Document:

ex10_2.htm

Exhibit 10.2

 

PILGRIM’S PRIDE CORPORATION

 

LONG TERM INCENTIVE PLAN

 

ARTICLE 1.                                                      PURPOSES
OF THE PLAN

 

The purposes of the Pilgrim’s Pride Corporation Long Term Incentive Plan (the “Plan”) are to attract and retain the best available personnel, to provide additional incentives to Employees, Directors and Consultants and to promote the success and enhance
the value of the Company’s business by linking the personal interests of the Directors, Employees, and Consultants to those of Company stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to Company stockholders.

 

ARTICLE 2.                                                      DEFINITIONS

 

Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise.  The singular pronoun shall include the plural where the context so indicates.

 

2.1 “Affiliate” means (a) a Subsidiary, (b) any entity in which the Company has a significant equity interest, or (c) any entity that directly
or through one or more intermediaries is controlled by the Company, in each case, as determined by the Committee.

 

2.2 “Award” means an Option, an award of Restricted Stock, a Stock Appreciation Right, an award of Performance Shares, an award of Performance Stock Units, a
Dividend Equivalent Right, an award of Restricted Stock Units, a Performance Bonus Award, a Performance-Based Award or any other right or benefit, including any other Award under Article 8, granted to a Participant pursuant to the Plan.

 

2.3 “Award Agreement” means any written agreement, contract, or other instrument or document evidencing the terms and conditions of an Award, including through
electronic medium.

 

2.4 “Board” means the Board of Directors of the Company.

 

2.5 “Change in Control” shall mean the occurrence of any of the following events:

 

(a)           a direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation) of all or substantially all the assets of the Company and its subsidiaries taken as a whole to any “person” or “group” (as such
terms are used in Section 13(d)(3) of the Exchange Act) as an entirety or substantially as an entirety in one transaction or series of transactions;

 

(b)           the consummation of any transaction (including, without limitation, any merger, consolidation or recapitalization) to which the Company is a party the result of which is that immediately after such transaction the stockholders of the Company immediately prior to such
transaction hold less than 50.1% of the total voting power generally entitled to vote in the election of directors, managers or trustees of the person surviving such transaction;

 

 

 

 

 

(c)           any “person” or “group” (as such terms are used in Section 13(d)(3) of the Exchange Act) becomes the ultimate “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of more than 50% of the total voting power generally
entitled to vote in the election of directors, managers or trustees of the Company on a fully-diluted basis;

 

(d)           during any period of two consecutive years, individuals who at the beginning of such period constituted the members of the Board (together with any new directors whose election by such Board or whose nomination for election by the stockholders of the Company was approved
by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board then in office; or

 

(e)           the adoption of a plan for the liquidation or dissolution of the Company.

 

The Committee shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change in Control and any incidental matters relating thereto.

 

2.6 “Code” means the U.S. Internal Revenue Code of 1986, as amended.

 

2.7 “Committee” means the committee of the Board appointed or described in Article 12 to administer the Plan.

 

2.8 “Common Stock” means the common stock of the Company, par value $0.01 per share, and such other securities of the Company that may be substituted for the
Common Stock pursuant to Article 11.

 

2.9 “Company” means Pilgrim’s Pride Corporation, a Delaware corporation.

 

2.10 “Consultant” means any consultant or adviser if: (a) the consultant or adviser renders bona fide services to the Company or any Affiliate; (b) the services
rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and (c) the consultant or adviser is a natural person.

 

2.11 “Covered Employee” means an Employee who is, or could be, a “covered employee” within the meaning of Section 162(m) of the Code.

 

2.12 “Director” means a member of the Board, or as applicable, a member of the board of directors of a Subsidiary.

 

2.13 “Disability” means that a Participant is unable to carry out the responsibilities and functions
of the position held by the Participant by reason of any medically determined physical or mental impairment for a period of not less than ninety (90) consecutive days.  A Participant shall not be considered to have incurred a Disability unless he or she furnishes proof of such impairment, such as a treating physician’s written certification, sufficient to satisfy the Board in its discretion.  Notwithstanding the foregoing, for purposes of Incentive Stock Options granted under the Plan,
“Disability” means the Participant is disabled within the meaning of Section 22(e)(3) of the Code.

 

 

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2.14 “Dividend Equivalent Right” means a right granted to a Participant pursuant to Section 8.3 hereof to receive
the equivalent value (in cash or Shares) of dividends paid on the Shares.

 

2.15 “Effective Date” shall have the meaning set forth in Section 13.1 hereof.

 

2.16 “Eligible Individual” means any person who is an Employee, a Consultant or a Director, as determined by the Committee.

 

2.17 “Employee” means a full time or part time employee of the Company or any Affiliate, including an officer or Director, who is treated
as an employee in the personnel records of the Company or Affiliate for the relevant period, but shall exclude individuals who are classified by the Company or Affiliate as (a) leased from or otherwise employed by a third party, (b) independent contractors or (c) intermittent or temporary, even if any such classification is changed retroactively as a result of an audit, litigation or otherwise.  A Participant shall not cease to be an Employee in the case of (i) any vacation or sick time or otherwise
approved paid time off in accordance with the Company or an Affiliate’s policy or (ii) transfers between locations of the Company or between the Company and/or any Affiliate.  Neither services as a Director nor payment of a director’s fee by the Company or an Affiliate shall be sufficient to constitute “employment” by the Company or any Affiliate.

 

2.18 “Equity Restructuring” shall mean a nonreciprocal transaction between the company and its stockholders, such as a stock dividend, stock
split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the Shares (or other securities of the Company) or the price of Shares (or other securities) and causes a change in the per share value of the Shares underlying outstanding Awards.

 

2.19 “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

 

2.20 “Fair Market Value” means, as of any given date, (a) if Shares are traded on any established stock exchange, the closing price of a
Share as quoted on the principal exchange on which the Shares are listed, as reported in the Wall Street Journal (or such other source as the Company may deem reliable for such purposes) for such date, or if no sale occurred on such date, the first trading date immediately prior to such date during which a sale occurred; or (b) if Shares are not traded on an exchange but are regularly quoted on a national market or other quotation system, the closing sales
price on such date as quoted on such market or system, or if no sales occurred on such date, then on the date immediately prior to such date on which sales prices are reported; or (c) in the absence of an established market for the Shares of the type described in (a) or (b) of this Section 2.20, the fair market value established by the Committee acting in good faith.

 

 

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2.21 “Incentive Stock Option” means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

 

2.22 “Independent Director” means a Director of the Company who is not an Employee.

 

2.23 “Non-Employee Director” means a Director of the Company who qualifies as a “Non-Employee Director” as defined in Rule 16b-3(b)(3) under the
Exchange Act, or any successor rule.

 

2.24 “Non-Qualified Stock Option” means an Option that is not intended to be an Incentive Stock Option.

 

2.25 “Option” means a right granted to a Participant pursuant to Article 5 to purchase a specified
number of Shares at a specified price during specified time periods.  An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.

 

2.26 “Participant” means any Eligible Individual who, as an Independent Director, Consultant or Employee, has been granted an Award pursuant
to the Plan.

 

2.27 “Performance-Based Award” means an Award granted pursuant to Article 9.

 

2.28 “Performance Bonus Award” has the meaning set forth in Section 8.5 hereof.

 

2.29 “Performance Criteria” means the criteria that the Committee selects for purposes of establishing the Performance
Goal or Performance Goals for a Participant for a Performance Period.  The Performance Criteria that will be used to establish Performance Goals are limited to the following:  revenue; earnings or net earnings (including earnings before or after any one or more of the following: interest, taxes, depreciation, or amortization); sales; economic value-added; cash flow (including, but not limited to, operating cash flow and free cash flow); cash flow return on capital; earnings per share of Common
Stock (including earnings before any one or more of the following: interest, taxes, depreciation, amortization, restructuring costs or rental expenses); return on equity; return on capital; total stockholder return; return on invested capital; return on assets or net assets; return on sales; income or net income (either before or after taxes); operating earnings; operating income or net operating income; operating profit or net operating profit; operating or net profit margin; cost reductions or savings or expense
management; funds from operations; appreciation in the Fair Market Value of shares of Common Stock; working capital; market share; productivity; expense; operating efficiency; customer satisfaction; and safety record, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group.  The Committee shall define in an objective fashion the manner of calculating the Performance
Criteria it selects to use for such Performance Period for such Participant.

 

2.30 “Performance Goals” means, for a Performance Period, the goals established in writing by the Committee for the Performance Period based
upon the Performance Criteria.  Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance, the performance of an Affiliate, the performance of a division or a business unit of the Company or an Affiliate, or the performance of an individual.  The Committee, in its discretion, may, to the extent consistent with, and within the time prescribed by, Section 162(m) of the Code, appropriately adjust
or modify the calculation of Performance Goals for such Performance Period in order to prevent the dilution or enlargement of the rights of Participants (a) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event, or development, or (b) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable laws, regulations,
accounting principles, or business conditions.

 

 

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2.31 “Performance Period” means the one or more periods of time, which may be of varying and overlapping durations, as the Committee may
select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance-Based Award.

 

2.32 “Performance Share” means a right granted to a Participant pursuant to Section 8.1 hereof,
to receive Shares, the payment of which is contingent upon achieving certain Performance Goals or other performance-based targets established by the Committee.

 

2.33 “Performance Stock Unit” means a right granted to a Participant pursuant to Section 8.2 hereof,
to receive Shares, the payment of which is contingent upon achieving certain Performance Goals or other performance-based targets established by the Committee.

 

2.34 “Plan” means this Pilgrim’s Pride Corporation Long Term Incentive Plan, as it may be amended from time to time.

 

2.35 “Qualified Performance-Based Compensation” means any compensation that is intended to qualify as “qualified performance-based
compensation” as described in Section 162(m)(4)(C) of the Code.

 

2.36 “Restricted Stock” means Shares awarded to a Participant pursuant to Article 6 that are subject to certain restrictions
and may be subject to risk of forfeiture.

 

2.37 “Restricted Stock Unit” means an Award granted pursuant to Section 8.4 hereof and shall be evidenced by a bookkeeping
entry representing the equivalent of one Share.

 

2.38 “Section 409A Compliance” shall have the meaning assigned to it in Section 10.6 hereof.

 

2.39 “Securities Act” shall mean the U.S. Securities Act of 1933, as amended.

 

2.40 “Share” means a share of Common Stock.

 

2.41 “Stock Appreciation Right” or “SAR” means a right granted
pursuant to Article 7 to receive a payment equal to the excess of the Fair Market Value of a specified number of Shares on the date the SAR is exercised over the Fair Market Value on the date the SAR was granted as set forth in the applicable Award Agreement.

