 13.1 and Section 13.2 and providing that, as soon as practicable after executing
such agreement pursuant to this Section 13, the Principal Party, at its own expense, shall



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




          (2) use its best efforts, if the Common Shares of the Principal Party shall be listed or
admitted to trading on the New York Stock Exchange or on another national securities exchange, to
list or admit to trading (or continue the listing of) the Rights and the securities purchasable
upon exercise of the Rights on the New York Stock Exchange or such securities exchange, or, if the
Common Shares of the Principal Party shall not be listed or admitted to trading on the New York
Stock Exchange or a national securities exchange, to cause the Rights and the securities receivable
upon exercise of the Rights to be authorized for quotation on Nasdaq or on such other system then
in use;




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




          (4) obtain waivers of any rights of first refusal or preemptive rights in respect of the
Common Shares of the Principal Party subject to purchase upon exercise of outstanding Rights.




          In case the Principal Party has provision in any of its authorized securities or in its
certificate of incorporation or by-laws or other instrument governing its corporate affairs, which
provision would have the effect of (i) causing such Principal Party to issue (other than to holders




22









 







of Rights pursuant to this Section 13), in connection with, or as a consequence of, the
consummation of a transaction referred to in this Section 13, Common Shares or common stock
equivalents of such Principal Party at less than the then current market price per share thereof
(determined pursuant to Section 11.4) or securities exercisable for, or convertible into, Common
Shares or common stock equivalents of such Principal Party at less than such then current market
price (other than to holders of Rights pursuant to this Section 13), or (ii) providing for any
special payment, taxes or similar provision in connection with the issuance of the Common Shares of
such Principal Party pursuant to the provision of Section 13, then, in such event, the Company
hereby agrees with each holder of Rights that it shall not consummate any such transaction unless
prior thereto the Company and such Principal Party shall have executed and delivered to the Rights
Agent a supplemental agreement providing that the provision in question of such Principal Party
shall have been canceled, waived or amended, or that the authorized securities shall be redeemed,
so that the applicable provision will have no effect in connection with, or as a consequence of,
the consummation of the proposed transaction.




          The Company covenants and agrees that it shall not, at any time after the Trigger Event, enter
into any transaction of the type described in clauses (A) through (C) of this Section 13.1 if (i)
at the time of or immediately after such consolidation, merger, sale, transfer or other transaction
there are any rights, warrants or other instruments or securities outstanding or agreements in
effect which would substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights, (ii) prior to, simultaneously with or immediately after such consolidation,
merger, sale, transfer or other transaction, the stockholders of the Person who constitutes, or
would constitute, the Principal Party for purposes of Section 13.2 shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates or Associates or
(iii) the form or nature of organization of the Principal Party would preclude or limit the
exercisability of the Rights. The provisions of this Section 13 shall similarly apply to
successive transactions of the type described in clauses (A) through (C) of this Section 13.1.




               13.2.    Principal Party. “Principal Party” shall mean:



               (i) in the case of any transaction described in (A) or (B) of the first sentence of Section
13.1: (i) the Person that is the issuer of the securities into which the Common Shares are
converted in such merger or consolidation, or, if there is more than one such issuer, the issuer
the Common Shares of which have the greatest aggregate market value of shares outstanding, or (ii)
if no securities are so issued, (x) the Person that is the other party to the merger, if such
Person survives said merger, or, if there is more than one such Person, the Person the Common
Shares of which have the greatest aggregate market value of shares outstanding or (y) if the Person
that is the other party to the merger does not survive the merger, the Person that does survive the
merger (including the Company if it survives) or (z) the Person resulting from the consolidation;
and



               (ii) in the case of any transaction described in (C) of the first sentence in Section 13.1,
the Person that is the party receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions, or, if each Person that is a party to
such transaction or transactions receives the same portion of the assets or earning power so
transferred or if the Person receiving the greatest portion of the assets or earning power cannot
be determined, whichever of such Persons is the issuer of Common Shares having the greatest



23









 




aggregate market value of shares outstanding; provided, however, that in any
such case described in the foregoing clause (i) or (ii) of this Section 13.2, if the Common Shares
of such Person are not at such time or have not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, then (1) if such Person is a direct or
indirect Subsidiary of another Person the Common Shares of which are and have been so registered,
the term “Principal Party” shall refer to such other Person, or (2) if such Person is a Subsidiary,
directly or indirectly, of more than one Person, the Common Shares of all of which are and have
been so registered, the term “Principal Party” shall refer to whichever of such Persons is the
issuer of Common Shares having the greatest aggregate market value of shares outstanding, or (3) if
such Person is owned, directly or indirectly, by a joint venture formed by two or more Persons that
are not owned, directly or indirectly, by the same Person, the rules set forth in clauses (1) and
(2) above shall apply to each of the owners having an interest in the venture as if the Person
owned by the joint venture was a Subsidiary of both or all of such joint venturers, and the
Principal Party in each such case shall bear the obligations set forth in this Section 13 in the
same ratio as its interest in such Person bears to the total of such interests.





          13.3.    Approved Acquisitions. Upon the consummation of any merger or other
acquisition transaction of the type described in clause (A), (B), or (C) of Section 13.1
involving the Company pursuant to a merger or other acquisition agreement between the
Company and any Person (or one or more of such Person’s Affiliates or Associates) which
agreement has been approved by the Board of Directors of the Company prior to any Person
becoming an Acquiring Person, this Agreement and the rights of holders of Rights hereunder
shall be terminated in accordance with Section 7.1.



     Section 14. Fractional Rights and Fractional Shares.




          14.1.    Cash in Lieu of Fractional Rights. The Company shall not be required
to issue fractions of Rights or to distribute Right Certificates which evidence fractional
Rights (except prior to the Distribution Date in accordance with Section 11.15). 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 14.1, 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



24









 






making a market in the Rights selected by the Board of Directors of the Company. If on
any such date no such market maker is making a market in the Rights, the current market
value of the Rights on such date shall be the fair value of the Rights as determined in good
faith by the Board of Directors of the Company, or, if at the time of such determination
there is an Acquiring Person, by a nationally recognized investment banking firm selected by
the Board of Directors of the Company, which shall have the duty to make such determination
in a reasonable and objective manner, which determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes.




