Document:

exv4w4

 

EXHIBIT 4.4

 

 

Ulta Salon, Cosmetics & Fragrance, Inc.

and

[Name of Rights Agent]

as Rights Agent

Stockholder Rights Agreement

Dated as of ___, ___

 

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	Section 1.

	 	Certain Definitions.
	 	 	1	 
	 
	 	 	 	 	 	 
	Section 2.

	 	Appointment of Rights Agent.
	 	 	6	 
	 
	 	 	 	 	 	 
	Section 3.

	 	Issuance of Right Certificates
	 	 	6	 
	 
	 	 	 	 	 	 
	 

	 	3.1. Rights Evidenced by Share Certificates
	 	 	6	 
	 

	 	3.2. Summary of Rights
	 	 	7	 
	 

	 	3.3. New Certificates After Record Date
	 	 	7	 
	 
	 	 	 	 	 	 
	Section 4.

	 	Form of Right Certificates
	 	 	8	 
	 
	 	 	 	 	 	 
	Section 5.

	 	Countersignature and Registration
	 	 	8	 
	 
	 	 	 	 	 	 
	Section 6.

	 	Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates
	 	 	8	 
	 
	 	 	 	 	 	 
	Section 7.

	 	Exercise of Rights; Purchase Price; Expiration Date of Rights
	 	 	9	 
	 
	 	 	 	 	 	 
	 

	 	7.1. Exercise of Rights
	 	 	9	 
	 

	 	7.2. Purchase
	 	 	10	 
	 

	 	7.3. Payment Procedures
	 	 	10	 
	 

	 	7.4. Partial Exercise
	 	 	10	 
	 

	 	7.5. Full Information Concerning Ownership
	 	 	10	 
	 
	 	 	 	 	 	 
	Section 8.

	 	Cancellation and Destruction of Right Certificates
	 	 	11	 
	 
	 	 	 	 	 	 
	Section 9.

	 	Reservation and Availability of Capital Stock
	 	 	11	 
	 
	 	 	 	 	 	 
	Section 10.

	 	Preferred Shares Record Date
	 	 	12	 
	 
	 	 	 	 	 	 
	Section 11.

	 	Adjustment of Purchase Price, Number of Shares or Number of Rights
	 	 	12	 
	 
	 	 	 	 	 	 
	 

	 	11.1. Post-Execution Events
	 	 	12	 
	 

	 	11.2. Dilutive Rights Offering
	 	 	15	 
	 

	 	11.3. Distributions
	 	 	16	 
	 

	 	11.4. Current Per Share Market Value
	 	 	16	 
	 

	 	11.5. Insignificant Changes
	 	 	18	 
	 

	 	11.6. Shares Other Than Preferred Shares
	 	 	18	 
	 

	 	11.7. Rights Issued Prior to Adjustment
	 	 	18	 
	 

	 	11.8. Effect of Adjustments
	 	 	18	 
	 

	 	11.9. Adjustment in Number of Rights
	 	 	18	 
	 

	 	11.10. Right Certificates Unchanged
	 	 	19	 
	 

	 	11.11. Par Value Limitations
	 	 	19	 
	 

	 	11.12. Deferred Issuance
	 	 	19	 
	 

	 	11.13. Reduction in Purchase Price
	 	 	19	 
	 

	 	11.14. Company Not to Diminish Benefits of Rights
	 	 	20	 
	 

	 	11.15. Adjustment of Rights Associated with Common Shares
	 	 	20	 

i 

 

	 	 	 	 	 	 	 
	Section 12.

	 	Certificate of Adjusted Purchase Price or Number of Shares
	 	 	20	 
	 
	 	 	 	 	 	 
	Section 13.

	 	Consolidation, Merger or Sale or Transfer of Assets or Earning Power
	 	 	20	 
	 
	 	 	 	 	 	 
	 

	 	13.1. Certain Transactions
	 	 	20	 
	 

	 	13.2. Principal Party
	 	 	23	 
	 

	 	13.3. Approved Acquisitions
	 	 	24	 
	 
	 	 	 	 	 	 
	Section 14.

	 	Fractional Rights and Fractional Shares
	 	 	24	 
	 
	 	 	 	 	 	 
	 

	 	14.1. Cash in Lieu of Fractional Rights
	 	 	24	 
	 

	 	14.2. Cash in Lieu of Fractional Preferred Shares
	 	 	24	 
	 

	 	14.3. Cash in Lieu of Fractional Common Shares
	 	 	25	 
	 

	 	14.4. Waiver of Right to Receive Fractional Rights or Shares
	 	 	25	 
	 
	 	 	 	 	 	 
	Section 15.

	 	Rights of Action
	 	 	25	 
	 
	 	 	 	 	 	 
	Section 16.

	 	Agreement of Right Holders
	 	 	25	 
	 
	 	 	 	 	 	 
	Section 17.

	 	Right Certificate Holder Not Deemed a Stockholder
	 	 	26	 
	 
	 	 	 	 	 	 
	Section 18.

	 	Concerning the Rights Agent
	 	 	26	 
	 
	 	 	 	 	 	 
	Section 19.

	 	Merger or Consolidation or Change of Name of Rights Agent
	 	 	27	 
	 
	 	 	 	 	 	 
	Section 20.

	 	Duties of Rights Agent
	 	 	27	 
	 
	 	 	 	 	 	 
	 

	 	20.1. Legal Counsel
	 	 	27	 
	 

	 	20.2. Certificates as to Facts or Matters
	 	 	27	 
	 

	 	20.3. Standard of Care
	 	 	28	 
	 

	 	20.4. Reliance on Agreement and Right Certificates
	 	 	28	 
	 

	 	20.5. No Responsibility as to Certain Matters
	 	 	28	 
	 

	 	20.6. Further Assurance by Company
	 	 	28	 
	 

	 	20.7. Authorized Company Officers
	 	 	28	 
	 

	 	20.8. Freedom to Trade in Company Securities
	 	 	29	 
	 

	 	20.9. Reliance on Attorneys and Agents
	 	 	29	 
	 

	 	20.10. Incomplete Certificate
	 	 	29	 
	 

	 	20.11. Rights Holders List
	 	 	29	 
	 
	 	 	 	 	 	 
	Section 21.