 

 

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2.42  “Subsidiary” means any “subsidiary corporation” as defined in Section 424(f) of the Code and any applicable regulations
promulgated thereunder or any other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company.

 

ARTICLE 3.                                                      
SHARES SUBJECT TO THE PLAN

 

3.1 Number of Shares.

 

(a)           Subject to Article 11 and Section 3.1(b) hereof, the aggregate number of Shares which may be issued or transferred pursuant to Awards under the Plan is the lesser of (i) a number of Shares equal to the quotient arrived at by
dividing $50,000,000 by the the average of the per share closing prices on the Pink OTC Markets, or if the Shares are not then traded on the Pink OTC Markets, on the princiipal exchange, market or quotation system on which the Shares are then traded or listed, of the Shares during the 10 consecutive trading days ending on (and including) the trading day immediately  preceding the effective date of the Company's emergence from bankruptcy under Chapter 11 of the United States Bankruptcy Code, and (ii)
10,000,000 Shares, all of which may be issued upon the exercise of Incentive Stock Options.

 

(b)           To the extent that an Award terminates, expires, lapses for any reason, or is settled in cash, any Shares subject to the Award shall again be available for the grant of an Award pursuant to the Plan.  Additionally, any Shares tendered or withheld to satisfy
the grant or exercise price or tax withholding obligation pursuant to any Award shall again be available for the grant of an Award.  To the extent permitted by applicable law or any exchange rule, Shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by the Company or any Subsidiary shall not be counted against Shares available for grant pursuant to this Plan.  The payment of Dividend Equivalent Rights in cash in conjunction
with any outstanding Awards shall not be counted against the Shares available for issuance under the Plan.  Notwithstanding the provisions of this Section 3.1(b), no Shares may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code.

 

3.2 Shares Distributed.  Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares, treasury Shares or Shares
purchased on the open market.

 

3.3 Limitation on Number of Shares Subject to Awards.  Notwithstanding any provision in the Plan to the contrary, and subject to Article 11,  where
it is intended to comply with Section 162(m) of the Code, the maximum number of Shares with respect to one or more Awards that may be granted to any one Participant during any fiscal year shall be 5,000,000 Shares and the maximum amount that may be paid in cash during any fiscal year with respect to any Award (including, without limitation, any Performance Bonus Award) shall be $10,000,000.  To the extent required by Section 162(m) of the
Code, in applying the foregoing limitation with respect to a Participant, if any Award is canceled, the canceled Award shall continue to count against the maximum number of Shares with respect to which an Award may be granted to a given Participant.

 

 

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ARTICLE 4.                                           ELIGIBILITY AND PARTICIPATION

 

4.1 Eligibility.  Each Eligible Individual shall be eligible to be granted one or more Awards pursuant to the Plan.

 

4.2 Participation.  Subject to the provisions of the Plan, the Committee may, from time to time, select from among all Eligible Individuals, those to whom Awards
shall be granted and shall determine the nature and amount of each Award.  No Eligible Individual shall have any right to be granted an Award pursuant to this Plan.

 

4.3 Non-U.S. Participants.  Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in countries outside
the United States in which the Company and its Affiliates operate or have Eligible Individuals, the Committee, in its sole discretion, shall have the power and authority to: (i) determine which Affiliates shall be covered by the Plan; (ii) determine which Eligible Individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to Eligible Individuals outside the United States to comply with applicable laws of jurisdictions outside of the
United States; (iv) establish subplans and modify exercise procedures and other terms and procedures and rules, to the extent such actions may be necessary or advisable (any such subplans and/or modifications shall be attached to this Plan as appendices), including adoption of rules, procedures or subplans applicable to particular Affiliates or Participants residing in particular locations; provided, however, that no such subplans and/or modifications shall
increase the share limitations contained in Sections 3.1 and 3.3 hereof; and (v) take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals.  Without limiting the generality of the foregoing, the Committee is specifically authorized to adopt rules, procedures and subplans with provisions that limit or modify
rights on death, disability or retirement or on termination of employment, available methods of exercise or settlement of an Award, payment of income, social insurance contributions and payroll taxes, the shifting of employer tax liability to the Participant, the withholding procedures and handling of any Share certificates or other indicia of ownership which may vary with local requirements.  Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards shall be granted,
that would violate the Exchange Act, the Code, any securities law or governing statute or any other applicable law.

 

ARTICLE 5.                                           STOCK OPTIONS

 

5.1 General.  The Committee is authorized to grant Options to Eligible Individuals on the following terms and conditions:

 

(a) Exercise Price.  The exercise price per Share subject to an Option shall be determined by the Committee and set forth in the Award Agreement;
provided that, subject to Section 5.2(c) hereof, the per Share exercise price for any Option shall not be less than 100% of the Fair Market Value of a Share on the date of grant.

 

(b) Time and Conditions of Exercise.  The Committee shall determine the time or times at which an Option may be exercised in whole or in part; provided that
the term of any Option granted under the Plan shall not exceed ten years.  The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised.

 

 

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(c) Payment.  The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including,
without limitation: (i) cash or check, (ii) surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Committee may require (including withholding of Shares otherwise deliverable upon exercise of the Award) which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which the Award shall be exercised, (iii) promissory note bearing interest at no less than such rate as shall then preclude the
imputation of interest under the Code), (iv) other property acceptable to the Committee (including through the delivery of a notice that the Participant has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds
is then made to the Company upon settlement of such sale, or (v) any combination of the foregoing methods of payment.  The Committee shall also determine the methods by which Shares shall be delivered or deemed to be delivered to Participants.  Notwithstanding any other provision of the Plan to the contrary, no Participant who is a Director or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to pay the exercise price
of an Option, or continue any extension of credit with respect to the exercise price of an Option with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act.

 

(d) Evidence of Grant.  All Options shall be evidenced by an Award Agreement between the Company and the Participant.  The Award
Agreement shall include such additional provisions as may be specified by the Committee.

 

5.2 Incentive Stock Options.  Incentive Stock Options shall be granted only to Employees of the Company or any Subsidiary, and the terms of
any Incentive Stock Options granted pursuant to the Plan, in addition to the requirements of Section 5.1 hereof, must comply with the provisions of this Section 5.2.

 

(a) Expiration.  Subject to Section 5.2(c) hereof, an Incentive Stock Option shall expire and may
not be exercised to any extent by anyone after the first to occur of the following events:

 

(i) Ten years from the date it is granted, unless an earlier time is set in the Award Agreement;

 

(ii) Three months after the Participant’s termination of employment as an Employee; and

 

(iii) One year after the date of the Participant’s termination of employment or service on account of Disability or death.  Upon the Participant’s Disability or death, any Incentive Stock Options exercisable at
the Participant’s Disability or death may be exercised by the Participant’s legal representative or representatives, by the person or persons entitled to do so pursuant to the Participant’s last will and testament, or, if the Participant fails to make testamentary disposition of such Incentive Stock Option or dies intestate, by the person or persons entitled to receive the Incentive Stock Option pursuant to the applicable laws of descent and distribution.

 

 

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(b) Dollar Limitation.  The aggregate Fair Market Value (determined as of the time the Option is granted) of all Shares with respect to which Incentive Stock Options
are first exercisable by a Participant in any calendar year may not exceed $100,000 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision.  To the extent that Incentive Stock Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Stock Options.

 

(c) Ten Percent Owners.  An Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more
than ten percent of the total combined voting power of all classes of Shares of the Company only if such Option is granted at a price that is not less than 110% of Fair Market Value on the date of grant and the Option is exercisable for no more than five years from the date of grant.

 

(d) Notice of Disposition.  The Participant shall give the Company prompt notice of any disposition of Shares acquired by exercise of an Incentive Stock Option
within (i) two years from the date of grant of such Incentive Stock Option or (ii) one year after the transfer of such Shares to the Participant.

 

(e) Right to Exercise.  During a Participant’s lifetime, an Incentive Stock Option may be exercised only by the Participant.

 

(f) Failure to Meet Requirements.  Any Option (or portion thereof) purported to be an Incentive Stock Option, which, for any reason, fails
to meet the requirements of Section 422 of the Code shall be considered a Non-Qualified Stock Option.

 

5.3 Substitution of Stock Appreciation Rights.  The Committee may provide in the Award Agreement evidencing the grant of an Option that the
Committee, in its sole discretion, shall have to right to substitute a Stock Appreciation Right for such Option at any time prior to or upon exercise of such Option; provided, that such Stock Appreciation Right shall be exercisable with respect to the same number of Shares for which such substituted Option would have been exercisable.

 

ARTICLE 6.                                           RESTRICTED STOCK AWARDS

 

6.1 Grant of Restricted Stock.  The Committee is authorized to make Awards of Restricted Stock to any Eligible Individual selected by the
Committee in such amounts and subject to such terms and conditions as determined by the Committee.  All Awards of Restricted Stock shall be evidenced by an Award Agreement.

 

6.2 Purchase Price.  At the time of the grant of an Award of Restricted Stock, the Committee shall determine the price, if any, to be paid
by the Participant for each Share subject to the Award of Restricted Stock.  To the extent required by applicable law, the price to be paid by the Participant for each Share subject to the Award of Restricted Stock shall not be less than the par value of a Share (or such higher amount required by applicable law).  The purchase price of Shares acquired pursuant to the Award of Restricted Stock shall be paid either: (i) in cash at the time of purchase; (ii) at the sole discretion of the Committee,
by services rendered or to be rendered to the Company or an Affiliate; or (iii) in any other form of legal consideration that may be acceptable to the Committee in its sole discretion and in compliance with applicable law.

 

 

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6.3 Issuance and Restrictions.  Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee
may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock).  These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter.

 

6.4 Forfeiture.  Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon
termination of employment or service during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited; provided, however, that the Committee may (a) provide in any Restricted Stock Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole
or in part restrictions or forfeiture conditions relating to Restricted Stock.

 

6.5 Certificates for Restricted Stock.  Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Committee shall
determine.  If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.

 

ARTICLE 7.                                           STOCK APPRECIATION RIGHTS

 

7.1 Grant of Stock Appreciation Rights.

 

(a) A Stock Appreciation Right may be granted to any Eligible Individual selected by the Committee.  A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan
as the Committee shall impose and shall be evidenced by an Award Agreement, provided that the term of any Stock Appreciation Right shall not exceed ten years.