          14.2.    Cash in Lieu of Fractional Preferred Shares. The Company shall not be
required to issue fractions of Preferred Shares (other than fractions which are integral
multiples of one one-thousandth of a Preferred Share) upon exercise or exchange of the
Rights or to distribute certificates which evidence fractional Preferred Shares (other than
fractions which are integral multiples of one one-thousandth of a Preferred Share).
Interests in fractions of Preferred Shares in integral multiples of one one-thousandth of a
Preferred Share may, at the election of the Company, be evidenced by depository receipts,
pursuant to an appropriate agreement between the Company and a depository selected by it;
provided, that such agreement shall provide that the holders of such depository
receipts shall have all the rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares represented by such depository receipts. In lieu
of fractional Preferred Shares that are not integral multiples of one one-thousandth of a
Preferred Share, the Company shall pay to the registered holders of Right Certificates at
the time such Rights are exercised or exchanged as herein provided an amount in cash equal
to the same fraction of the current per share market price of one Preferred Share (as
determined in accordance with Section 14.1) for the Trading Day immediately prior to the
date of such exercise or exchange.




          14.3.    Cash in Lieu of Fractional Common Shares. The Company shall not be
required to issue fractions of Common Shares or to distribute certificates which evidence
fractional Common Shares upon the exercise or exchange of Rights. 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 (as determined in accordance with Section 14.1) for the Trading Day immediately prior
to the date of such exercise or exchange.




          14.4.    Waiver of Right to Receive Fractional Rights or Shares. The holder of
a Right by the acceptance of the Rights expressly waives his right to receive any fractional
Rights or any fractional shares upon exercise or exchange of a Right, except as permitted by
this Section 14.



     Section 15. Rights of Action. All rights of action in respect of this Agreement,
except the rights of action given to the Rights Agent under Section 18, are vested in the
respective registered holders of the Right Certificates (and, prior to the Distribution Date, the
registered holders of the Common 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



25









 




holder of any other Right Certificate (or, prior to the Distribution Date, of the Common
Shares), may, in his own behalf and for his own benefit, enforce this Agreement, and may institute
and maintain any suit, action or proceeding against the Company to enforce this Agreement, or
otherwise enforce or act in respect of his right to exercise the Rights evidenced by such Right
Certificate in the manner provided in such Right Certificate and in this 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 shall be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of, the obligations of any Person
(including, without limitation, the Company) subject to this Agreement.




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




          (a) prior to the Distribution Date, the Rights will be transferable only in connection
with the transfer of the Common Shares;




          (b) as of and 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; and




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



     Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as such, of
any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the
holder of the Preferred Shares or any other securities of the Company which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or
in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such,
any of the rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or other actions
affecting stockholders (except as provided in Section 24), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been
exercised in accordance with the provisions hereof.



     Section 18. Concerning the Rights Agent. The Company agrees to pay to the Rights
Agent as compensation for the services rendered by it hereunder a five hundred dollar ($500.00)
acceptance fee and five hundred dollars ($500.00) annually, subject to increase in the event the
Rights become exercisable, in addition to any compensation payable to the Rights Agent in its



26









 




capacity as transfer agent for the Company’s Common Shares. The Company further agrees to pay
to the Rights Agent, from time to time and on demand of the Rights Agent, its reasonable expenses
and counsel fees and other disbursements incurred in the preparation, execution, delivery,
amendment and administration of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless
against, any loss, liability or expense, incurred without negligence, bad faith or willful
misconduct on the part of the Rights Agent, for any action taken, suffered or omitted by the Rights
Agent in connection with the acceptance and administration of this Agreement, including, without
limitation, the costs and expenses of defending against any claim of liability arising therefrom,
directly or indirectly.




     The Rights Agent shall be protected and shall incur no liability for or in respect of any
action taken, suffered or omitted by it in connection with its acceptance and administration of
this Agreement in reliance upon any Right Certificate or certificate for the Preferred Shares or
the Common Shares or for other securities of the Company, instrument of assignment or transfer,
power of attorney, endorsement, affidavit, letter, notice, instruction, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine and to be signed,
executed and, where necessary, verified or acknowledged, by the proper Person or Persons.



     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 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 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. 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.



     Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions, by all of which the
Company and the holders of Right Certificates, by their acceptance thereof, shall be bound.



27









 






          20.1.    Legal Counsel. The Rights Agent may consult with legal counsel
selected by it (who may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent as to any action
taken, suffered or omitted by it in good faith and in accordance with such opinion.




          20.2.    Certificates as to Facts or Matters. 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 of Directors,
the Chief Executive Officer, the President, the Chief Financial Officer, any Vice President,
the Treasurer, the Secretary or any Assistant Treasurer or Assistant Secretary of the
Company and delivered to the Rights Agent; and such certificate shall be full authorization
and protection to the Rights Agent for any action taken, suffered or omitted to be taken by
it under the provisions of this Agreement in reliance upon such certificate.




          20.3.    Standard of Care. The Rights Agent shall be liable hereunder only for
its own negligence, bad faith or willful misconduct.




          20.4.    Reliance on Agreement and Right Certificates. 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 as to 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.




          20.5.    No Responsibility as to Certain Matters. The Rights Agent shall not
be under any responsibility in respect of the validity of this Agreement or the execution
and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of
the validity or execution of any Right Certificate (except its countersignature thereof);
nor shall it be responsible for any breach by the Company of any covenant or condition
contained in this Agreement or in any Right Certificate; nor shall it be responsible for any
change in the exercisability of the Rights (including the Rights becoming null and void
pursuant to Section 11.1.2) or any adjustment required under the provisions of Sections 3,
11, 13, 23 or 27 or responsible for the manner, method or amount of any such adjustment or
the ascertaining of the existence of facts that would require any such adjustment (except
with respect to the exercise of Rights evidenced by Right Certificates after actual notice
of any such change or adjustment); 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 or
other securities to be issued pursuant to this Agreement or any Right Certificate or as to
whether any Preferred Shares will, when so issued, be validly authorized and issued, fully
paid and nonassessable.