	 	Change of Rights Agent
	 	 	29	 
	 
	 	 	 	 	 	 
	Section 22.

	 	Issuance of New Right Certificates
	 	 	30	 
	 
	 	 	 	 	 	 
	Section 23.

	 	Redemption
	 	 	31	 
	 
	 	 	 	 	 	 
	 

	 	23.1. Right to Redeem
	 	 	31	 
	 

	 	23.2. Redemption Procedures
	 	 	31	 
	 

	 	23.3. Notice of Certain Events
	 	 	31	 

ii 

 

	 	 	 	 	 	 	 
	Section 24.

	 	Notices
	 	 	32	 
	 
	 	 	 	 	 	 
	Section 25.

	 	Supplements and Amendments
	 	 	33	 
	 
	 	 	 	 	 	 
	Section 26.

	 	Exchange
	 	 	33	 
	 
	 	 	 	 	 	 
	 

	 	26.1. Exchange of Common Shares for Rights
	 	 	33	 
	 

	 	26.2. Exchange Procedures
	 	 	34	 
	 

	 	26.3. Insufficient Shares
	 	 	34	 
	 
	 	 	 	 	 	 
	Section 27.

	 	Successors
	 	 	34	 
	 
	 	 	 	 	 	 
	Section 28.

	 	Benefits of this Agreement
	 	 	34	 
	 
	 	 	 	 	 	 
	Section 29.

	 	Determination and Actions by the Board of Directors
	 	 	34	 
	 
	 	 	 	 	 	 
	Section 30.

	 	Severability
	 	 	35	 
	 
	 	 	 	 	 	 
	Section 31.

	 	Governing Law
	 	 	35	 
	 
	 	 	 	 	 	 
	Section 32.

	 	Counterparts
	 	 	35	 
	 
	 	 	 	 	 	 
	Section 33.

	 	Descriptive Heading
	 	 	35	 

iii 

 

STOCKHOLDER RIGHTS AGREEMENT

          Stockholder Rights Agreement, dated as of                     , ___, between Ulta Salon, Cosmetics &
Fragrance, Inc., a Delaware corporation (the “Company”), and [Name of Rights Agent], a                     
corporation, as Rights Agent (the “Rights Agent”).

RECITALS

          WHEREAS, on                     , ___, 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                     , ___(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 A Junior
Participating Preferred Stock (the “Preferred Shares”) of the Company having the rights, powers and
preferences set forth in Certificate of Designations of Series A Junior Participating Preferred
Stock filed with the Delaware Secretary of State on                     , 2007 as Exhibit A to the Amended and
Restated Certificate of Incorporation filed on the same date, 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 who or which, together with all Affiliates and
Associates of such Person, shall be the Beneficial Owner of [15]% or more of the Common Shares of
the Company then outstanding but shall not include (i) an Exempt Person or (ii) any Existing
Holder, unless and until such time as such Existing Holder shall become the Beneficial Owner of
(A) a percentage of the Common Shares of the Company then outstanding that is more than the
aggregate percentage of the outstanding Common Shares that such Existing Holder beneficially owns
as of the date hereof plus [5]% (such aggregate amount being the “Exempt Ownership Percentage”)
or (B) less than [15]% of the Common Shares of the Company then outstanding. “Existing Holder”
shall mean any of (x) Doublemousse B.V., together with all of its Affiliates and Associates; (y)
Oak Investment Partners VII, together with all of its Affiliates and Associates; and (z) GRP II,
L.P., together with all of its Affiliates and Associates. 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 Common Shares outstanding, increases the proportionate
number of Common Shares beneficially owned by such Person to [15]% (or, in the case of an
Existing Holder, the Exempt Ownership Percentage) or more of the Common

 

 

Shares of the Company then outstanding; provided, however, that if a Person shall become the
Beneficial Owner of [15]% (or, in the case of an Existing Holder, the Exempt Ownership
Percentage) 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 Common Shares such Person does not beneficially own [15]% (or, in the case of an
Existing Holder, the Exempt Ownership Percentage) or more of the Common Shares 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
Shares 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 Shares 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 for purposes of determining the
particular percentage of such outstanding Common Shares of which any Person is the Beneficial
Owner shall include the number of Common Shares not outstanding at the time of such calculation
that such Person has the Right to Acquire (i) within 60 days thereafter, or (ii) at any time
thereafter if such Person acquired such Right to Acquire with the purpose or effect of changing
or influencing the control of the Company. The number of Common Shares not outstanding which are
subject to such Right to Acquire shall be deemed to be outstanding for the purpose of computing
the percentage of outstanding Common Shares owned by such Person but shall not be deemed to be
outstanding for the purpose of computing the percentage of outstanding Common Shares by any other
Person.

          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” or have “Beneficial Ownership” of any securities:

          1.3.1. which such Person or any of such Person’s Affiliates or Associates, directly or
indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or
shares: (A) voting power which includes the power to vote, or to direct the voting of, such
security, and/or (B) investment power which includes the power to dispose, or to direct the
disposition of such security;

2

 

          1.3.2. which such Person or any of such Person’s Affiliates or Associates, directly or
indirectly, has (A) the Right to Acquire; 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

          1.3.3. 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.

     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 the State of 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., New York time, on such
date; provided, however, that if such date is not a Business Day it shall mean 5:00 p.m., New
York time, on the next succeeding Business Day.

3

 

          1.6. “Common Shares” when used with reference to the Company shall mean the shares of common
stock, par value $.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 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. “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, as in effect
on the date of this Agreement.

          1.8. “Exempt Person” shall mean the Company, any Subsidiary of the Company, in each case
including, without limitation, the officers and board of directors thereof acting in their
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.