 

(b) A Stock Appreciation Right shall entitle the Participant (or other person entitled to exercise the Stock Appreciation Right pursuant to the Plan) to exercise all or a specified portion of the Stock Appreciation
Right (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount equal to the product of (i) the excess of (A) the Fair Market Value of the Shares on the date the Stock Appreciation Right is exercised over (B) the Fair Market Value of the Shares on the date the Stock Appreciation Right was granted and (ii) the number of Shares with respect to which the Stock Appreciation Right is exercised, subject to any limitations the Committee may impose.

 

 

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7.2 Payment and Limitations on Exercise.

 

(a) Subject to Section 7.2(b) hereof, payment of the amounts determined under Section 7.1(b) hereof shall be in cash, in Shares (based
on its Fair Market Value as of the date the Stock Appreciation Right is exercised) or a combination of both, as determined by the Committee.

 

(b) To the extent any payment under Section 7.1(b) hereof is effected in Shares, it shall be made subject to satisfaction of all provisions of Article 5 pertaining
to Options.

 

ARTICLE 8.                                           OTHER TYPES OF AWARDS

 

8.1 Performance Share Awards.  Any Eligible Individual selected by the Committee may be granted one or more Awards of Performance Shares which shall be denominated
in a number of Shares and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee.  In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Participant.

 

8.2 Performance Stock Units. Any Eligible Individual selected by the Committee may be granted one or more Performance
Stock Unit awards which shall be denominated in unit equivalents of Shares and/or units of value including dollar value of Shares and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee.  In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the
specific type of award) the contributions, responsibilities and other compensation of the particular Participant.

 

8.3 Dividend Equivalent Rights.

 

(a) Any Eligible Individual selected by the Committee may be granted Dividend Equivalent Rights based on the dividends declared on the Shares that are subject to any Award, to be credited as of dividend payment dates,
during the period between the date the Award is granted and the date the Award is exercised, vests or expires, as determined by the Committee.  Such Dividend Equivalent Rights shall be converted to cash or additional Shares by such formula and at such time and subject to such limitations as may be determined by the Committee.

 

(b) Dividend Equivalent Rights granted with respect to Options or SARs that are intended to be Qualified Performance-Based Compensation shall be payable, with respect to pre-exercise periods, regardless of whether
such Option or SAR is subsequently exercised.

 

8.4 Restricted Stock Units.  The Committee is authorized to make Awards of Restricted Stock Units to any Eligible Individual selected by the
Committee in such amounts and subject to such terms and conditions as determined by the Committee.  At the time of grant, the Committee shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate.  At the time of grant, the Committee shall specify the maturity date applicable to each grant of Restricted Stock Units which shall be no earlier than the vesting date or dates
of the Award and may be determined at the election of the grantee.  On the maturity date, the Company shall, subject to Section 10.5(b), transfer to the Participant one unrestricted, fully transferable Share for each Restricted Stock Unit scheduled to be paid out on such date and not previously forfeited.  Alternatively, settlement of a Restricted Stock Unit may be made in cash or any combination of cash and Shares, as determined by the Committee, in
its sole discretion, at the time of grant of the Restricted Stock Units.  Methods of converting Restricted Stock Units into cash may include, without limitation, a method based on the average Fair Market Value of Shares over a series of trading days.  A holder of Restricted Stock Units shall have no rights other than those of a general creditor of the Company.  Restricted Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions
of the applicable Award Agreement evidencing the grant of the Restricted Stock Unit.

 

 

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8.5 Performance Bonus Awards.  Any Eligible Individual selected by the Committee may be granted one or more Performance-Based Awards in the
form of a cash bonus (a “Performance Bonus Award”) payable upon the attainment of Performance Goals that are established by the Committee and relate to one or more of the Performance Criteria, in each case on a specified date or dates or over any period or periods determined by the Committee.

 

8.6 Other Awards.  The Committee is authorized under the Plan to make any other Award to an Eligible Individual that is not inconsistent with
the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares, (ii) a right with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or (iii) any other security with the value derived from the value of the Shares.  The Committee may establish one or more separate programs under the Plan for the purpose of issuing particular forms of Awards to
one or more classes of Participants on such terms and conditions as determined by the Committee from time to time.

 

8.7 Term.  Except as otherwise provided herein, the term of any Award of  Performance Shares, Performance Stock Units, Dividend
Equivalent Rights, Restricted Stock Units and any other Award granted pursuant to this Article 8 shall be set by the Committee in its discretion.

 

8.8 Exercise or Purchase Price.  The Committee may establish the exercise or purchase price, if any, of any Award of Performance Shares, Performance
Stock Units, Restricted Stock Units and any other Award granted pursuant to this Article 8; provided, however, that such price shall not be less than the par value of a Share on the date of grant, unless otherwise permitted by applicable state law.

 

8.9 Exercise upon Termination of Employment or Service.  An Award of Performance Shares, Performance Stock Units, Dividend Equivalent Rights,
Restricted Stock Units and any other Award granted pursuant to this Article 8 shall only be exercisable or payable while the Participant is an Employee, Consultant or Director, as applicable; provided, however, that the Committee in its sole and absolute discretion may provide that an Award of Performance Shares, Performance Stock Units, Dividend Equivalent Rights, Restricted Stock Units or any other Award granted pursuant to this Article 8 may be
exercised or paid subsequent to a termination of employment or service, as applicable, or following a Change in Control of the Company, or because of the Participant’s retirement, death or disability, or otherwise; provided, however, that any such provision with respect to Performance Shares or Performance Stock Units shall be subject to the requirements of Section 162(m) of the Code that apply to Qualified Performance-Based Compensation.

 

 

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8.10 Form of Payment.  Payments with respect to any Awards granted under this Article 8 shall be made
in cash, in Shares or a combination of both, as determined by the Committee.

 

8.11 Award Agreement.  All Awards under this Article 8 shall be subject to such additional terms and conditions as determined
by the Committee and shall be evidenced by an Award Agreement.

 

ARTICLE 9.                                           PERFORMANCE-BASED AWARDS

 

9.1 Purpose.  The purpose of this Article 9 is to provide the Committee the ability to qualify Awards,
other than Options and SARs, and that are granted pursuant to Articles 6  and 8 as Qualified Performance-Based Compensation.  If the Committee, in its discretion, decides to grant a Performance-Based Award to a Covered Employee, the provisions of this Article 9 shall control over any contrary provision contained in Articles 6 or 8; provided,
however, that the Committee may in its discretion grant Awards to Covered Employees that are based on Performance Criteria or Performance Goals but that do not satisfy the requirements of this Article 9.

 

9.2 Applicability.  This Article 9 shall apply only to those Covered Employees selected by the Committee
to receive Performance-Based Awards that are intended to qualify as Qualified Performance-Based Compensation.  The designation of a Covered Employee as a Participant for a Performance Period shall not in any manner entitle the Participant to receive an Award for the period.  Moreover, designation of a Covered Employee as a Participant for a particular Performance Period shall not require designation of such Covered Employee as a Participant in any subsequent Performance Period and designation
of one Covered Employee as a Participant shall not require designation of any other Covered Employees as a Participant in such period or in any other period.

 

9.3 Procedures with Respect to Performance-Based Awards.  To the extent necessary to comply with the Qualified Performance-Based Compensation
requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted under Articles 6 or 8 which may be granted to one or more Covered Employees, no later than ninety (90) days following the commencement of any fiscal year in question or any other designated fiscal period or period of service (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (a) designate
one or more Covered Employees, (b) select the Performance Criteria applicable to the Performance Period, (c) establish the Performance Goals, and amounts of such Awards, as applicable, which may be earned for such Performance Period, and (d) specify the relationship between Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be earned by each Covered Employee for such Performance Period.  Following the completion of each Performance Period, the Committee
shall certify in writing whether the applicable Performance Goals have been achieved for such Performance Period.  In determining the amount earned by a Covered Employee, the Committee shall have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the Performance Period.

 

 

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9.4 Payment of Performance-Based Awards.  Unless otherwise provided in the applicable Award Agreement, a Participant must be employed by the
Company or an Affiliate on the day a Performance-Based Award for the appropriate Performance Period is paid to the Participant.  Furthermore, a Participant shall be eligible to receive payment pursuant to a Performance-Based Award for a Performance Period only if the Performance Goals for such period are achieved.  In determining the amount earned under a Performance-Based Award, the Committee may reduce or eliminate the amount of the Performance-Based Award earned for the Performance Period,
if in its sole and absolute discretion, such reduction or elimination is appropriate.

 

9.5 Additional Limitations.  Notwithstanding any other provision of the Plan, any Award which is granted to a Covered Employee and is intended
to constitute Qualified Performance-Based Compensation shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings issued thereunder that are requirements for qualification as qualified performance-based compensation as described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent necessary to conform to such requirements.

 

ARTICLE 10.                                            PROVISIONS APPLICABLE TO AWARDS

 

10.1 Stand-Alone and Tandem Awards.  Awards granted pursuant to the Plan may, in the discretion of the Committee, be granted either alone,
in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.

 

10.2 Award Agreement.  Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for
each Award which may include the term of an Award, the provisions applicable in the event the Participant’s employment or service terminates, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award.

 

10.3 Limits on Transfer.  No right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in favor of
any party other than the Company or an Affiliate, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or an Affiliate.  Except as otherwise provided by the Committee, no Award shall be assigned, transferred, or otherwise disposed of by a Participant other than by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved from time to time by the Committee (or the Board in the case of Awards
granted to Independent Directors).  The Committee by express provision in the Award or an amendment thereto may permit an Award (other than an Incentive Stock Option) to be transferred to, exercised by and paid to certain persons or entities related to the Participant, including, but not limited to, members of the Participant’s family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Participant’s family and/or charitable institutions,
or to such other persons or entities as may be expressly approved by the Committee, pursuant to such conditions and procedures as the Committee may establish.  Any permitted transfer shall be subject to the condition that the Committee receive evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes (or to a “blind trust” in connection with the Participant’s termination of employment or service with the Company or an Affiliate to assume a
position with a governmental, charitable, educational or similar non-profit institution) and on a basis consistent with the Company’s lawful issue of securities.

 

 

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10.4 Beneficiaries.  Notwithstanding Section 10.3 hereof, a Participant may, in the manner determined
by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death.  A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed
necessary or appropriate by the Committee.  If the Participant is married and resides in a community property state, a designation of a person other than the Participant’s spouse as his or her beneficiary with respect to more than 50% of the Participant’s interest in the Award shall not be effective without the prior written consent of the Participant’s spouse.  If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled
thereto pursuant to the Participant’s will or the laws of descent and distribution.  Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee prior to the Participant’s death.