          20.6.    Further Assurance by Company. The Company agrees that it will
perform, execute, acknowledge and deliver or cause to be performed, executed,



28









 






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.




          20.7.    Authorized Company Officers. 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 of Directors, the Chief Executive Officer, the
President, the Chief Financial Officer, any Vice President, the Treasurer, the Secretary or
any Assistant Treasurer or Assistant Secretary of the Company, and to apply to such officers
for advice or instructions in connection with its duties under this Agreement, and such
instructions shall be full authorization and protection to the Rights Agent for any action
taken, suffered or omitted to be taken by it in good faith in accordance with instructions
of any such officer or for any delay in acting while waiting for these instructions. 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 or omitted by the
Rights Agent with respect to its duties or obligations under this Agreement and the date on
and/or after which such action shall be taken or such omission shall be effective. The
Rights Agent shall not be liable to the Company for any action taken by, or omission of, the
Rights Agent in accordance with a proposal included in any such application on or after the
date specified therein (which date shall not be less than three business days after the date
any such officer actually receives such application, unless any such officer shall have
consented in writing to an earlier date) unless, prior to taking of any such action (or the
effective date in the case of omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken or omitted.




          20.8.    Freedom to Trade in Company Securities. The Rights Agent and any
stockholder, 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 it were not Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in
any other capacity for the Company or for any other Person.




          20.9.    Reliance on Attorneys and Agents. The Rights Agent may execute and
exercise any of the rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, omission, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Company resulting from any such act, omission,
default, neglect or misconduct, provided that reasonable care was exercised in the
selection and continued employment thereof.




          20.10.    Incomplete Certificate. 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 not been completed to certify the holder is not an Acquiring Person (or
an Affiliate or Associate thereof), the Rights Agent shall not take any further action



29









 






with respect to such requested exercise or transfer without first consulting with the
Company.




          20.11.    Rights Holders List. At any time and from time to time after the
Distribution Date, upon the request of the Company, the Rights Agent shall promptly deliver
to the Company a list, as of the most recent practicable date (or as of such earlier date as
may be specified by the Company), of the holders of record of Rights.



     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 thirty (30) days’ notice in
writing mailed to the Company and to each transfer agent of the Common Shares and/or Preferred
Shares, as applicable, by registered or certified mail. Following the Distribution Date, the
Company shall promptly notify the holders of the Right Certificates by first-class mail of any such
resignation. The Company may remove the Rights Agent or any successor Rights Agent upon thirty
(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 and/or Preferred Shares, as applicable, 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
resigning, removed, or incapacitated Rights Agent shall remit to the Company, or to any successor
Rights Agent designated by the Company, all books, records, funds, certificates or other documents
or instruments of any kind then in its possession which were acquired by such resigning, removed or
incapacitated Rights Agent in connection with its services as Rights Agent hereunder, and shall
thereafter be discharged from all duties and obligations hereunder. Following notice of such
removal, resignation or incapacity, the Company shall appoint a successor to such Rights Agent. If
the Company shall fail to make such appointment within a period of thirty (30) days after giving
notice of such removal or after it has been notified in writing of such resignation or incapacity
by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company), then the registered
holder of any Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or
by such a court, shall be a corporation organized and doing business under the laws of the United
States or of the State of Illinois (or any other state of the United States so long as such
corporation is authorized to do business as a banking institution in the State of Illinois) in good
standing, having an office in the State of Illinois, which is authorized under such laws to
exercise stock transfer or corporate trust 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 $10 million. After appointment, the successor Rights Agent shall
be vested with the same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver
and transfer to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment the Company shall file notice thereof in
writing with the predecessor Rights Agent and each transfer agent of the Common Shares and/or
Preferred Shares, as applicable, and, following the Distribution Date, 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



30









 




removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.




     Section 22. Issuance of New Right Certificates. Notwithstanding any of the provisions
of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect
any adjustment or change in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in accordance with the
provisions of this Agreement. In addition, in connection with the issuance or sale of Common
Shares following the Distribution Date and prior to the Expiration Date, the Company shall, with
respect to Common Shares so issued or sold pursuant to the exercise of stock options or under any
employee plan or arrangement, granted or awarded, or upon exercise, conversion or exchange of
securities hereinafter issued by the Company, in each case existing prior to the Distribution Date,
issue Right Certificates representing the appropriate number of Rights in connection with such
issuance or sale; provided, however, that (i) no such Right Certificate shall be
issued if, and to the extent that, the Company shall be advised by counsel that such issuance would
create a significant risk of material adverse tax consequences to the Company or the Person to whom
such Right Certificate would be issued and (ii) no such Right Certificate shall be issued if, and
to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.



     Section 23. Redemption.




          23.1.    Right to Redeem. The Board of Directors of the Company may, at its
option, at any time prior to a Trigger Event, redeem all but not less than all of the then
outstanding Rights at a redemption price of $0.001 per Right, appropriately adjusted to
reflect any stock split, stock dividend, recapitalization or similar transaction occurring
after the date hereof (such redemption price being hereinafter referred to as the
“Redemption Price”), and the Company may, at its option, pay the Redemption Price in
Common Shares, including, but not limited to, a fractional share of Common Shares (based on
the “current per share market price,” determined pursuant to Section 11.4, of the Common
Shares at the time of redemption), cash or any other form of consideration deemed
appropriate by the Board of Directors. The redemption of the Rights by the Board of
Directors may be made effective at such time, on such basis and subject to such conditions
as the Board of Directors in its sole discretion may establish.