          1.9. “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. “Right to Acquire” shall mean a legal, equitable or contractual right to acquire
(whether directly or indirectly and whether 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 (excluding customary
agreements entered into in good faith with and between an underwriter and selling group members
in connection with a firm commitment underwriting registered under the Securities Act), or upon
the exercise of any option, warrant or right, through conversion of a security, pursuant to the
power to revoke a trust, discretionary account or similar arrangement, or pursuant to the
automatic termination of a trust, discretionary account or similar arrangement.

          1.11. “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.

          1.12. “Subsidiary” of any Person shall mean any partnership, joint venture, limited
liability company, firm, unincorporated association, trust 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.

4

 

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

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

	 	 	 
	Term	 	Section
	Acquiring Person

	 	1.1.
	Adjustment Shares

	 	11.1.2
	Affiliate

	 	1.2.
	Agreement

	 	3.3.
	Associate

	 	1.2.
	Beneficial Owner

	 	1.3.
	Beneficial Ownership

	 	1.3.
	Beneficially own

	 	1.3.
	Business Day

	 	1.4.
	close of business

	 	1.5.
	Common Shares

	 	1.6.
	Common stock equivalent

	 	11.1.3
	Company

	 	Recitals, 3.3.
	current per share market price

	 	11.4.
	Current Value

	 	11.1.3
	Distribution Date

	 	3.1.
	equivalent preferred stock

	 	11.2.
	Exchange Act

	 	1.7.
	Exchange Consideration

	 	26.1.
	Exempt Ownership Percentage

	 	1.1.
	Exempt Person

	 	1.8.
	Existing Holder

	 	1.1.
	Expiration Date

	 	7.1.
	Final Expiration Date

	 	7.1.
	Nasdaq

	 	9
	NYSE

	 	9
	Original Rights

	 	1.3.
	Person

	 	1.9.
	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
	Right to Acquire

	 	1.10.

5

 

	 	 	 
	Term	 	Section
	Security

	 	11.4.1
	Shares Acquisition Date

	 	1.11.
	Spread

	 	11.1.3
	Substitution Period

	 	11.1.3
	Summary of Rights

	 	3.2.
	Trading Day

	 	11.4.1
	Trigger Event

	 	1.13.

          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 (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 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) (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, except as a result of the operation of the third sentence of Section
1.1. 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 A hereto (a “Right
Certificate”), evidencing one Right

6

 

(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 B (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 after the Record Date but prior to the earliest of the Distribution Date 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 Ulta Salon, Cosmetics & Fragrance, Inc. (the
“Company”) and [Name of Rights Agent], as Rights Agent, dated as of                     ,
___, 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 Company. 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 Company 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.

7

 

          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 A hereto and may have such marks of identification or
designation and such legends, summaries or endorsements printed thereon as the Company may deem
appropriate 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-thousandths of a Preferred Share as shall be set forth
therein at the price per one-thousandth of a Preferred Share set forth therein (the “Purchase
Price”), but the number of such one-thousandths of a Preferred Share and the Purchase Price shall
be subject to adjustment as provided herein.

          Section 5. Countersignature and Registration. The Right Certificates shall be
executed on behalf of the Company by the Chief Executive Officer, the President, the Chief
Financial Officer, the Chief Operating Officer 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
principal office, 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

8

 

Certificates (other than Right Certificates representing Rights that have become 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-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 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 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 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 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-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 close of business on
                     (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 26.

9

 

               7.2. Purchase. The Purchase Price for each one-thousandth of a Preferred Share
pursuant to the exercise of a Right shall be initially $___, 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-thousandths of a Preferred
Share to be purchased and an amount equal to any applicable transfer tax 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 to deposit the total number of Preferred Shares issuable
upon exercise of the Rights hereunder with a depository agent, requisition from the depositary
agent depositary receipts representing interests in such number of 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 depositary agent) and the Company
hereby directs the depositary 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 depositary receipts, cause the same to be delivered to or
upon the order of the registered holder of such Right Certificate, registered in such name or names
as may be designated by such holder and (iv) when appropriate, after receipt, promptly deliver such
cash to or upon the order of the registered holder of such Right Certificate. 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 appropriate.

               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 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 shall reasonably request.

10

 

          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.

          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 New York
Stock Exchange (“NYSE”) or any other 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 and the 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 the NYSE or such other 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 one hundred twenty (120) 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

11

 

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 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 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 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 tax shall have been paid (any such tax being payable by the
holder of such Right Certificate at the time of surrender) or until it has been established to the
Company’s satisfaction that no such tax 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)
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

12

 

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 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; Trigger Events. Subject to Sections 23.1 and 26, 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-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-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 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

13

 

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 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 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 any
other Person as a result of its failure to make any determinations with respect to any Acquiring
Person or its Affiliates, Associates or transferees hereunder.

          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
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, (4) other equity securities of the Company (including, without limitation,
shares, or fractions of shares, of preferred stock which, by virtue of having dividend, voting 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”)), (5) debt securities of the Company, (6) other assets or (7) 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

14

 

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 actions 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 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 forty-five (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

15

 

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 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
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

16

 

such Security, and prior to the expiration of thirty (30) Trading Days after 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 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 NYSE or, if the Security is not listed or admitted
to trading on the NYSE, 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

17

 

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-thousandth of a Preferred Share
shall be equal to the “current per share market price” of one Preferred Share divided by 1,000.

               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-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-thousandths of a Preferred Share (calculated to the nearest one-millionth of a
Preferred Share) obtained by (i) multiplying (x) the number of 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-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-thousandths 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
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

18

 

the Purchase Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. 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-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-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-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 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

19

 

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 25 or Section 26, 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 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 24. 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.