 

10.5 Stock Certificates; Book Entry Procedures.

 

(a) Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing Shares pursuant to the exercise or vesting of any Award, unless and until the
Board has determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the Shares are listed or traded.  All certificates evidencing Shares delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal, state local, securities or other
laws, including laws of jurisdictions outside of the United States, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Shares are listed, quoted, or traded.  The Committee may place legends on any certificate evidencing Shares to reference restrictions applicable to the Shares.  In addition to the terms and conditions provided herein, the Board may require that a Participant make such reasonable covenants, agreements, and representations
as the Board, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. The Committee shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Committee.

 

 

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(b) Notwithstanding any other provision of the Plan, unless otherwise determined by the Committee or required by any applicable law, rule or regulation, the Company shall not deliver to any Participant certificates
evidencing Shares issued in connection with any Award and instead such Shares shall be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).

 

10.6 Accelerated Vesting and Deferral Limitations.  The Committee shall not have the discretionary authority to accelerate or delay issuance
of Shares under an Award that constitutes a deferral of compensation within the meaning of Section 409A of the Code, except to the extent that such acceleration or delay may, in the discretion of the Committee, be effected in a manner that will not cause any person to incur taxes, interest or penalties under Section 409A of the Code (“Section 409A Compliance”).

 

10.7 Paperless Administration.  In the event that the Company establishes, for itself or using the services of a third party, an automated
system for the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice response, then the paperless documentation, granting or exercise of Awards by a Participant may be permitted through the use of such an automated system.

 

ARTICLE 11.                                           CHANGES IN CAPITAL STRUCTURE

 

11.1 Adjustments.

 

(a) In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other
change affecting the Shares or the price of the Shares other than an Equity Restructuring, the Committee shall make such adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change with respect to (a) the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Sections 3.1 and 3.3 hereof); (b) the terms and conditions
of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (c) the grant or exercise price per Share for any outstanding Awards under the Plan.  Any adjustment affecting an Award intended as Qualified Performance-Based Compensation shall be made consistent with the requirements of Section 162(m) of the Code.

 

(b) In the event of any transaction or event described in Section 11.1(a) hereof or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of
the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations or accounting principles, the Committee, in its sole and absolute discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the following actions whenever the Committee
determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:

 

 

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(i) To provide for either (A) termination of any such Award in exchange for an amount of cash, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant’s
rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 11.1 the Committee determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Committee in its sole discretion;

 

(ii) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor
or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;

 

(iii) To make adjustments in the number and type of Shares (or other securities or property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock and/or in the terms and conditions
of (including the grant or exercise price), and the criteria (including Performance Criteria consistent with the requirements of Section 162(m) of the Code, in the case of Awards that are intended to constitute Qualified Performance-Based Compensation) included in, outstanding options, rights and awards and options, rights and awards which may be granted in the future;

 

(iv) To provide that such Award shall be exercisable or payable or fully vested with respect to all Shares covered thereby, notwithstanding anything to the contrary in the Plan or the applicable Award Agreement; and

 

(v) To provide that the Award cannot vest, be exercised or become payable after such event.

 

(c) In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Sections 11.1(a) and 11.1(b) hereof:

 

(i) The number and type of securities subject to each outstanding Award and the exercise price or grant price thereof, if applicable, shall be equitably adjusted.  The adjustments provided under this Section
11.1(c)(i) shall be nondiscretionary and shall be final and binding on the affected Participant and the Company.

 

(ii) The Committee shall make such equitable adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of shares
that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Sections 3.1 and 3.3 hereof).

 

 

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11.2 Acceleration Upon a Change in Control.  Notwithstanding Section 11.1 hereof, and except as may
otherwise be provided in any applicable Award Agreement or other written agreement entered into between the Company and a Participant, if a Change in Control occurs and a Participant’s Awards are not converted, assumed, or replaced by a successor entity, then immediately prior to the Change in Control such Awards shall become fully exercisable and all forfeiture restrictions on such Awards shall lapse.  Upon, or in anticipation of, a Change in Control, the Committee may cause any and all Awards
outstanding hereunder to terminate at a specific time in the future, including, but not limited to, the date of such Change in Control, and shall give each Participant the right to exercise such Awards during a period of time as the Committee, in its sole and absolute discretion, shall determine.  In the event that the terms of any agreement between the Company or any Affiliate and a Participant contains provisions that conflict with and are more restrictive than the provisions of this Section 11.2,
this Section 11.2 shall prevail and control and the more restrictive terms of such agreement (and only such terms) shall be of no force or effect.

 

11.3 No Other Rights.  Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation
of Shares of any class, the payment of any dividend, any increase or decrease in the number of Shares of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation.  Except as expressly provided in the Plan or pursuant to action of the Committee under the Plan, no issuance by the Company of Shares of any class, or securities convertible into Shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number
of Shares subject to an Award or the grant or exercise price of any Award.

 

ARTICLE 12.                                           ADMINISTRATION

 

12.1 Committee.  Unless and until the Board delegates administration of the Plan to a Committee as set forth below, the Plan shall be administered
by the full Board, and for such purposes the term “Committee” as used in this Plan shall be deemed to refer to the Board.  The Board, at its discretion or as otherwise necessary to comply with the requirements of Section 162(m) of the Code, Rule 16b-3 promulgated under the Exchange Act or to the extent required by any other applicable rule or regulation, may delegate administration of the Plan to a Committee consisting of two or more members of the Board.  Unless otherwise determined
by the Board, the Committee shall consist solely of two or more members of the Board each of whom is an “outside director,” within the meaning of Section 162(m) of the Code, a Non-Employee Director and an “independent director” under the rules of the New York Stock Exchange (or other principal securities market on which Shares are traded); provided that any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are
later determined not to have satisfied the requirements for membership set forth in this Section 12.1 or otherwise provided in any charter of the Committee.  Notwithstanding the foregoing: (a) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to all Awards granted to Independent Directors and for purposes of such Awards the term “Committee” as used in this Plan shall be
deemed to refer to the Board and (b) the Committee may delegate its authority hereunder to the extent permitted by Section 12.5 hereof.  In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule 16b-3 under the Exchange Act or Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to be determined
in the sole discretion of the Committee.  Except as may otherwise be provided in the certificate of incorporation or bylaws of the Company or in any charter of the Committee, appointment of Committee members shall be effective upon acceptance of appointment; Committee members may resign at any time by delivering written notice to the Board; and vacancies in the Committee may only be filled by the Board.

 

 

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12.2 Action by the Committee.  Unless otherwise established by the Board or in the certificate of incorporation or bylaws of the Company or
in any charter of the Committee, a majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by a majority of the Committee in lieu of a meeting, shall be deemed the acts of the Committee.  Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Affiliate,
the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.

 

12.3 Authority of Committee.  Subject to any specific designation in the Plan, the Committee has the exclusive power, authority and discretion to:

 

(a) Designate Participants to receive Awards;

 

(b) Determine the type or types of Awards to be granted to each Participant;

 

(c) Determine the number of Awards to be granted and the number of Shares to which an Award will relate;

 

(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any reload provision, any restrictions or limitations
on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines; provided, however, that the Committee shall not have the authority to accelerate the vesting or waive the forfeiture of any Performance-Based
Awards intended to qualify as Qualified Performance Based-Compensation;

 

(e) Determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Shares, other Awards, or other property, or an Award may
be canceled, forfeited, or surrendered;

 

(f) Prescribe the form of each Award Agreement, which need not be identical for each Participant;

 

(g) Decide all other matters that must be determined in connection with an Award;

 

 

19

 

 

(h) Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;

 

(i) Interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement; and

 

(j) Make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary or advisable to administer the Plan.

 

12.4 Decisions Binding.  The Committee’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and
all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties.

 

12.5 Delegation of Authority.  To the extent permitted by applicable law, the Board may from time to time delegate to a committee of one or
more members of the Board or one or more officers of the Company the authority to grant or amend Awards to Participants other than (a) Employees who are subject to Section 16 of the Exchange Act, (b) Covered Employees, or (c) officers of the Company (or Directors) to whom authority to grant or amend Awards has been delegated hereunder.  For the avoidance of doubt, provided it meets the limitation in the preceding sentence, this delegation shall include the right to modify Awards as necessary to accommodate
changes in the laws or regulations, including in jurisdictions outside the United States.  Any delegation hereunder shall be subject to the restrictions and limits that the Board specifies at the time of such delegation, and the Board may at any time rescind the authority so delegated or appoint a new delegatee.  At all times, the delegatee appointed under this Section 12.5 shall serve in such capacity at the pleasure of the Board.

 

ARTICLE 13.                                           EFFECTIVE AND EXPIRATION DATE

 

13.1 Effective Date.  The Plan is effective as of the date the Plan is approved by the Company’s stockholders (the “Effective
Date”).  The Plan will be deemed to be approved by the stockholders if it is approved either:

 

(a) By a majority of the votes cast at a duly held stockholder’s meeting at which a quorum representing a representing a majority of outstanding voting stock is, either in person or by proxy, present and voting
on the plan; or

 

(b) By a method and in a degree that would be treated as adequate under Delaware law in the case of an action requiring stockholder approval.

 

13.2 Expiration Date.  The Plan will expire on, and no Award may be granted pursuant to the Plan after the tenth anniversary of the Effective
Date, except that no Incentive Stock Options may be granted under the Plan after the earlier of the tenth anniversary of (a) the date the Plan is approved by the Board or (b) the Effective Date.  Any Awards that are outstanding on the tenth anniversary of the Effective Date shall remain in force according to the terms of the Plan and the applicable Award Agreement.

 

 

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ARTICLE 14.                                           AMENDMENT, MODIFICATION, AND TERMINATION

 

14.1 Amendment, Modification, and Termination.  Subject to Section 15.14 hereof, with the approval
of the Board, at any time and from time to time, the Committee may terminate, amend or modify the Plan; provided, however, that (a) to the extent necessary and desirable to comply with any applicable law, regulation, or stock exchange rule, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required, and (b) stockholder approval shall be required for any amendment to the Plan that (i) increases the
number of shares available under the Plan (other than any adjustment as provided by Article 11), or (ii) permits the Committee to extend the exercise period for an Option beyond ten years from the date of grant.  Notwithstanding any provision in this Plan to the contrary, approval of the stockholders of the Company shall not be required for any amendment to an Option or SAR providing for a reduction to the per Share exercise price of the Shares subject to such
Option or SAR below the per Share exercise price as of the date the Option or SAR, as applicable, is granted, including, by way of a grant of an Option or SAR in exchange for, or in connection with, the cancellation or surrender of an Option or SAR having a higher per Share exercise price.