          23.2.    Redemption Procedures. Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the Rights (or at such later time as the
Board of Directors may establish for the effectiveness of such redemption), 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
for each Right so held. The Company shall promptly give public notice of such redemption;
provided, however, that the failure to give, or any defect in, any such
notice shall not affect the validity of such redemption. The Company shall promptly give,
or cause the Rights Agent to give, notice of such redemption to the holders of the then
outstanding Rights by mailing such notice to all such holders at their last addresses as
they appear upon the registry books of the Rights Agent or, prior to the



31









 






Distribution Date, on the registry books of the transfer agent for the Common Shares.
Any notice which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of redemption shall 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
27, and other than in connection with the purchase, acquisition or redemption of Common
Shares prior to the Distribution Date.



     Section 24. Notice of Certain Events. In case the Company shall propose at any time
after the earlier of the Shares Acquisition Date and the Distribution Date (a) to pay any dividend
payable in stock of any class to the holders of Preferred Shares or to make any other distribution
to the holders of Preferred Shares (other than a regular periodic cash dividend at a rate not in
excess of 125% of the rate of the last regular periodic cash dividend theretofore paid or, in case
regular periodic cash dividends have not theretofore been paid, at a rate not in excess of 50% of
the average net income per share of the Company for the four quarters ended immediately prior to
the payment of such dividends, or a stock dividend on, or a subdivision, combination or
reclassification of the Common Shares), or (b) to offer to the holders of Preferred Shares rights,
options or warrants to subscribe for or to purchase any additional Preferred Shares or shares of
stock of any class or any other securities, rights, options or warrants, or (c) to effect any
reclassification of its Preferred Shares (other than a reclassification involving only the
subdivision of outstanding Preferred Shares), or (d) 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 (other
than pursuant to a merger or other acquisition agreement of the type described in Section
1.3(ii)(A)(z)), or (e) to effect the liquidation, dissolution or winding up of the Company, or (f)
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
the Rights Agent and to each holder of a Right Certificate, in accordance with Section 25, a notice
of such proposed action, which shall specify the record date for the purposes of such stock
dividend, 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 Preferred Shares and/or Common 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 (a) or (b) above at least ten (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 ten (10) days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Preferred Shares and/or Common Shares, whichever shall
be the earlier.



     In case any event set forth in Section 11.1.2 or Section 13 shall occur, then, in any such
case, (i) the Company shall as soon as practicable thereafter give to the Rights Agent and to each
holder of a Right Certificate, in accordance with Section 25, a notice of the occurrence of such
event, which notice shall describe the event and the consequences of the event to holders of Rights
under Section 11.1.2 and Section 13, and (ii) all references in this Section 24 to Preferred



32









 




Shares shall be deemed thereafter to refer to Common Shares and/or, if appropriate, other
securities.




     Notwithstanding anything in this Agreement to the contrary, prior to the Distribution Date a
filing by the Company with the Securities and Exchange Commission shall constitute sufficient
notice to the holders of securities of the Company, including the Rights, for purposes of this
Agreement and no other notice need be given.



     Section 25. 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) or by facsimile transmission as follows:


Bally Total Fitness Holding Corporation

8700 W. Bryn Mawr Avenue

Chicago, Illinois 60631

Attention: Corporate Secretary

Facsimile: (773) 399-0126



With a copy to:



Latham & Watkins LLP

233 S. Wacker Drive, Suite 5800

Chicago, IL 60606

Attention: Mark D. Gerstein

Facsimile No.: (312) 993-9767



Subject to the provisions of Section 21 and Section 24, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the
Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) or by facsimile transmission
as follows:



LaSalle Bank National Association

135 S. LaSalle Street

Suite 1960

Chicago, Illinois 60603

Attention: Gregory Malatia

Facsimile No.: (312) 904-2236



Notices or demands authorized by this Agreement to be given or made by the Company or the Rights
Agent to the holder of any Right Certificate (or, prior to the Distribution Date, to the holder of
any certificate representing Common Shares) 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 26. Supplements and Amendments. For so long as the Rights are then
redeemable, the Company may in its sole and absolute discretion, and the Rights Agent shall, if



33









 




the Company so directs, supplement or amend any provision of this Agreement in any respect
without the approval of any holders of Rights or Common Shares. From and after the time that the
Rights are no longer redeemable, the Company may, and the Rights Agent shall, if the Company so
directs, from time to time supplement or amend this Agreement without the approval of any holders
of Rights (i) to cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein or (ii) to make any other
changes or provisions in regard to matters or questions arising hereunder which the Company may
deem necessary or desirable, including but not limited to extending the Final Expiration Date;
provided, however, that no such supplement or amendment shall adversely affect the
interests of the holders of Rights as such (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person), and no such supplement or amendment may cause the Rights again
to become redeemable or cause this Agreement again to become amendable other than in accordance
with this sentence; provided further, that the right of the Board of Directors to extend
the Distribution Date shall not require any amendment or supplement hereunder. Upon the delivery
of a certificate from an appropriate officer of the Company which states that the proposed
supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall
execute such supplement or amendment.




     Section 27. Exchange.




          27.1.    Exchange of Common Shares for Rights. The Board of Directors of the
Company may, at its option, at any time after the occurrence of a Trigger Event, exchange
Common Shares for 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
11.1.2) by exchanging at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such amount per Right being hereinafter referred to as the “Exchange
Consideration”). Notwithstanding the foregoing, the Board of Directors shall not be
empowered to effect such exchange at any time after any Acquiring Person shall have become
the Beneficial Owner of 50% or more of the Common Shares then outstanding. From and after
the occurrence of an event specified in Section 13.1, any Rights that theretofore have not
been exchanged pursuant to this Section 27.1 shall thereafter be exercisable only in
accordance with Section 13 and may not be exchanged pursuant to this Section 27.1. The
exchange 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.