          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

20

 

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 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-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-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 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

21

 

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 NYSE 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 NYSE or such securities exchange, or, if the Common Shares of the Principal Party
shall not be listed or admitted to trading on the NYSE 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
articles or 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 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

22

 

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 clauses (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 clause (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
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

23

 

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. Notwithstanding anything contained herein to the
contrary, 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 NYSE or, if the Rights are not listed or admitted
to trading on the NYSE, as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on which the Rights are
listed or admitted to trading or, if the Rights are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by Nasdaq or such other system
then in use or, if on any such date the Rights are not quoted by any such organization, the average
of the closing bid and asked prices as furnished by a professional market maker making a market in
the Rights selected by the Board of Directors 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-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

24

 

multiples of one-thousandth of a Preferred Share). Interests in fractions of Preferred Shares
in integral multiples of one-thousandth of a Preferred Share may, at the election of the Company,
be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided, that such agreement shall provide that the holders of such
depositary receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the Preferred Shares represented by such depositary receipts. In
lieu of fractional Preferred Shares that are not integral multiples of one-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 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:

25

 

          (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 reasonable compensation for all services rendered by it hereunder in accordance with a fee
schedule to be mutually agreed upon and, from time to time, on demand of the Rights Agent, its
reasonable expenses and counsel fees and other disbursements incurred in the administration and
execution 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 anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including 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 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.

26

 

          Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any
corporation or limited liability company into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation or limited liability company
resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent
shall be a party, or any corporation or limited liability company succeeding to the corporate trust
or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Agreement without the execution or filing of any paper or
any further act on the part of any of the parties hereto, provided that such corporation or limited
liability company 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:

               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 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 or suffering 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 Chief
Executive Officer, the President, the Chief Financial Officer, the Chief Operating Officer, any
Vice President, the Secretary or any Assistant Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or
suffered in good faith by it under the provisions of this Agreement in reliance upon such
certificate.

27

 

               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 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, 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
Chief Executive Officer, the President, the Chief Financial Officer, the Chief Operating Officer,
any Vice President, the Secretary or any Assistant Secretary of the Company, and to apply to such
officers for advice or instructions in connection with its duties under this Agreement, and it
shall not be liable for any action taken or suffered 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 (3) 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 any such action (or the effective

28

 

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,
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 legal entity.

               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 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

29

 

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 New York or the
State of Delaware (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 New York or Delaware) in good
standing, having an office in the State of New York or the State of Delaware, 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 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.

30

 

          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 $0.01 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 (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 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 26, and other than in connection with the purchase, acquisition or
redemption of Common Shares prior to the Distribution Date.

               23.3. 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
or warrants to subscribe for or to purchase any additional Preferred Shares or shares of stock of
any class or any other securities, rights or options, 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

31

 

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 24, 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 24, 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 23 to Preferred 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 24. Notices. Notices or demands authorized by this Agreement to be given or
made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be
sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as follows:

Ulta Salon, Cosmetics & Fragrance, Inc.

Windham Lakes Business Park

1135 Arbor Drive

Romeoville, Illinois 60446

Attention: Secretary

Subject to the provisions of Section 21 and Section 23, 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) as follows:

32

 

	 	 	 	 	 
	 

	 	[Rights Agent]
	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 	 	Attention: Shareholder Services Division

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 25. 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 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 25, the Rights Agent shall execute such supplement or amendment.

          Section 26. Exchange.

               26.1. 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 void pursuant to the provisions of Section 11.1.2) by exchanging at an exchange ratio
of that number of Common Shares having an aggregate value equal to the Spread (with such value
being based on the current per share market price {as determined pursuant to Section 11.4} on the
date of the occurrence of a Trigger Event) 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 26.1 shall thereafter be exercisable only in
accordance with Section 13

33

 

and may not be exchanged pursuant to this Section 26.1. 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.

               26.2. Exchange Procedures. Immediately upon the action of the Board of Directors of
the Company ordering the exchange for any Rights pursuant to Section 26.1 and without any further
action and without any notice, the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive 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
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 void pursuant to the provisions of Section 11.1.2)
held by each holder of Rights.

               26.3. 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 26, 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 27. 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 28. Benefits of this Agreement. Nothing in this Agreement shall be construed
to give to any Person or corporation 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 29. 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

34

 

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 parties, and (y) not subject the Board of Directors to any liability to the
holders of the Rights.

          Section 30. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

          Section 31. Governing Law. This Agreement and each Right Certificate issued hereunder
shall be deemed to be a contract made under the internal 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 32. 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 33. 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.

[Signature Page Follows]

35

 

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

	 	 	 	 	 
	 	Ulta Salon, Cosmetics & Fragrance, Inc.

 	 
	 	By  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	[NAME OF RIGHTS AGENT]

 	 
	 	By  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

A-1

 

EXHIBIT A

Form of Right Certificate

			
	
	 	 
	Certificate No. R-
	 	                     Rights

NOT EXERCISABLE AFTER                      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 $0.01 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

ULTA SALON, COSMETICS & FRAGRANCE, INC.

          This certifies that                     , or registered assigns, is the registered owner of the
number of Rights set forth above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Stockholder Rights Agreement, dated as of                     , ___, as
the same may be amended from time to time (the “Agreement”), between Ulta Salon, Cosmetics and
Fragrance, Inc., a Delaware corporation (the “Company”), and [Name of Rights Agent], a
                     corporation, 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. (New York time) on                     , at
the offices of the Rights Agent, or its successors as Rights Agent, designated for such purpose,
one-thousandth of a fully paid, nonassessable share of Series A Junior Participating Preferred
Stock, par value $0.01 per share (the “Preferred Shares”), of the Company, at a purchase price of
$                     per 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-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
                    , ___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 and
made a part hereof and to which Agreement reference is hereby made for a full

B-1

 

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-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 $0.01 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-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.

B-2

 

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

	 	 	 	 	 	 	 	 	 
	Attest:	 	Ulta Salon, Cosmetics & Fragrance, Inc.	 	 
	 
	 	 	 	 	 	 	 	 
	By

	 	 	 	By	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	Title:
	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 	 	 
	Countersigned:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	[NAME OF RIGHTS AGENT], as Rights Agent	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	Authorized Signature	 	 	 	 	 	 

B-3

 

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.

B-4

 

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

B-5

 

FORM OF ELECTION TO PURCHASE

(To be executed if holder desires to

exercise the Right Certificate.)