 

14.2 Awards Previously Granted.  Except with respect to amendments made  pursuant to Section 15.14 hereof,
no termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant; provided, however, that an amendment or modification that may cause an Incentive Stock Option to become a Non-Qualified Stock Option shall not be treated as adversely affecting the rights of the Participant.

 

ARTICLE 15.                                           GENERAL PROVISIONS

 

15.1 No Rights to Awards.  No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, and neither
the Company nor the Committee is obligated to treat Eligible Individuals, Participants or any other persons uniformly.

 

15.2 No Stockholders Rights.  Except as otherwise provided herein, a Participant shall have none of the rights of a stockholder with respect
to Shares covered by any Award, including the right to vote or receive dividends, until the Participant becomes the record owner of such Shares, notwithstanding the exercise of an Option or other Award.

 

15.3 Withholding.  The Company or any Affiliate, as appropriate, shall have the authority and the right to deduct or withhold, or require
a Participant to remit to the Company, an amount sufficient to satisfy U.S. federal, state, and local taxes and taxes imposed by jurisdictions outside of the United States (including the Participant’s employment tax obligations) required by law to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan or to take such other action as may be necessary in the opinion of the Company or an Affiliate, as appropriate, to satisfy withholding obligations for the payment
of taxes.  The Committee may in its discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold Shares otherwise issuable under an Award (or allow the return of Shares) having a Fair Market Value equal to the sums required to be withheld.  Notwithstanding any other provision of the Plan, the number of Shares which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from
the Participant of such Award within six months (or such other period as may be determined by the Committee) after such Shares were acquired by the Participant from the Company) in order to satisfy the Participant’s U.S. federal, state, local and non-U.S. income and payroll tax liabilities with respect to the issuance, vesting, exercise or payment of the Award shall be limited to the number of Shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of
such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income.  No Shares shall be delivered hereunder to any Participant or other person until the Participant or such other person has made arrangements acceptable to the Committee for the satisfaction of the tax obligations with respect to any taxable event concerning the Participant or such other person arising as a
result of this Plan.

 

 

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15.4 No Right to Employment or Services.  Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of
the Company or any Affiliate to terminate any Participant’s employment or services at any time, nor confer upon any Participant any right to continue in the employ or service of the Company or any Affiliate.

 

15.5 Unfunded Status of Awards.  The Plan is intended to be an “unfunded” plan for incentive compensation.  With respect
to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Affiliate.

 

15.6 Indemnification.  To the extent allowable pursuant to applicable law, each member of the Committee or of the Board shall be indemnified
and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he
or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf.  The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

 

15.7 Relationship to other Benefits.  No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to
any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Affiliate except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.

 

15.8 Expenses.  The expenses of administering the Plan shall be borne by the Company and its Affiliates.

 

 

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15.9 Titles and Headings.  The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of
any conflict, the text of the Plan, rather than such titles or headings, shall control.

 

15.10 Fractional Shares.  No fractional Shares shall be issued and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up or down as appropriate.

 

15.11 Limitations Applicable to Section 16 Persons.  Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded
to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 under the Exchange Act) that are requirements for the application of such exemptive rule.  To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive
rule.

 

15.12 Government and Other Regulations.  The obligation of the Company to make payment of awards in Shares or otherwise shall be subject to
all applicable laws, rules, and regulations of the United States and jurisdictions outside the United States, and to such approvals by government agencies, including government agencies in jurisdictions outside of the United States, in each case as may be required or as the Company deems necessary or advisable.  Without limiting the foregoing, the Company shall have no obligation to issue or deliver evidence of title for Shares subject to Awards granted hereunder prior to: (i) obtaining any approvals
from governmental agencies that the Company determines are necessary or advisable, and (ii) completion of any registration or other qualification with respect to the Shares under any applicable law in the United States of in a jurisdiction outside of the United States or ruling of any governmental body that the Company determines to be necessary or advisable or at a time when any such registration or qualification is not current, has been suspended or otherwise has ceased to be effective.  The inability
or impracticability of the Company to obtain or maintain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.  The Company shall be under no obligation to register pursuant to the Securities Act, as amended,
any of the Shares paid pursuant to the Plan.  If the Shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act, as amended, the Company may restrict the transfer of such Shares in such manner as it deems advisable to ensure the availability of any such exemption.

 

15.13 Governing Law.  The Plan and all Award Agreements, and all controversies arising thereunder or related thereto, shall be construed in
accordance with and governed by the laws of the State of Delaware without regard to principles of conflict of laws that would apply to any other law.

 

15.14 Section 409A.  Except as provided in Section 15.15 hereof, to the extent that the Committee determines that any Award granted under
the Plan is subject to Section 409A of the Code, the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code.  To the extent applicable, the Plan and Award Agreements shall be interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including, without limitation, any such regulations or other guidance that may be issued after the Effective Date.  Notwithstanding
any provision of the Plan to the contrary, in the event that following the Effective Date the Committee determines that any Award may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Committee may adopt such amendments to the Plan and the applicable Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take
any other actions, that the Committee determines are necessary or appropriate to (a) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance and thereby avoid the application of any penalty taxes under such Section.

 

 

23

 

 

15.15 No Representations or Covenants with respect to Tax Qualification.  Although the Company may endeavor to (1) qualify an Award for favorable
tax treatment under the laws of the United States or jurisdictions outside of the United States (e.g., incentive stock options under Section 422 of the Code or French-qualified stock options) or (2) avoid adverse tax treatment (e.g., under Section 409A of the Code), the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax
treatment, anything to the contrary in this Plan, including Section 15.14 hereof, notwithstanding.  The Company shall be unconstrained in its corporate activities without regard to the potential negative tax impact on holders of Awards under the Plan.

 

 

  *  *  *  *

 

I hereby certify that the foregoing Plan was duly adopted by the Board of Directors of Pilgrim’s Pride Corporation on September 15, 2009.

 

*  *  *  *  *

 

I hereby certify that the foregoing Plan was approved by the stockholders of Pilgrim’s Pride Corporation on December 1, 2009 and by the United States Bankruptcy Court for the Northern District of Texas, Fort Worth Division, pursuant to a joint Chapter 11 plan of reorganization pursuant to Section 1121(a) of the United States
Code, on December 10, 2009.

 

Executed on this 28th day of December, 2009.                        

 

                                        /s/
Don Jackson                                                                   

                    Don Jackson, Chief Executive Officer and President

 

  

24Exhibit 4(a) 

	
  

 
	
  

 
	
  

 
	
  

 
	
 COMMUNICATIONS SYSTEMS, INC. 

 
	
  

 
	
 and

 
	
  

 
	
 WELLS FARGO BANK, N.A.

 
	
  

 
	
 Rights Agent

 
	
  

 
	
 ________________

 
	
  

 
	
 RIGHTS AGREEMENT

 
	
  

 
	
 Dated as of December 23, 2009

 
	
  

 
	
  

 

TABLE OF CONTENTS

	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
 Page

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 1.

 	
  

 	
 Certain
 Definitions

 	
  

 	
 1

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 2.

 	
  

 	
 Appointment
 of Rights Agent

 	
  

 	
 5

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 3.

 	
  

 	
 Issue of
 Rights Certificates

 	
  

 	
 5

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 4.

 	
  

 	
 Form of
 Rights Certificates

 	
  

 	
 7

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 5.

 	
  

 	
 Countersignature
 and Registration

 	
  

 	
 8

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 6.

 	
  

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

 	
  

 	
 8

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 7.

 	
  

 	
 Exercise of
 Rights; Purchase Price; Expiration Date of Rights

 	
  

 	
 9

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 8.

 	
  

 	
 Cancellation
 and Destruction of Rights Certificates

 	
  

 	
 11

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 9.

 	
  

 	
 Reservation
 and Availability of Capital Stock

 	
  

 	
 12

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 10.

 	
  

 	
 Preferred
 Stock Record Date

 	
  

 	
 13

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 11.

 	
  

 	
 Adjustment
 of Purchase Price, Number and Kind of Stock or Number of Rights

 	
  

 	
 13

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 12.

 	
  

 	
 Certificate
 of Adjusted Purchase Price or Number of Stock

 	
  

 	
 21

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 13.

 	
  

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

 	
  

 	
 22

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 14.

 	
  

 	
 Fractional
 Rights and Fractional Stock

 	
  

 	
 24

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 15.

 	
  

 	
 Rights of
 Action

 	
  

 	
 26

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 16.

 	
  

 	
 Agreement of
 Rights Holders

 	
  

 	
 26

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 17.

 	
  

 	
 Rights
 Certificate Holder Not Deemed a Shareholder

 	
  

 	
 27

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 18.

 	
  

 	
 Concerning
 the Rights Agent

 	
  

 	
 27

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 19.

 	
  

 	
 Merger or
 Consolidation or Change of Name of Rights Agent

 	
  

 	
 27

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 20.

 	
  

 	
 Duties of
 Rights Agent

 	
  

 	
 28

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 21.

 	
  

 	
 Change of
 Rights Agent

 	
  

 	
 30

 

i

	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 22.

 	
  

 	
 Issuance of
 New Rights Certificates

 	
  

 	
 30

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 23.

 	
  

 	
 Redemption
 and Termination

 	
  

 	
 31

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 24.

 	
  

 	
 Exchange

 	
  

 	
 32

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 25.

 	
  

 	
 Notice of
 Certain Events

 	
  

 	
 33

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 26.

 	
  

 	
 Notices

 	
  

 	
 34

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 27.

 	
  

 	
 Supplements
 and Amendments

 	
  

 	
 35

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 28.

 	
  

 	
 Successors

 	
  

 	
 35

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 29.

 	
  

 	
 Benefits of
 this Agreement

 	
  

 	
 35

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 30.

 	
  

 	
 Administration
 of Agreement

 	
  

 	
 35

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 31.

 	
  

 	
 Severability

 	
  

 	
 36

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 32.

 	
  

 	
 Governing
 Law

 	
  

 	
 36

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 33.

 	
  

 	
 Counterparts

 	
  

 	
 36

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Section 34.

 	
  

 	
 Descriptive
 Headings

 	
  

 	
 36

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Exhibit A:

 	
  

 	
 Amended and
 Restated Certificate of Designation, Preferences and Rights of Series A
 Junior Participating Preferred Stock

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Exhibit B:

 	
  

 	
 Form of
 Rights Certificate

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Exhibit C:

 	
  

 	
 Summary of
 Shareholders’ Rights Plan

 	
  

 	
  

 

ii

RIGHTS AGREEMENT

          RIGHTS
AGREEMENT, dated as of December 23, 2009 (the “Agreement”), between
Communications Systems, Inc., a Minnesota corporation (the “Company”), and
Wells Fargo Bank, N.A., a Minnesota corporation (the “Rights Agent”). 