          27.2.    Exchange Procedures. Immediately upon the action of the Board of
Directors of the Company ordering the exchange for any Rights pursuant to Section 27.1 and
without any further action and without any notice, the right to exercise such Rights shall
terminate and the only right thereafter of the holders of such Rights shall be to receive
the Exchange Consideration. The Company shall promptly give public notice of any such
exchange; provided, however, that the failure to give, or any defect in,
such notice shall not affect the validity of such exchange. The Company promptly shall mail
a notice of any such exchange to all of the holders of such Rights at their last addresses
as they appear upon the registry books of the Rights Agent. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the holder receives the



34









 




notice. Each such notice of exchange shall 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 the Rights that have become null and void pursuant
to the provisions of Section 11.1.2) held by each holder of Rights.





          27.3.    Insufficient Shares. The Company may at its option substitute, and,
in the event that there shall not be sufficient Common Shares issued but not outstanding or
authorized but unissued to permit an exchange of Rights for Common Shares as contemplated in
accordance with this Section 27, the Company shall substitute to the extent of such
insufficiency, for each Common Share that would otherwise be issuable upon exchange of a
Right, a number of Preferred Shares or fraction thereof (or equivalent preferred stock, as
such term is defined in Section 11.2) such that the current per share market price
(determined pursuant to Section 11.4) of one Preferred Share (or equivalent preferred share)
multiplied by such number or fraction is equal to the current per share market price of one
Common Share (determined pursuant to Section 11.4) as of the date of such exchange.



     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).



     Section 30. Determination and Actions by the Board of Directors. The Board of
Directors of the Company shall have the exclusive power and authority to administer this Agreement
and to exercise the rights and powers specifically granted to the Board of Directors of the Company
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 amend this Agreement). All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the foregoing) that are
done or made by the Board of Directors of the Company in good faith shall (x) be final, conclusive
and binding on the Company, the Rights Agent, the holders of the Rights, as such, and all other
Persons, and (y) not subject the Board of Directors to any liability to the holders of the Rights.



     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



35









 




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 Delaware and for all purposes
shall be governed by and construed in accordance with the laws of such State applicable to
contracts to be made and performed entirely within such State.



     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 Heading. 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.



36









 





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



	 	 	 	 	 
	 	 	BALLY TOTAL FITNESS HOLDING CORPORATION
	 
	 	 	 	 
	 

	 	By
	 	/s/ Paul Toback
	 

	 	 	 	 
	 

	 	 	 	Name: Paul Toback
	 

	 	 	 	Title: President and Chief Executive Officer
	 
	 	 	 	 
	 	 	LASALLE BANK NATIONAL ASSOCIATION
	 
	 	 	 	 
	 

	 	By
	 	/s/ Gregory R. Malatia
	 

	 	 	 	 
	 

	 	 	 	Name: Gregory R. Malatia
	 

	 	 	 	Title: Senior Vice President








 









 






EXHIBIT A




FORM OF




CERTIFICATE OF DESIGNATIONS




of




SERIES B JUNIOR PARTICIPATING PREFERRED STOCK




of




BALLY TOTAL FITNESS HOLDING CORPORATION




(Pursuant to Section 151 of the

Delaware General Corporation Law)




 






     Bally Total Fitness Holding Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the “Corporation”),
hereby certifies that the following resolution was adopted by a duly authorized committee of the
Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at
a meeting duly called and held on October 17, 2005.



     RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of
this Corporation (hereinafter called the “Board of Directors” or the “Board”) in
accordance with the provisions of the Certificate of Incorporation of this Corporation, the Board
of Directors hereby creates a series of Preferred Stock, par value $0.01 per share (the
“Preferred Stock”), of the Corporation and hereby states the designation and number of
shares, and fixes the relative rights, powers and preferences, and qualifications, limitations and
restrictions thereof as follows:



     Section 1. Designation and Amount. The shares of such series shall be designated as
“Series B Junior Participating Preferred Stock” (the “Series B Preferred Stock”) and the
number of shares constituting the Series B Preferred Stock shall be 100,000. Such number of shares
may be increased or decreased by resolution of the Board of Directors; provided, that no
decrease shall reduce the number of shares of Series B Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for issuance upon the exercise
of outstanding options, rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series B Preferred Stock.



     Section 2. Dividends and Distributions.




          (A) Subject to the prior and superior rights of the holders of any shares of any class
or series of stock of this Corporation ranking prior and superior to the Series B Preferred
Stock with respect to dividends, the holders of shares of Series B Preferred Stock, in
preference to the holders of Common Stock, par value $0.01 per share (the



A-1









 






“Common Stock”), of the Corporation, and of any other stock ranking junior to
the Series B Preferred Stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December in each year (each
such date being referred to herein as a “Quarterly Dividend Payment Date”),
commencing on the first Quarterly Dividend Payment Date after the first issuance of a share
or fraction of a share of Series B Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to 1,000 times the aggregate per share amount of all cash dividends and
1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date
or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of
any share or fraction of a share of Series B Preferred Stock. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision, combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in
each such case the amount to which holders of shares of Series B Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately prior to such
event.




          (B) The Corporation shall declare a dividend or distribution on the Series B Preferred
Stock as provided in paragraph (A) of this Section 2 immediately after it declares a
dividend or distribution on the Common Stock (other than a dividend payable in shares of
Common Stock).




          (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series B
Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of
such shares, unless the date of issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination of holders of
shares of Series B Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series B Preferred Stock
in an amount less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for the determination of
holders of shares of Series B Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.



A-2









 





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




          (A) Subject to the provision for adjustment hereinafter set forth, each share of Series
B Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted
to a vote of the stockholders of the Corporation. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision, combination or consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a dividend in shares of Common Stock)
into a greater or lesser number of shares of Common Stock, then in each such case the number
of votes per share to which holders of shares of Series B Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such number by a fraction,
the numerator of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.




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




          (C) Except as set forth herein, or as otherwise provided by law, holders of Series B
Preferred Stock shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.



     Section 4. Certain Restrictions.