To: Ulta Salon, Cosmetics & Fragrance, Inc.

          The undersigned hereby irrevocably elects to exercise                      Rights represented by
this Right Certificate to purchase the Preferred Shares issuable upon the exercise of such Rights
(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-6

 

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-7

 

EXHIBIT B

As described in the Stockholder Rights Agreement, Rights which are 

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

or Affiliates thereof (as defined in the Stockholder 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                     , ___the Board of Directors of Ulta Salon, Cosmetics & Fragrance, Inc. (the
“Company”) declared a dividend of one preferred share purchase right (a “Right”) for each share of
common stock, $.01 par value (the “Common Shares”), of the Company outstanding at the close of
business on                     , ___(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-thousandth of a share of Series A Junior
Participating Preferred Stock (the “Preferred Shares”) at a price of $                     per one-thousandth of a
Preferred Share, subject to adjustment (the “Purchase Price”). The description and terms of the
Rights are set forth in a Stockholder Rights Agreement, dated as of                     , ___, as the same
may be amended from time to time (the “Agreement”), between the Company and [Name of Rights Agent],
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, other than [Doublemousse B.V., together with all of
its affiliates, Oak Investment Partners VII, together with all of its affiliates, and GRP II, L.P.,
together with all of its affiliates]1, 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

 

			
	1	 	Revise as appropriate to reflect Existing
Holders and/or Exempt Persons, if any, at the time the Stockholder Rights
Agreement is adopted.

C-1

 

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 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 will expire on
                    , subject to the Company’s right to extend such date (the “Final Expiration Date”),
unless earlier redeemed or exchanged by the Company or terminated.

          Each Preferred Share purchasable upon exercise of the Rights will be entitled, when, as and if
declared, to a minimum preferential quarterly dividend payment of $1.00 per share but will be
entitled to an aggregate 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 any
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-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

C-2

 

(which Rights will thereafter be void), will thereafter have the right to receive upon
exercise that 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 per Right of the number of
Common Shares having an aggregate value equal to the difference between the value of the Common
Shares issuable upon the exercise of a Right and the Purchase Price of a 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-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 $0.01 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 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

 

INDEX OF DEFINED TERMS

	 	 	 	 	 
	 	 	Page
	Acquiring Person
	 	 	1	 
	Adjustment Shares
	 	 	13	 
	Affiliate
	 	 	2	 
	Agreement
	 	 	7	 
	Associate
	 	 	2	 
	Beneficial Owner
	 	 	2	 
	Beneficial Ownership
	 	 	2	 
	beneficially own
	 	 	2	 
	Business Day
	 	 	4	 
	close of business
	 	 	4	 
	Common Shares
	 	 	4	 
	common stock equivalent
	 	 	15	 
	Company
	 	 	1,7	 
	Current Value
	 	 	14	 
	Distribution Date
	 	 	6	 
	equivalent preferred stock
	 	 	15	 
	Exchange Act
	 	 	4	 
	Exchange Consideration
	 	 	34	 
	Exempt Ownership Percentage
	 	 	1	 
	Exempt Person
	 	 	4	 
	Existing Holder
	 	 	1	 
	Expiration Date
	 	 	10	 
	Final Expiration Date
	 	 	10	 
	Nasdaq
	 	 	11	 
	NYSE
	 	 	11	 
	Original Rights
	 	 	3	 
	Person
	 	 	4	 
	Preferred Shares
	 	 	1	 
	Principal Party
	 	 	23	 
	Purchase Price
	 	 	8	 
	Record Date
	 	 	1	 
	Redemption Date
	 	 	10	 
	Redemption Price
	 	 	31	 
	Right
	 	 	1	 
	Right Certificate
	 	 	7	 
	Right to Acquire
	 	 	4	 
	Rights Agent
	 	 	1	 
	Security
	 	 	17	 
	Shares Acquisition Date
	 	 	4	 
	Spread
	 	 	14	 
	Subsidiary
	 	 	5	 
	Substitution Period
	 	 	15	 
	Summary of Rights
	 	 	7	 

1

 

	 	 	 	 	 
	 	 	Page
	Trading Day
	 	 	17	 
	Trigger Event
	 	 	5	 

2exv10w1

 

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of the 23rd
day of June, 2006, between Ulta Salon, Cosmetics & Fragrance, Inc., a Delaware corporation (the
“Company”) and Lyn Kirby (the “Executive”).

RECITALS

     A. The Company and the Executive previously have entered into an Amended and Restated
Employment Agreement, dated as of March 15, 2002 (the “Prior Agreement”), pursuant to which the
Company currently employs the Executive; and

     B. The Company and the Executive each have determined that it would be to the advantage and
best interest of the Company and the Executive to terminate the Prior Agreement and enter into this
Agreement as a means of extending Executive’s current employment and modifying certain of the
Executive’s and the Company’s obligations and responsibilities under the Prior Agreement; and

     C. The Company and the Executive desire to have the Prior Agreement terminate and that this
Agreement supersedes the Prior Agreement in all respects;

     D. It is the desire of the Company to continue employing the Executive as the Company’s
president and chief executive officer as described in this Agreement.

     NOW, THEREFORE, in consideration of the foregoing, and of the respective covenants and
agreements set forth below, the parties hereto agree as follows:

ARTICLE I.

SERVICES AND TERM

     1.1 Services. The Company agrees to continue employing the Executive, and the
Executive accepts such employment upon the terms set forth in this Agreement. The Executive shall
report directly to, and receive direction from, the Board of Directors of the Company (the
“Board”). Executive shall serve as the Company’s President and Chief Executive Officer and will
be primarily responsible for overseeing the implementation of the Company’s business strategy and
such other duties as reasonably determined, from time to time, by the Board. Notwithstanding the
foregoing, the Executive acknowledges and agrees upon request of the Board that she will assist and
cooperate with the Board to establish and implement a successorship strategy in which she will (a)
transition the President and Chief Executive Officer duties to a successor chosen by the Board and
(b) become the Executive Chairman of the Board.