W I T N E S S E T H

          WHEREAS,
on December 18, 2009, the Board of Directors of the Company (the “Board”)
authorized and declared a dividend distribution of one Right (as hereinafter
defined) for each outstanding share of the Company’s Common Stock, $.05 par
value per share (the “Common Stock”) outstanding at the close of business on
January 4, 2010 (the “Record
Date”), each Right representing the right to purchase one one-hundredth of a
share of Series A Junior Participating Preferred Stock of the Company having
the rights, powers and preferences set forth in the form of Amended and
Restated Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock attached hereto as Exhibit A, upon the terms and
subject to the conditions hereinafter set forth (the “Rights”) and further
authorized the issuance of one Right with respect to each share of Common Stock
that would become outstanding after the close of business on the Record Date in
accordance with the terms and subject to the conditions hereinafter set forth; 

          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: 

	
  

 	
  

 
	
  

 	
           (a)
 “Acquiring Person” shall mean any Person (as such term is hereinafter
 defined) who or which, together with all Affiliates (as such term is
 hereinafter defined) and Associates (as such term is hereinafter defined) of
 such Person, without the prior approval of a majority of the Board of
 Directors, shall be the Beneficial Owner (as such term is hereinafter
 defined) of voting securities having sixteen and one-half percent (16.5%) or
 more of the then voting power of the Company, but shall not include the
 Company, any Subsidiary of the Company, any employee benefit plan of the
 Company or of any Subsidiary of the Company, or any entity organized,
 appointed or established by the Company for or pursuant to the terms of any
 such plan; provided, however, that if a Person is the Beneficial Owner at the
 close of business on the date of this Agreement of sixteen and one-half
 percent (16.5%) or more of the voting power of the Company, such Person shall
 not be deemed an Acquiring Person unless and until such Person acquires any
 additional Common Stock in any manner other than pursuant to a stock
 dividend, stock split, recapitalization or similar transaction that does not
 affect the percentage of outstanding Common Stock beneficially owned by such
 Person. Notwithstanding the foregoing, no Person shall become an “Acquiring
 Person” as the result of an acquisition of Common Stock by the Company which,
 by reducing the number of shares outstanding, increases the proportionate
 number of shares beneficially owned by such Person to sixteen and one-half
 percent (16.5%) or more of the then voting power of the Company then
 outstanding; provided, however, that if a Person shall become the Beneficial
 Owner of sixteen and one-half percent (16.5%) or more of the then voting
 power of the Company then outstanding by reason of shares purchased by the
 Company and shall, after such share purchases by the Company, become the
 Beneficial Owner of additional Common Stock of the Company representing 1% or
 more of the shares of Common Stock then outstanding, then such Person shall
 be deemed to be an “Acquiring Person.” Notwithstanding the foregoing, if a
 majority of the members of the Company’s Board of Directors then in office
 determines in good faith that a Person who would otherwise be an “Acquiring
 Person”, as defined pursuant to the foregoing provisions of this paragraph
 (a), has become such inadvertently, and such Person divests as promptly as
 practicable a sufficient number of shares of Common Stock so that such Person
 would no longer be an Acquiring Person, as defined pursuant to the foregoing
 provisions of this paragraph (a), then such Person shall not be deemed to be
 an “Acquiring Person” for any purposes of this Agreement. 

 

	
  

 	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (ii)
 which such Person or any of such Person’s Affiliates or Associates has (A)
 the right or obligation to acquire (whether such right or obligation is
 exercisable or effective immediately or only after the passage of time)
 pursuant to any agreement, arrangement or understanding (whether or not in
 writing) or upon the exercise of conversion rights, exchange rights, rights
 (other than the Rights at any time prior to the occurrence of a Triggering
 Event, but thereafter including the Rights acquired from and after the
 Distribution Date (as defined in Section 3(a) below) other than pursuant to
 Section 3(a) below), warrants or options, or otherwise; provided, however,
 that a Person shall not be deemed the “Beneficial Owner” of, or to
 “beneficially own,” securities tendered pursuant to a tender or exchange
 offer made by such Person or any of such Person’s Affiliates or Associates
 until such tendered securities are accepted for purchase or exchange; or (B)
 the right to vote pursuant to any agreement, arrangement or understanding
 (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 given 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 by such Person on Schedule 13D under the Exchange
 Act (or any comparable or successor report); or 

 

2

	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (iii)
 which are beneficially owned, directly or indirectly, by any other Person (or
 any Affiliate or Associate thereof) with which such Person or any of such
 Person’s Affiliates or Associates has any agreement, arrangement or
 understanding (whether or not in writing and other than customary agreements
 with and between underwriters and selling group members with respect to a
 bona fide public offering of securities), for the purpose of acquiring,
 holding, voting (except pursuant to a revocable proxy as described in clause
 (B) of subparagraph (ii) of this paragraph (c)) or disposing of any voting
 securities of the Company.

 
	
  

 	
  

 	
  

 
	
  

 	
           Notwithstanding
 the foregoing, a Person shall not be deemed to be the “Beneficial Owner” of
 or to “beneficially own” any securities that are issued, or proposed to be
 issued, to such Person pursuant to any stock option plan or other employee
 compensation plan or arrangement of the Company or any of its Subsidiaries or
 any securities for which such Person serves as a trustee pursuant to an
 employee stock ownership or similar plan of the Company. Furthermore,
 directors and officers of the Company shall not be deemed to beneficially own
 each others’ Common Stock solely due to their status as a director or officer
 of the Company.

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

 	
           (f)
 “Common Stock” shall mean the Common Stock, $.05 par value per share, of the
 Company (as such term is defined in the introductory paragraphs above) or any
 other shares of capital stock of the Company into which the Common Stock
 shall be reclassified or changed, except that “Common Stock” when used with
 reference to any Person other than the Company shall mean the shares of
 capital stock of such Person (if such Person is a corporation) of any class
 or series, or units of equity interests in such Person (if such Person is not
 a corporation) of any class or series, the terms of which do not limit (as a
 fixed amount and not merely in proportional terms) the amount of dividends or
 income payable or distributable on such class or series or the amount of
 assets distributable on such class or series upon any voluntary or
 involuntary liquidation, dissolution or winding up of such Person and do not
 provide that such class or series is subject to redemption at the option of
 such Person, or any shares of capital stock or units of equity interests into
 which the foregoing shall be reclassified or changed; provided, however, that
 if at any time there shall be more than one such class or series of capital
 stock or equity interests of such Person, “Common Stock” of such Person shall
 include all such classes and series substantially in the proportion of the
 total number of shares or other units of each class or series outstanding at
 such time. 

 

3

	
  

 	
  

 	
  

 
	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
           (h)
 “Expiration Date” and “Final Expiration Date” shall have the meanings set
 forth in Section 7 hereof. 

 
	
  

 	
  

 	
  

 
	
  

 	
           (i)
 “Flip-In Event” shall have the meaning set forth in Section 11(a)(ii) hereof.
 

 
	
  

 	
  

 	
  

 
	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
           (k)
 “Preferred Stock” shall mean shares of Series A Junior Participating Preferred
 Stock, no par value, of the Company. 

 
	
  

 	
  

 	
  

 
	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
           (m)
 “Subsidiary” shall mean, with reference to any other Person, any corporation
 of which a majority of any class of equity security is beneficially owned,
 directly or indirectly, by such other Person.

 
	
  

 	
  

 	
  

 
	
  

 	
           (n)
 “Triggering Event” shall mean the Flip-In Event or any event described in
 Section 13(a) hereof. 

 
	
  

 	
  

 	
  

 
	
  

 	
           (o)
 “Voting power of the Company” shall mean the collective voting power of the
 Common Stock of the Company. 

 

          In
addition, for purposes of this Agreement, the following terms have the meanings
indicated in the specified sections of this Agreement: “Act” shall have the
meaning set forth in Section 9(c) hereof; “Adjustment Shares” shall have the
meaning set forth in Section 11(a)(ii) hereof; “Board” shall have the meaning
set forth in the preamble; “Common Stock Equivalents” shall have the meaning
set forth in Section 11(a)(iii) hereof; “Company” shall have the meaning set
forth in the preamble; “current market price” shall have the meaning set forth
in Section 11(d) hereof; “Current Value” shall have the meaning set forth in
Section 11(a)(iii) hereof; “Equivalent Preferred Stock” shall have the meaning
set forth in Section 11(b) hereof; “Exchange Act” shall have the meaning set
forth in section 1(b) hereof; “Exchange Ratio” shall have the meaning set forth
in Section 24(a) hereof; “Flip-In Trigger Date” shall have the meaning set
forth in Section 11(a)(iii) hereof; “Nasdaq” shall have the meaning set forth
in Section 11(d)(i) hereof; “Principal Party” shall have the meaning set forth
in Section 13(b) hereof; “Purchase Price” shall have the meaning set forth in
Section 4(a) hereof; “Record Date” shall have the meaning set forth in the
preamble; “Redemption Price” shall have the meaning set forth in Section
23(a)(i) hereof; “Rights” shall have the meaning set forth in the preamble;
“Rights Agent” shall have the meaning set forth in the preamble; “Rights
Certificates” shall have the meaning set forth in Section 3(a) hereof; “Spread”
shall have the meaning set forth in Section 11(a)(iii) hereof; “Substitution
Period” shall have the meaning set forth in Section 11(a)(iii) hereof; “Summary
of Rights” shall have the meaning set forth in Section 3(b) hereof; and
“Trading Day” shall have the meaning set forth in Section 11(d)(i) hereof. 

4

          Any
determination required by the definitions contained in this Section 1 shall be
made by the Board in their good faith judgment, which determination shall be
final and binding on the Rights Agent. 

          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 hereof, shall prior to the Distribution Date also be
the holders of the Common Stock) 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. 

          Section
3. Issue of Rights Certificates. 