          (A) Whenever quarterly dividends or other dividends or distributions payable on the
Series B Preferred Stock as provided in Section 2 are in arrears, thereafter and until all
accrued and unpaid dividends and distributions, whether or not declared, on shares of Series
B Preferred Stock outstanding shall have been paid in full, the Corporation shall not:




          (i) declare or pay dividends, or make any other distributions, on any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series B Preferred Stock;




          (ii) declare or pay dividends, or make any other distributions, on any shares
of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred Stock, except dividends paid
ratably on the Series B Preferred Stock and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled;



A-3









 






          (iii) redeem or purchase or otherwise acquire for consideration shares of any
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series B Preferred Stock, provided that the Corporation may at
any time redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Corporation ranking junior (both as to
dividends and upon dissolution, liquidation or winding up) to the Series B Preferred
Stock; or




          (iv) redeem or purchase or otherwise acquire for consideration any shares of
Series B Preferred Stock, or any shares of stock ranking on a parity with the Series
B Preferred Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.




          (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or
otherwise acquire for consideration any shares of stock of the Corporation unless the
Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.



     Section 5. Reacquired Shares. Any shares of Series B Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled
promptly after the acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the
Amended and Restated Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise required by law.



     Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation,
dissolution or winding up of the Corporation, voluntary or otherwise no distribution shall be made
(1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred Stock unless, prior thereto, the holders of
shares of Series B Preferred Stock shall have received an amount per share (the “Series B
Liquidation Preference”) equal to $1,000 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of such payment, provided
that the holders of shares of Series B Preferred Stock shall be entitled to receive an aggregate
amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000
times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2)
to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred Stock, except distributions made ratably on
the Series B Preferred Stock and all such parity stock in proportion to the total amounts to which
the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In
the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect
a subdivision, combination or consolidation of the outstanding shares of Common Stock (by



A-4









 




reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to
which holders of shares of Series B Preferred Stock were entitled immediately prior to such event
under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of shares of Common Stock
that are outstanding immediately prior to such event.





          (B) In the event, however, that there are not sufficient assets available to permit
payment in full of the Series B Liquidation Preference and the liquidation preferences of
all other classes and series of stock of the Corporation, if any, that rank on a parity with
the Series B Preferred Stock in respect thereof, then the assets available for such
distribution shall be distributed ratably to the holders of the Series B Preferred Stock and
the holders of such parity shares in proportion to their respective liquidation preferences.




          (C) Neither the merger or consolidation of the Corporation into or with another
corporation nor the merger or consolidation of any other corporation into or with the
Corporation shall be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of this Section 6.



     Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other property, then in
any such case each share of Series B Preferred Stock shall at the same time be similarly exchanged
or changed into an amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series B Preferred Stock shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.



     Section 8. No Redemption. The shares of Series B Preferred Stock shall not be
redeemable by the Corporation.



     Section 9. Rank. The Series B Preferred Stock shall rank, with respect to the payment
of dividends and the distribution of assets upon liquidation, dissolution or winding up, junior to
all series of any other class of the Corporation’s Preferred Stock, except to the extent
that any such other series specifically provides that it shall rank on a parity with or junior
to the Series B Preferred Stock.



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     Section 10. Amendment. At any time any shares of Series B Preferred Stock are
outstanding, the Amended and Restated Certificate of Incorporation of the Corporation shall not be
amended in any manner which would materially alter or change the powers, preferences or special
rights of the Series B Preferred Stock so as to affect them adversely without the affirmative vote
of the holders of at least two-thirds of the outstanding shares of Series B Preferred Stock, voting
separately as a single class.



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



     IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation
by its President and Chief Executive Officer this ___day of [                    ], 2005.



	 	 	 
	 

	 	                                                            
	 

	 	Paul Toback
	 

	 	President and Chief Executive Officer






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EXHIBIT B




[Form of Right Certificate]




			
	Certificate No. R-
	 	___Rights







NOT EXERCISABLE AFTER THE FINAL EXPIRATION DATE OR EARLIER IF NOTICE OF REDEMPTION
OR EXCHANGE IS GIVEN OR IF THE COMPANY IS MERGED OR ACQUIRED PURSUANT TO AN
AGREEMENT OF THE TYPE DESCRIBED IN SECTION 1.3(ii)(A)(z) OF THE AGREEMENT. THE
RIGHTS ARE SUBJECT TO REDEMPTION AT $0.001 PER RIGHT, AND TO EXCHANGE ON THE TERMS
SET FORTH IN THE AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SECTION
11.1.2 OF THE AGREEMENT), RIGHTS BENEFICIALLY OWNED BY OR TRANSFERRED TO AN
ACQUIRING PERSON (AS DEFINED IN THE AGREEMENT), OR ANY SUBSEQUENT HOLDER OF SUCH
RIGHTS WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.



Right Certificate




BALLY TOTAL FITNESS HOLDING CORPORATION




     This certifies that            , or registered assigns, is the registered owner of
the number of Rights set forth above, each of which entitles the owner thereof, subject to the
terms, provisions and conditions of the Rights Agreement, dated as of
October 18, 2005, as the same
may be amended from time to time (the “Agreement”), between Bally Total Fitness Holding
Corporation, a Delaware corporation (the “Company”), and LaSalle Bank National Association,
a national banking association, as Rights Agent (the “Rights Agent”), to purchase from the
Company at any time after the Distribution Date and prior to 5:00 P.M. Central time on the
Expiration Date (as defined in the Agreement), at the offices of the Rights Agent, or its
successors as Rights Agent, designated for such purpose, one one-thousandth of a fully paid,
nonassessable share of Series B Junior Participating Preferred Stock, par value $0.01 per share
(the “Preferred Shares”) of the Company, at a purchase price of $13.00 per one
one-thousandth of a Preferred Share, subject to adjustment (the “Purchase Price”), upon
presentation and surrender of this Right Certificate with the Form of Election to Purchase and
certification duly executed. The number of Rights evidenced by this Right Certificate (and the
number of one one-thousandths of a Preferred Share which may be purchased upon exercise thereof)
set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of
October 18, 2005, based on the Preferred Shares as constituted at such date. Capitalized terms
used in this Right Certificate without definition shall have the meanings ascribed to them in the
Agreement. As provided in the Agreement, the Purchase Price and the number of Preferred Shares
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



B-1









 




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 offices of the Company and the Rights Agent.