     1.2 Services to Subsidiaries. Executive will also serve, without further
compensation, in such capacities of each subsidiary of the Company as specified by the Board.

     1.3 Term. The term of employment under this Agreement (the “Term”) shall begin on
February 1, 2006 (the “Commencement Date”) and end on the last day of the

 

 

Company’s fiscal year
(the “Fiscal Year”) ending in February 2008, unless otherwise sooner terminated by the parties
under Article III. The Term shall automatically renew for additional one year period(s), unless
either party provides written notice to the other of their intent not to renew the term at least
sixty (60) days prior to the then expiration of the Term or as otherwise terminated as herein
provided.

ARTICLE II.

COMPENSATION PACKAGE

     2.1 Compensation. The Company shall pay Executive a base salary of $600,000 per year
(the “Base Salary”) in accordance with the normal payment procedures of the Company and subject to
such withholding and other normal employee deductions as may be required by law. The Board shall
perform a performance review of Executive after the end of each Fiscal Year, beginning with the
Fiscal Year ending in 2006. In connection with such review the Board may adjust Executive’s Base
Salary after taking into account Executive’s and the Company’s performance, and such other factors
as the Board deems appropriate; provided, however, Executive’s Base Salary may not be decreased
without Executive’s express written consent unless the decrease is pursuant to a general
compensation reduction applicable to all, or substantially all, officers of the Company.

     2.2 Benefits. During the Term, Executive shall be eligible to participate in such
medical, health, pension, welfare, and insurance plans offered by the Company as she elects from
time to time (subject to the terms of such plans), and to receive other fringe benefits that are at
least as favorable as the fringe benefits generally provided to other senior officers of the
Company at the time such other fringe benefits are made available to them.

     2.3 Bonus. Each Fiscal Year during the Term, beginning with the Fiscal Year ending in
2007, Executive will be eligible to earn a cash performance bonus targeted at $750,000 (the “Target
Bonus”). Each Fiscal Year the Board shall establish performance targets based on sales, earnings
before interest and taxes, and other pre-established performance objectives. The actual bonus will
be (a) determined based upon the achievement of the performance targets set by the Board, (b)
earned in full by the Executive as of the last day of the related Fiscal Year, if the set
performance targets are in fact met, and (c) paid to Executive no later than April 15 following the
end of the related Fiscal Year, unless it is administratively not practicable to make payment by
April 15 due to unforeseen circumstances, in which case it shall be paid as soon as
administratively practical to make such payment but no later than December 31 of such year. If the
established performance targets are met or exceeded, then the Target Bonus will be paid to
Executive. The Board in its sole discretion may pay Executive an amount in excess of the Target
Bonus. Appendix I sets forth the calculation of bonus payments for the Fiscal Year ending in
February 2007.

     2.4 Loan. At the Executive’s request, the Company will loan Executive up to
$4,094,340 in order that Executive may exercise previously granted options to purchase shares of
the Company’s common stock. Such loan will be secured by the shares purchased upon exercise of the
options and will be recourse against the Executive’s other assets. Interest on such loan will be
the minimum interest rate applicable to mid-term obligations in order that such loan will not be
treated as having a below market rate of interest for Federal income tax purposes.

2

 

Executive shall
be obligated to repay interest accrued each year from the proceeds of any bonus paid under Section
2.3. Executive may prepay the loan at anytime, but will be required to repay the loan in full upon
the earliest to occur of: the date (i) immediately prior to the Company becoming an “issuer” under
the Sarbanes-Oxley Act of 2002, either by filing a Form S-1 registration statement with the
Securities and Exchange Commission or otherwise (an “IPO”), (ii) expiration of the time period
provided under the terms of her option agreements and the Company’s stockholders’ agreements for
repurchase of shares following termination of employment, or (iii) five years from the date of the
loan. If Executive is required to repay the loan upon an IPO, if not informed of another form of
payment, the Company shall repurchase or offset the loan balance by the amount of shares of Common
Stock necessary to repay the loan at the then fair market value of such shares.

     2.5 Business Expenses. The Company will reimburse Executive for reasonable
business-related expenses incurred by her in connection with the performance of her duties
hereunder upon presentation of written documentation, subject, however, to the Company’s reasonable
policies relating to business-related expenses as then in effect from time to time. The Company
will reimburse the Executive for legal expenses incurred in the negotiation and documentation of
this Agreement in an amount not to exceed $10,000.

     2.6 Vacation. Executive shall be entitled to four weeks of annual vacation to be
accrued and taken in accordance with the Company’s vacation policy for senior executives.

     2.7 Indemnification. Executive shall be entitled to the same indemnification under
the terms of the Company’s By-Laws and Articles of Incorporation as is provided, and such liability
insurance as the Company may from time to time purchase, for its Board members and senior officer.

     2.8 Additional Equity. In the event the Board adopts a program for grants of equity
compensation to officers of the Company in connection with or contemplation of an initial public
offering, Executive shall be eligible to be considered for additional equity grants under such
program; provided, however, that nothing contained herein guarantees any level of grant.

ARTICLE III.

TERMINATION OF SERVICES

     3.1 Automatic Termination. This Agreement, the Executive’s employment with the
Company and the Company’s obligations to the Executive under Article II will terminate:

          (a) Death. Automatically, upon the Executive’s death;

          (b) Resignation. Upon the date specified by the Executive at the time of her
resignation;

          (c) Disability. Upon the date elected by the Company, after the failure of the
Executive to render services to the Company for a continuous period of six (6) months because of
the Executive’s physical or mental disability or illness (“Disability”). If there should be any
dispute between the parties as to the Executive’s physical or mental disability at any time,

3

 

such question shall be settled by the opinion of an impartial reputable physician agreed upon for such
purpose by the parties or their representatives. The certificate of such physician as to the
matter in dispute shall be final and binding on the parties.