	
  

 	
  

 
	
  

 	
           (a)
 Until the earlier of (i) the close of business on the tenth (10th) day after
 the Stock Acquisition Date, or (ii) the close of business on the tenth (10th)
 day (or such later date as may be determined by action of the majority of the
 members of the Company’s Board of Directors prior to such time as any Person
 becomes an Acquiring Person) after the date of the commencement of, or first
 public announcement of the intent of any Person (other than the Company, any
 Subsidiary of the Company or any employee benefit plan of the Company or of
 any Subsidiary of the Company or any entity organized, appointed or established
 by the Company for or pursuant to the terms of any such plan), to commence, a
 tender or exchange offer which would result in such person becoming an
 Acquiring Person (including any such date which is after the date of this
 Agreement and prior to the issuance of the Rights) (the earliest of (i) and
 (ii) being herein referred to as the “Distribution Date”), (x) the Rights
 will be evidenced (subject to the provisions of paragraph (b) of this Section
 3) by the certificates for Common Stock registered in the names of the
 holders of the Common Stock (which certificates for Common Stock shall be
 deemed also to be certificates for Rights) 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 shares of
 Common Stock (including a transfer to the Company). As soon as practicable
 after the Distribution Date, the Rights Agent will send by first-class,
 postage prepaid mail, to each record holder of the Common Stock as of the
 close of business on the Distribution Date, at the address of such holder
 shown on the records of the Company, one or more rights certificates, in
 substantially the form of Exhibit B hereto (the “Rights Certificates”), evidencing
 one Right for each share of Common Stock so held. As of and after the
 Distribution Date, the Rights will be evidenced solely by such Rights
 Certificates. 

 

5

	
  

 	
  

 	
  

 
	
  

 	
           (b)
 As promptly as practicable following the Record Date, the Company will send a
 copy of a Summary of the Shareholders’ Rights Plan, in substantially the form
 attached hereto as Exhibit C (the “Summary of Rights”), by first-class,
 postage prepaid mail, to each record holder of the Common Stock as of the
 close of business on the Record Date, at the address of such holder shown on
 the records of the Company. With respect to certificates for the Common Stock
 outstanding as of the Record Date, until the Distribution Date, the Rights
 will be evidenced by such certificates for the Common Stock and the
 registered holders of the Common Stock shall also be the registered holders
 of the associated Rights. Until the earlier of the Distribution Date or the
 Expiration Date (as such terms are defined in Section 7 hereof), the
 surrender for transfer of any of the certificates for the Common Stock
 outstanding on the Record Date shall also constitute the transfer of the
 Rights associated with the Common Stock represented by such certificate. 

 
	
  

 	
  

 	
  

 
	
  

 	
           (c)
 Certificates for the Common Stock issued after the Record Date but prior to
 the earlier of the Distribution Date or the Expiration Date, shall be deemed
 also to be certificates for Rights, and shall bear the following legend: 

 
	
  

 	
  

 
	
  

 	
  

 	
 This
 certificate also evidences and entitles the holder hereof to certain Rights
 as set forth in the Rights Agreement between Communications Systems, Inc. and
 Wells Fargo Bank, N.A. dated as of December 23, 2009, (the “Rights
 Agreement”), the terms of which are hereby incorporated herein by reference
 and a copy of which is on file at the principal offices of Communications
 Systems, Inc. Under certain circumstances, as set forth in the Rights
 Agreement, such Rights will be evidenced by separate certificates and will no
 longer be evidenced by this certificate. Communications Systems, Inc. will
 mail to the holder of this certificate a copy of the Rights Agreement without
 charge promptly after receipt of a written request therefor. Under certain
 circumstances, Rights issued to, or held by, an Acquiring Person, or an Affiliate
 or Associate thereof (as such terms are defined in the Rights Agreement) and
 any subsequent holder of such Rights may become null and void.

 

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

6

          Section
4. Form of Rights Certificates. 

	
  

 	
  

 	
  

 
	
  

 	
           (a)
 The Rights Certificates (and the forms of election to exercise and of
 assignment to be printed on the reverse thereof) shall each be substantially
 in the form attached hereto as Exhibit B 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 on which the
 Rights may from time to time be listed, or to conform to usage. Subject to
 the provisions of Section 11 and Section 22 hereof, the Rights Certificates,
 whenever distributed, shall be dated as of the Record Date and on their face
 shall entitle the holders thereof to purchase such number of one-one
 hundredth’s of a share of Preferred Stock (or Common Stock, as the case may
 be) as shall be set forth therein at the price per one-one hundredth of a
 share of Preferred Stock set forth therein (the “Purchase Price”), but the
 number of such shares and the Purchase Price shall be subject to adjustment
 as provided herein.

 
	
  

 	
  

 	
  

 
	
  

 	
           (b)
 Any Rights Certificate issued pursuant to Section 3(a) or Section 22 hereof
 that represents Rights beneficially owned by: (i) an Acquiring Person or any
 Associate or Affiliate of an Acquiring Person, (ii) a transferee of an
 Acquiring Person (or any such Associate or Affiliate) who becomes a
 transferee after the Acquiring Person becomes such, except a transferee
 purchasing from or through a nationally recognized broker-dealer where such
 transferee and such transferee’s Associates and Affiliates do not
 collectively acquire, and will not have acquired during the preceding 20
 calendar days, in combination with the proposed transfer, an amount of Common
 Stock equal to more than one percent (1%) of the outstanding shares of Common
 Stock, and (iii) a transferee of an Acquiring Person (or 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 or on behalf of 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 majority of the members of the Company’s Board of Directors
 otherwise conclude in good faith is part of a plan, arrangement or
 understanding which has as a primary purpose or effect avoidance of Section
 7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or
 Section 11 hereof upon transfer, exchange, replacement or adjustment of any
 other Rights Certificate referred to in this sentence, shall contain (to the
 extent feasible and reasonably identifiable as such) the following legend: 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 The Rights
 represented by this Rights Certificate are or were beneficially owned by a
 Person who was or became an Acquiring Person or an Affiliate or Associate of
 an Acquiring Person (as such terms are defined in the Rights Agreement). Accordingly,
 this Rights Certificate and the Rights represented hereby may become null and
 void in the circumstances specified in Section 7(e) of such Agreement.

 
	
  

 	
  

 	
  

 
	
           The
 provisions of Section 7(e) of the Rights Agreement shall be operative whether
 or not the foregoing legend is contained on any such Rights Certificate.

 

7

	
  

 	
  

 
	
  

 	
 Section 5. Countersignature
 and Registration. 

 
	
  

 	
  

 
	
  

 	
           (a)
 The Rights Certificates shall be executed on behalf of the Company by its
 Chief Executive Officer, its President, its Chief Financial Officer, its
 Treasurer or any Vice President either manually or by facsimile signature,
 which shall be attested by the Secretary or any Assistant Secretary of the
 Company, either manually or by facsimile signature. The Rights Certificates
 shall be manually countersigned by the Rights Agent and shall not be valid
 for any purpose unless so countersigned. In case any officer of the Company
 who shall have signed any of the Rights Certificates shall cease to be such
 officer of the Company before countersignature by the Rights Agent and
 issuance and delivery by the Company, such Rights 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
 Rights Certificates had not ceased to be such officer of the Company; and any
 Rights Certificates may be signed on behalf of the Company by any person who,
 at the actual date of the execution of such Rights Certificate, shall be a
 proper officer of the Company to sign such Rights Certificate, although at
 the date of the execution of this Rights Agreement any such person was not
 such an officer. 

 
	
  

 	
  

 
	
  

 	
           (b)
 Following the Distribution Date, the Rights Agent will keep or cause to be
 kept, at its offices in South St. Paul, Minnesota, books for registration and
 transfer of the Rights Certificates issued hereunder. Such books shall show
 the names and addresses of the respective holders of the Rights Certificates,
 the number of Rights evidenced on its face by each of the Rights Certificates
 and the date of each of the Rights Certificates. 

 

          Section
6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates. 

	
  

 	
  

 
	
  

 	
           (a)
 Subject to the provisions of Section 4(b), Section 7(e), Section 14 and
 Section 24 hereof, 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 Rights Certificate or Certificates (other than Rights Certificates
 representing rights that have become null and void pursuant to Section 7(e)
 hereof or that have been exchanged pursuant to Section 24 hereof) may be
 transferred, split up, combined or exchanged for another Rights Certificate
 or Certificates, entitling the registered holder to purchase a like number of
 one-one hundredth of a share of Preferred Stock as the Rights Certificate or
 Certificates surrendered then entitled such holder to purchase. Any
 registered holder desiring to transfer, split up, combine or exchange any
 Rights Certificate shall make such request in writing delivered to the Rights
 Agent, and shall surrender the Rights Certificate or Rights Certificates to
 be transferred, split up, combined or exchanged at the office or offices 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 Rights Certificate or Certificates until
 the registered holder shall have completed and signed the certificate
 contained in the form of assignment on the reverse side of such Rights
 Certificate or 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, subject to Section 4(b), Section 7(e),
 Section 14 and Section 24, countersign and deliver to the Person entitled
 thereto a Rights Certificate or Rights Certificates, as the case may be, as
 so requested. The Company may require payment of a sum sufficient to cover
 any tax or governmental charge that may be imposed in connection with any
 transfer, split up, combination or exchange of Rights Certificates.

 

8

	
  

 	
  

 
	
  

 	
           (b)
 Upon receipt by the Company and the Rights Agent of evidence reasonably
 satisfactory to them of the loss, theft, destruction or mutilation of a
 Rights Certificate, and, in case of loss, theft or destruction, of indemnity
 or security reasonably satisfactory to them, and 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 Rights Certificate if
 mutilated, the Company will execute and deliver a new Rights Certificate of
 like tenor to the Rights Agent for countersignature and delivery to the
 registered owner in lieu of the Rights Certificate so lost, stolen, destroyed
 or mutilated. 

 
	
  

 	
  

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

 
	
  

 
	
  

 	
           (a)
 The registered holder of any Rights Certificate may exercise the Rights
 evidenced thereby (except as otherwise provided herein including without
 limitation, the restrictions on exercisability set forth in Section 9(c),
 Section 11(a)(iii) and Section 23(a) hereof) in whole or in part at any time
 after the Distribution Date upon surrender of the Rights Certificate, with
 the form of election to exercise on the reverse side thereof duly executed,
 to the Rights Agent at the office or offices of the Rights Agent designated
 for such purpose, together with payment of the Purchase Price for each one
 one-hundredth of a share of Preferred Stock (or, if applicable, such other
 number of shares or other securities) as to which the Rights are exercised, at
 or prior to the earlier of (i) the close of business on December 23, 2019
 (the “Final Expiration Date”), or (ii) the time at which the Rights are
 redeemed as provided in Section 23 hereof (such earlier time being herein
 referred to as the “Expiration Date”). Any Person who prior to the
 Distribution Date becomes a record holder of shares of Common Stock may
 exercise all of the rights of a registered holder of a Rights Certificate
 with respect to the Rights associated with such shares of Common Stock in accordance
 with and subject to the provisions of this Agreement, including the
 provisions of Section 7(e) hereof, as of the date such Person becomes a
 record holder of shares of Common Stock. 