     This Right Certificate, with or without other Right Certificates, upon surrender at the
offices of the Rights Agent designated for such purpose, may be exchanged for another Right
Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-thousandths of a Preferred Share 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 Board of Directors may, at its option, (i)
redeem the Rights evidenced by this Right Certificate at a redemption price of $0.001 per Right or
(ii) exchange Common Shares for the Rights evidenced by this Certificate, in whole or in part.



     No fractional Preferred Shares will be issued upon the exercise of any Right or Rights
evidenced hereby (other than fractions of Preferred Shares which are integral multiples of one
one-thousandth of a Preferred Share, which may, at the election of the Company, be evidenced by
depository 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.



     If any term, provision, covenant or restriction of the 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 the Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.



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



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



	 	 	 	 	 	 	 
	Attest:	 	BALLY TOTAL FITNESS HOLDING CORPORATION
	 
	 	 	 	 	 	 
	By

	 	 	 	By	 	 
	 

	 	 
	 	 	 	 
	 

	 	Title:
	 	 	 	Title:
	 
	 	 	 	 	 	 
	Countersigned:	 	 	 	 
	 
	 	 	 	 	 	 
	LASALLE BANK NATIONAL ASSOCIATION, as Rights Agent
	 
	 	 	 	 	 	 
	By
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Authorized Signature	 	 	 	 






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[Form of Reverse Side of Right Certificate]




FORM OF ASSIGNMENT




(To be executed by the registered holder if such holder

desires to transfer the Right Certificate.)




	 
	FOR VALUE RECEIVED
 


hereby sells, assigns and transfers unto
 




 




 











(Please print name and address

of transferee)




     Rights evidenced by this Right Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint                      Attorney, to transfer the within
Right Certificate on the books of the within-named Company, with full power of substitution.



Dated:
 






	 	 	 
	 

	 	 
	 

	 	Signature






Signature Guaranteed:
 





     Signatures must be guaranteed by an “eligible guarantor institution” as defined in Rule
17Ad-15 promulgated under the Securities Exchange Act of 1934, as amended.


 




The undersigned hereby certifies that:




     (1) the Rights evidenced by this Right Certificate are not beneficially owned by and are not
being assigned to an Acquiring Person or an Affiliate or an Associate thereof; and



     (2) after due inquiry and to the best knowledge of the undersigned, the undersigned did not
acquire the Rights evidenced by this Right Certificate from any person who is, was or subsequently
became an Acquiring Person or an Affiliate or Associate thereof.



Dated:
 






	 	 	 
	 

	 	 
	 

	 	Signature






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FORM OF ELECTION TO PURCHASE




(To be executed if holder desires to

exercise the Right Certificate.)




To: Bally Total Fitness Holding Corporation




     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
(or such other securities or property of the Company or of any other Person which may be issuable
upon the exercise of the Rights) and requests that certificates for such shares be issued in the
name of:





	 
	
 


(Please print name and address)

	 

	 
	 






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




Please insert social security

or other identifying number




	 
	
 


(Please print name and address)

	 

	 
	 







Dated:

 








	 	 	 
	 

	 	 
	 

	 	Signature






	 
	Signature
Guaranteed:

 









     Signatures must be guaranteed by an “eligible guarantor institution” as defined in Rule
17Ad-15 promulgated under the Securities Exchange Act of 1934, as amended.



B-5









 





The undersigned hereby certifies that:




     (1) the Rights evidenced by this Right Certificate are not beneficially owned by and are not
being assigned to an Acquiring Person or an Affiliate or an Associate thereof; and



     (2) after due inquiry and to the best knowledge of the undersigned, the undersigned did not
acquire the Rights evidenced by this Right Certificate from any person who is, was or subsequently
became an Acquiring Person or an Affiliate or Associate thereof.



Dated:                                         




	 	 	 
	 

	 	 
	 

	 	Signature





 




NOTICE




     The signature in the foregoing Form of Assignment and Form of Election to Purchase 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 Form of Election
to Purchase is not completed, the Company will deem the beneficial owner of the Rights evidenced by
this Right Certificate to be an Acquiring Person or an Affiliate or Associate hereof and such
Assignment or Election to Purchase will not be honored.




B-6









 








EXHIBIT C




As described in the Rights Agreement, Rights which are

held by or have been held by an Acquiring Person or Associates

or Affiliates thereof (as defined in the Rights Agreement) and certain

transferees thereof shall become null and void and will no longer be transferable.




SUMMARY OF RIGHTS TO PURCHASE

PREFERRED SHARES




     On
October 18, 2005 the Board of Directors of Bally Total Fitness Holding Corporation (the
“Company”) declared a dividend of one preferred share purchase right (a “Right”)
for each share of common stock, $0.01 par value (the “Common Shares”), of the Company
outstanding at the close of business on October 31, 2005 (the “Record Date”). As long as
the Rights are attached to the Common Shares, the Company will issue one Right (subject to
adjustment) with each new Common Share so that all such shares will have attached Rights. When
exercisable, each Right will entitle the registered holder to purchase from the Company one
one-thousandth of a share of Series B Junior Participating Preferred Stock (the “Preferred
Shares”) at a price of $13.00 per one one-thousandth of a Preferred Share, subject to
adjustment (the “Purchase Price”). The description and terms of the Rights are set forth
in a Rights Agreement, dated as of October 18, 2005, as the same may be amended from time to time
(the “Agreement”), between the Company and LaSalle Bank National Association, as Rights
Agent (the “Rights Agent”).