          (d) Cause. Immediately, upon notice to the Executive that the Company is terminating
her for Cause. For purpose of this Agreement “Cause” means (i) the Executive’s gross misconduct,
including any intentional or grossly negligent breach of the Company’s policies and procedures,
including its policies relating to discrimination, harassment or trading in the Company’s
securities, or any material breach of the Company’s Policy Regarding Noncompetition,
Nonsolicitation and Confidential Information (the “Policy”); (ii) conviction of, or plea of guilty
or nolo contendere by the Executive with respect to a felony; or (iii) any act of
fraud, dishonesty or moral turpitude committed by the Executive which is materially detrimental to
the business or reputation of the Company as determined by the Board.

          (e) Termination without Cause. Upon the date specified by the Company, upon written
notice to the Executive that her employment is being terminated without Cause.

          (f) Expiration of Term. The expiration or non-renewal of the Term as provided in
Section 1.3 hereof.

     3.2 Payment on Termination with Cause or Without Good Reason. In the event that
Executive’s employment is terminated for Cause or by the Executive without Good Reason (as defined
below), Executive shall be entitled to receive (a) all earned but unpaid Base Salary through and
including the date of termination; (b) all earned but unpaid bonus for any Fiscal Year ending prior
to the date of termination; (c) accrued, but unused, vacation time; (d) reimbursement of
unreimbursed business expenses incurred prior to the date of termination; and (e) any vested
benefits under the Company’s employee benefit plans, in accordance with their terms (collectively
the “Accrued Compensation”).

     3.3 Payment on Termination without Cause, for Good Reason or Nonrenewal of Term.
Subject to Executive’s continuing compliance with the provisions of Section 4.3 of this Agreement
and the Policy referred to therein and execution by the Executive of a binding general waiver and
release of claims in a form agreed upon by the parties (a “Release”), if Executive’s employment is
terminated by the Company without Cause, by the Executive for Good Reason or upon
expiration/non-renewal of the Term by reason of the Company providing Executive notice of
nonrenewal in accordance with Section 1.3, then in addition to the Accrued Compensation, the
Executive shall be entitled to receive in full settlement of all obligations of the Company under
this Agreement continuation of the Base Salary (at the rate in effect at the termination date) for
a period of one year following the date of termination, which payments shall be made ratably in
accordance with the Company’s ordinary payroll practices in effect during such period.

     For purposes of this Agreement, “Good Reason” shall mean: (i) without the consent of the
Executive, an adverse or material change in Executive’s reporting responsibilities and/or
diminution of any material duties or responsibilities previously assigned to Executive by the
Board; (ii) the failure of the Company to pay Executive Base Salary or bonus earned as required by
Article II of this Agreement or to perform its other material obligations hereunder;

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(iii) a significant reduction in Executive’s overall compensation (Base Salary and bonus on a combined
basis), other than based on performance, unless such modification applies generally to the senior
executives of the Company. Executive must give written notice to the Company within thirty (30)
days of the event giving rise to Good Reason and the Company must fail to cure within thirty (30)
days of such notice in order for such event to qualify as a Good Reason termination. In no event
shall implementation of a successorship strategy by the Company under Section 1.1 give rise to Good
Reason under this Agreement.

     3.4 Payment upon Death or Disability. In addition to the Accrued Compensation, in the
event that Executive’s employment is terminated by reason of death or Disability, Executive (or in
the event of Executive’s death, Executive’s estate) shall be entitled to receive, subject to the
execution by Executive (or as appropriate the executor of Executive’s estate or Executive’s
guardian) of a binding Release, payment of a lump-sum equal to the Base Salary (at the rate in
effect at the time of death or Disability) for a one year period minus the amount of any payments
that Executive is entitled to receive from any disability insurance that may be provided at such
time by the Company.

ARTICLE IV.

COVENANTS

     4.1 Services as President and Chief Executive Officer. Executive hereby covenants and
agrees that she will faithfully and in conformity with the directions of the Board perform her
duties as President and Chief Executive Officer, and that she shall devote to the performance of
said duties all such time and attention as they shall reasonably require.

     4.2 No Detraction From Performance. The Executive hereby consents and agrees that she
will not, without the express consent of the Board, become engaged in any business other than that
of the Company, which interferes with her duties and responsibilities to the Company.

     4.3 Policy Regarding Noncompetition, Nonsolicitation and Confidential Information.
Executive has signed the Policy and agrees to continue complying with the terms of the Policy.

     4.4 Remedies. The Executive and the Company agree that the Company will be
irreparably harmed by any violation or threatened violation of any of the foregoing provisions of
this Article 4 if such provisions are not specifically enforced and therefore that the Company
shall be entitled to an injunction restraining any violation of such provisions by the Executive,
or any other appropriate decree of specific performance. Such remedies shall not be exclusive and
shall be in addition to any other remedy to which the Company may be entitled under this
Agreement or at law.

     4.5 Non-Disparagement. Neither Executive nor the Company shall make defamatory or
disparaging remarks about the other following the termination of Executive’s employment with the
Company.

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ARTICLE V.

MISCELLANEOUS

     5.1 Successors. This Agreement shall inure to the benefit of the Company and its
successors and assigns, as applicable. If the Company shall merge or consolidate with or into, or
transfer substantially all of its assets, including goodwill, to another corporation or other form
of business organization, this Agreement shall be binding on, and run to the benefit of, the
successor of the Company resulting from such merger, consolidation, or transfer. The Executive
shall not assign, pledge, or encumber her interest in this Agreement, or any part thereof, without
the prior written consent of the Company, and any such attempt to assign, pledge or encumber any
interest in this Agreement shall be null and void and shall have no effect whatsoever.

     5.2 Governing Law. This Agreement is being made and executed in and is intended to be
performed in the State of Illinois and shall be governed, construed, interpreted and enforced in
accordance with the substantive laws of the State of Illinois, without regard to the conflict of
laws principles thereof.