     Until the earlier to occur of (i) ten (10) days following a public announcement that a person
or group of affiliated or associated persons has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the Common Shares (an “Acquiring Person”) or (ii)
ten (10) business days (or such later date as may be determined by action of the Board of Directors
prior to such time as any person or group of affiliated persons becomes an Acquiring Person)
following the commencement or announcement of an intention to make a tender offer or exchange offer
the consummation of which would result in the beneficial ownership by a person or group of 15% or
more of the Common Shares (the earlier of (i) and (ii) being called the “Distribution
Date”), the Rights will be evidenced, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such Common Share certificate together with a copy of this
Summary of Rights.



     The Agreement provides that until the Distribution Date (or earlier redemption exchange,
termination, or expiration of the Rights), the Rights will be transferred with and only with the
Common Shares. Until the Distribution Date (or earlier redemption or expiration of the Rights),
new Common Share certificates issued after the close of business on the Record Date upon transfer
or new issuance of the Common Shares will contain a notation incorporating the Agreement by
reference. Until the Distribution Date (or earlier redemption, exchange, termination or expiration
of the Rights), the surrender for transfer of any certificates for Common Shares, with or without
such notation or a copy of this Summary of Rights, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights (“Right
Certificates”) will be mailed to holders of record of the Common



C-1









 




Shares as of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.




     The
Rights are not exercisable until the Distribution Date. The Rights
expire on July 15,
2006 unless the Rights are previously redeemed, exchanged or terminated or unless the continuation
of the Rights is previously approved by the stockholders of the Company by a vote of the majority
of the shares present and entitled to vote at a stockholders meeting
prior to July 15, 2006 (the
“First Meeting”). If the stockholders approve the continuation of Rights at the First
Meeting, the Final Expiration Date will be October 18, 2015, subject to stockholder ratification of
the Rights Plan by a vote of the majority of shares present and entitled to vote at a stockholders
meeting to be held every subsequent two years no later than
July 31st of the applicable year beginning
in 2008.



     Each Preferred Share purchasable upon exercise of the Rights will be entitled, when, as and if
declared, to a dividend of 1,000 times the dividend, if any, declared per Common Share. In the
event of liquidation, dissolution or winding up of the Company, the holders of the Preferred Shares
will be entitled to a minimum preferential liquidation payment of $1,000 per share (plus any
accrued but unpaid dividends) but will be entitled to an aggregate payment of 1,000 times the
payment made per Common Share. Each Preferred Share will have 1,000 votes and will vote together
with the Common Shares. Finally, in the event of any merger, consolidation or other transaction in
which Common Shares are exchanged, each Preferred Share will be entitled to receive 1,000 times the
amount received per Common Share. Preferred Shares will not be redeemable. These rights are
protected by customary antidilution provisions. Because of the nature of the Preferred Share’s
dividend, liquidation and voting rights, the value of one one-thousandth of a Preferred Share
purchasable upon exercise of each Right should approximate the value of one Common Share.



     The Purchase Price payable, and the number of Preferred Shares or other securities or property
issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification
of the Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares or convertible securities at less than
the current market price of the Preferred Shares or (iii) upon the distribution to holders of the
Preferred Shares of evidences of indebtedness, cash, securities or assets (excluding regular
periodic cash dividends at a rate not in excess of 125% of the rate of the last regular periodic
cash dividend theretofore paid or, in case regular periodic cash dividends have not theretofore
been paid, at a rate not in excess of 50% of the average net income per share of the Company for
the four quarters ended immediately prior to the payment of such dividend, or dividends payable in
Preferred Shares (which dividends will be subject to the adjustment described in clause (i) above))
or of subscription rights or warrants (other than those referred to above).



     In the event that a Person becomes an Acquiring Person or if the Company were the surviving
corporation in a merger with an Acquiring Person or any affiliate or associate of an Acquiring
Person and the Common Shares were not changed or exchanged, each holder of a Right, other than
Rights that are or were acquired or beneficially owned by the Acquiring Person (which Rights will
thereafter be void), will thereafter have the right to receive upon exercise that



C-2









 




number of Common Shares having a market value of two times the then current Purchase Price of
the Right. In the event that, after a person has become an Acquiring Person, the Company were
acquired in a merger or other business combination transaction or more than 50% of its assets or
earning power were sold, proper provision shall be made so that each holder of a Right shall
thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price
of the Right, that number of shares of common stock of the acquiring company which at the time of
such transaction would have a market value of two times the then current Purchase Price of the
Right.




     At any time after a Person becomes an Acquiring Person and prior to the earlier of one of the
events described in the last sentence of the previous paragraph or the acquisition by such
Acquiring Person of 50% or more of the outstanding Common Shares, the Board of Directors may cause
the Company to exchange the Rights (other than Rights owned by an Acquiring Person which will have
become void), in whole or in part, for Common Shares at an exchange rate of one Common Share per
Right (subject to adjustment).



     No adjustment in the Purchase Price will be required until cumulative adjustments require an
adjustment of at least 1% in such Purchase Price. No fractional Preferred Shares or Common Shares
will be issued (other than fractions of Preferred Shares which are integral multiples of one
one-thousandth of a Preferred Share, which may, at the election of the Company, be evidenced by
depository receipts), and in lieu thereof, a payment in cash will be made based on the market price
of the Preferred Shares or Common Shares on the last trading date prior to the date of exercise.



     The Rights may be redeemed in whole, but not in part, at a price of $0.001 per Right (the
“Redemption Price”) by the Board of Directors at any time prior to the time that an
Acquiring Person has become such. The redemption of the Rights may be made effective at such time,
on such basis and with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive the Redemption Price.



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



     Any of the provisions of the Agreement may be amended by the Board of Directors of the Company
for so long as the Rights are then redeemable, and after the Rights are no longer redeemable, the
Company may amend or supplement the Agreement in any manner that does not adversely affect the
interests of the holders of the Rights (other than an Acquiring Person or an affiliate or associate
of an Acquiring Person).



     A copy of the Agreement has been filed with the Securities and Exchange Commission as an
Exhibit to a Current Report on Form 8-K. A copy of the Agreement is available free of charge from
the Company. This summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Agreement, which is incorporated herein by reference.



C-3