     5.3 Entire Agreement. This Agreement, the promissory note and pledge agreement
evidencing the loan under Section 2.4 hereof, all option and restricted stock agreements previously
entered into between Executive and the Company and the Policy (collectively the “Governing
Agreements”) comprise the entire agreements between the parties hereto relating to the subject
matter hereof and as of the Commencement Date, this Agreement supersedes, cancels and annuls the
Prior Agreement and all previous agreements between the Company (and/or its predecessors) and the
Executive, as the same may have been amended or modified, and any right of the Executive thereunder
(other than the Governing Agreements) and all other prior oral agreements between the Executive and
the Company or any predecessor to the Company. The terms of this Agreement, including by reference
the Governing Agreements are intended by the parties to be the final expression of their agreement
with respect to the retention of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous agreement.

     5.4 Gender. Words in the masculine herein may be interpreted as feminine or neuter,
and words in the singular as plural, and vice versa, where the sense requires.

     5.5 Disputes.

          (a) Any dispute or controversy arising under, out of, in connection with or in relation to
this Agreement (except with respect to the Policy referred to in Section 4.3, which shall be
governed by the dispute resolution provisions specified therein), including any claims for
discrimination or other similar violation of federal law, shall be finally determined
and settled by arbitration in Chicago, Illinois, in accordance with the rules and procedures
regarding employment contract disputes as established by the American Arbitration Association, and
judgment upon the award may be entered in any court having jurisdiction thereof.

          (b) If any arbitration or other proceeding is brought for the enforcement of this Agreement,
or because of an alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of this Agreement, the successful or

6

 

prevailing party shall be entitled to recover
reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to
any other relief that may be granted.

     5.6 Severability; Enforceability. If any provision of this Agreement, or the
application thereof to any person, place, or circumstance, shall be held to be invalid,
unenforceable, or void by the final determination of a court of competent jurisdiction in any
jurisdiction and all appeals therefrom shall have failed or the time for such appeals shall have
expired, as to that jurisdiction and subject to this Section 5.6, such clause or provision shall be
deemed eliminated from this Agreement but the remaining provisions shall nevertheless be given full
force and effect. In the event this Agreement or any portion hereof is more restrictive than
permitted by the law of the jurisdiction in which enforcement is sought, this Agreement or such
portion shall be limited in that jurisdiction only, and shall be enforced in that jurisdiction as
so limited to the maximum extent permitted by the law of that jurisdiction.

     5.7 Validity. The invalidity or unenforceability of any provision or provisions of
this Agreement shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.

     5.8 Notices. Any notice, request, claim, demand, document and other communication
hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be in
writing and delivered personally or sent by telex, telecopy, or certified or registered mail,
postage prepaid, as follows:

          (a) If to the Company, c/o Global Retail Partners attn: Steven Lebow, at Global Retail
Partners, Suite 1630, 2121 Avenue of the Stars, Los Angeles, California 90067, with a copy to
Donald Schwartz at Latham & Watkins, Sears Tower, Suite 5800, 233 South Wacker Drive, Chicago,
Illinois 60606 (312-993-9767 fax) or to such other address or addresses as the Company may specify
in writing from time to time.

          (b) If to the Executive, to her at the address set forth below under her signature or such
other residence as she may designate to the Company as her residence from time to time; or at any
other address as she may specify in writing from time to time.

     5.9 Counterparts. This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original, but all of which together will constitute one and the same
Agreement.

     5.10 Amendments; Waivers. This Agreement may not be modified, amended, or terminated
except by an instrument in writing, approved by the Board and signed by the Executive and the
Company. By an instrument in writing similarly executed, the Executive or the Company may waive
compliance by the other party or parties with any provision of this
Agreement that such other party was or is obligated to comply with or perform; provided,
however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other
or subsequent failure. No failure to exercise and no delay in exercising any right, remedy or
power hereunder shall preclude any other or further exercise of any other right, remedy or power
provided herein or by law or in equity. Notwithstanding the foregoing, the Company may amend this
Agreement at anytime without the consent of the Executive and/or take such action as it

7

 

deems necessary and reasonable in order to make any payments pursuant to this Agreement compliant with
the requirements of Section 409A of the Internal Revenue Code of 1986, as amended and any guidance
issued thereunder.

     5.11 No Inconsistent Actions. The parties hereto shall not voluntarily undertake or
fail to undertake any action or course of action inconsistent with, or to avoid or evade, the
provisions or essential intent of this Agreement. Furthermore, it is the intent of the parties
hereto to act in a fair and reasonable manner with respect to the interpretation and application of
the provisions of this Agreement.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first
above written.

[Signature Pages Immediately Follow]

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[Signature Page to Employment Agreement Dated June 23, 2006]

	 	 	 	 	 
	ULTA SALON, COSMETICS &
FRAGRANCE, INC.	 	EXECUTIVE
	 
	 	 	 	 
	By:

	 	/s/ Dennis Eck
	 	/s/ Lyn Kirby
	Name:

	 	Dennis Eck
	 	Name: Lyn Kirby
	Title:

	 	Non-Executive Chairman	 	 

9

 

Appendix I

If 100% of performance target is met, then Executive shall receive her full bonus. If the
performance targets are not met, then Executive shall be eligible for a bonus equal to a percentage
of her Target Bonus only if at least 91% of the performance targets are met. Such percentage shall
equal 12.5% of her Target Bonus for each 1% increase in performance over 90% of the performance
targets.

	 	 	 	 	 	 	 	 	 
	Percent of	 	 	 	 
	Performance Target	 	 	 	 
	Achieved	 	Bonus Percentage	 	Actual Bonus Paid
	 
	91%
	 	 	12.5	 	 	 	75,000	 
	92%
	 	 	25	 	 	 	150,000	 
	93%
	 	 	37.5	 	 	 	225,000	 
	94%
	 	 	50	 	 	 	300,000	 
	95%
	 	 	62.5	 	 	 	375,000	 
	96%
	 	 	75	 	 	 	450,000	 
	97%
	 	 	87.5	 	 	 	525,000	 
	98%
	 	 	100	 	 	 	600,000	 
	99%
	 	 	112.5	 	 	 	675,000	 
	100%
	 	 	125	 	 	 	750,000

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