 
	
  

 	
  

 
	
  

 	
           (b)
 The Purchase Price for each one one-hundredth of a share of Preferred Stock
 pursuant to the exercise of a Right shall initially be Forty-one Dollars
 ($41), and shall be subject to adjustment from time to time as provided in
 Section 11 hereof and shall be payable in lawful money of the United States
 of America in accordance with paragraph (c) below. 

 

9

	
  

 	
  

 
	
  

 	
           (c)
 Upon receipt of a Rights Certificate representing exercisable Rights, with
 the form of election to exercise duly executed, accompanied by payment of the
 Purchase Price for the shares to be purchased and an amount equal to any
 applicable transfer tax, the Rights Agent shall thereupon promptly (i) (A)
 requisition from any transfer agent of the shares of Preferred Stock (or make
 available, if the Rights Agent is the transfer agent for such shares)
 certificates for the number of shares of Preferred Stock to be purchased and
 the Company hereby irrevocably authorizes its transfer agent to comply with
 all such requests, or (B) if the Company, in its sole discretion, shall have
 elected to deposit the shares of Preferred Stock issuable upon exercise of
 the Rights hereunder into a depositary, requisition from the depositary agent
 depositary receipts representing such number of one one-hundredth of a share
 of Preferred Stock as are to be purchased (in which case certificates for the
 shares of Preferred Stock represented by such receipts shall be deposited by
 the transfer agent with the depositary agent) and the Company will direct the
 depositary agent to comply with such request, (ii) when appropriate,
 requisition from the Company the amount of cash, if any, to be paid in lieu
 of fractional shares in accordance with Section 14 hereof, (iii) 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 Rights
 Certificate, registered in such name or names as may be designated by such
 holder, and (iv) when appropriate, after receipt thereof, deliver such cash,
 if any, to or upon the order of the registered holder of such Rights
 Certificate. The payment of the Purchase Price (as such amount may be reduced
 pursuant to Section 11(a)(iii) hereof) shall be made in cash or by certified
 check, cashier’s check, bank draft or money order payable to the order of the
 Company, except that if so provided by the Board, the payment of the Purchase
 Price following the Flip-In Event and until the first occurrence of an event
 described in Section 13 may be made wholly or in part by delivery of a
 certificate or certificates (with appropriate stock powers executed in blank
 attached thereto) evidencing a number of shares of Common Stock equal to the
 then Purchase Price based on the price per share on the date immediately
 preceding the date of such exercise. In the event that the Company is obligated
 to issue other securities of the Company, pay cash and/or distribute other
 property pursuant to Section 11(a)(iii) hereof, the Company will make all
 arrangements necessary so that such other securities, cash, and/or property
 are available for distribution by the Rights Agent, if and when appropriate.
 In addition, in the case of an exercise of the Rights by a holder pursuant to
 Section 11(a)(ii), the Rights Agent shall return such Rights Certificate to
 the registered holder thereof after imprinting, stamping or otherwise
 indicating thereon that the rights represented by such Rights Certificate no
 longer include the rights provided by Section 11(a)(ii) of the Rights
 Agreement and if less than all the Rights represented by such Rights
 Certificate were so exercised, the Rights Agent shall indicate on the Rights
 Certificate the number of Rights represented thereby which continue to
 include the rights provided by Section 11(a)(ii).

 
	
  

 	
  

 
	
  

 	
           (d)
 In case the registered holder of any Rights Certificate shall exercise
 (except pursuant to Section 11(a)(ii)) less than all the Rights evidenced
 thereby, a new Rights Certificate evidencing Rights equivalent to the Rights
 remaining unexercised shall be issued by the Rights Agent and delivered to
 the registered holder of such Rights Certificate or to his duly authorized
 assigns, subject to the provisions of Section 14 hereof.

 

10

	
  

 	
  

 
	
  

 	
           (e)
 Notwithstanding anything in this Agreement to the contrary, from and after
 the occurrence of a Flip-In Event, any Rights beneficially owned by (a) an
 Acquiring Person or an Associate or Affiliate of an Acquiring Person, (b)
 except as provided below or in Section 4(b), a transferee of an Acquiring
 Person (or any such Associate or Affiliate) who becomes a transferee after
 the Acquiring Person becomes such, and (c) except as provided below, a
 transferee of an Acquiring Person (or 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 (i) a transfer
 (whether or not for consideration) from the Acquiring Person to or on behalf
 of 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 (ii) a transfer which the majority of the
 members of the Company’s Board of Directors otherwise conclude in good faith
 is part of a plan, arrangement or understanding which has as a primary
 purpose or effect avoidance of this Section 7(e), shall become null and void
 without any further action, and any holder of such Rights shall thereupon
 have no right to exercise such Rights under any provision of this Agreement.
 A majority of the members of the Company’s Board of Directors may in
 appropriate circumstances waive application of this Section 7(e) and the
 requirements of Section 4(b) to any transfer by an Acquiring Person in
 connection with a transfer or series of transfers which cause an Acquiring
 Person to become the Beneficial Owner of voting securities having less than
 sixteen and one-half percent (16.5%) of the voting power of the Company. The
 Company shall use all reasonable efforts to insure that the provisions of
 this Section 7(e) hereof are complied with, but shall have no liability to
 any holder of Rights for the inability to make any determinations with
 respect to an Acquiring Person or any of their respective Affiliates,
 Associates or transferees hereunder.

 
	
  

 	
  

 
	
  

 	
           (f)
 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 any Rights Certificate upon the occurrence
 of any purported exercise as set forth in this Section 7 unless the
 certificate contained in the appropriate form of election to purchase set
 forth on the reverse side of the Rights Certificate surrendered for such
 exercise shall have been 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)
 of such Rights Certificate or Affiliates or Associates thereof as the Company
 shall reasonably request.

 

          Section
8. Cancellation and Destruction of Rights Certificates. All Rights
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or 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 Rights
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 Rights Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. Subject to applicable law and
regulation, the Rights Agent shall maintain (i) in a retrievable database
electronic records of all cancelled or destroyed stock certificates which have
been canceled or destroyed by the Rights Agent. The Rights Agent shall maintain
such electronic records for the time period required by applicable law and
regulation. Upon written request of the Corporation (and at the expense of the
Corporation), the Rights Agent shall provide to the Corporation or its designee
copies of such electronic records relating to rights certificates cancelled or
destroyed by the Rights Agent. 

11

	
  

 	
  

 
	
  

 	
 Section 9. Reservation
 and Availability of Capital Stock. 

 
	
  

 	
  

 
	
  

 	
           (a)
 The Company covenants and agrees that it will cause to be reserved and kept
 available out of its authorized and unissued shares of Preferred Stock (and,
 following the occurrence of a Triggering Event, Common Stock and/or other
 securities) or any authorized and issued shares of Preferred Stock (and
 following the occurrence of a Triggering Event, Common Stock and/or other
 securities) held in its treasury, the number of shares of Preferred Stock
 (and, following the occurrence of a Triggering Event, Common Stock and/or
 other securities) that, except as provided in Section 11(a)(iii) and subject
 to Section 7(e) hereof, will be sufficient to permit the exercise in full of
 all outstanding Rights. 

 
	
  

 	
  

 
	
  

 	
           (b)
 So long as the shares of Preferred Stock (and, following the occurrence of a
 Triggering Event, Common Stock and/or other securities) issuable upon the
 exercise of the Rights may be listed on any national securities exchange, 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
 on such exchange upon official notice of issuance upon such exercise. 

 
	
  

 	
  

 
	
  

 	
           (c)
 The Company shall use its best efforts to (i) file, as soon as practicable
 following the Distribution Date, a registration statement under the
 Securities Act of 1933 (the “Act”), with respect to the Rights and the
 securities purchasable upon exercise of the Rights on an appropriate form,
 (ii) cause such registration statement to become effective as soon as
 practicable after such filing, and (iii) cause such registration statement to
 remain effective (with a prospectus at all times meeting the requirements of
 the Act) until the date of the expiration of the Rights. The Company will
 also take such action as may be appropriate under the Blue Sky laws of the
 various states. The Company may temporarily suspend, for a period of time not
 to exceed ninety (90) days, the exercisability of the Rights in order to
 prepare and file any required registration statement. Upon any such
 suspension, the Company shall issue a public announcement stating that the
 exercisability of the Rights has been temporarily suspended. 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, the exercise thereof shall have been
 permitted under applicable law and a registration statement shall have been
 declared effective. 

 
	
  

 	
  

 
	
  

 	
           (d)
 The Company covenants and agrees that it will take all such action as may be
 necessary to ensure that all shares of Preferred Stock (and, following the
 occurrence of a Triggering Event, Common Stock 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 or
 securities. 

 

12

	
  

 	
  

 
	
  

 	
           (e)
 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 Rights Certificates and
 of any certificates for shares of Preferred Stock (or Common Stock 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 Rights Certificates to a
 person other than, or the issuance or delivery of the shares of Preferred
 Stock (or Common Stock and/or other securities, as the case may be) in
 respect of a name other than that of, the registered holder of the Rights
 Certificates evidencing Rights surrendered for exercise or to issue or
 deliver any certificates for shares of Preferred Stock (or Common Stock
 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 such tax shall have
 been paid (any such tax being payable by the holder of such Rights
 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 Stock Record Date. Each person in whose name any
certificate for shares of Preferred Stock (or Common Stock, 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 shares of Preferred Stock (or Common Stock,
as the case may be) represented thereby on, and such certificate shall be
dated, the date upon which the Rights Certificate evidencing such Rights was
duly surrendered and payment of the Purchase Price (and all applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Stock (or Common Stock, 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 on, and such certificate shall
be dated, the next succeeding Business Day on which the Preferred Stock (or
Common Stock, 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 Rights
Certificate shall not be entitled to any rights of a shareholder of the Company
with respect to shares for which the Rights shall be exercisable, including,
without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled
to receive any notice of any proceedings of the Company, except as provided
herein. 

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

13

	
  

 	
  

 
	
  

 	
           (a)
 (i) In the event the Company shall at any time after the date of this
 Agreement (A) declare a dividend on the Preferred Stock payable in shares of
 Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine
 the outstanding Preferred Stock into a smaller number of shares, or (D) issue
 any shares of its capital stock in a reclassification of the Preferred Stock
 (including any such reclassification in connection with a consolidation or
 merger in which the Company is the continuing or surviving corporation),
 except as otherwise provided in this Section 11(a) and in Section 7(e)
 hereof, 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 Preferred Stock or
 capital stock, as the case may be, issuable on such date, shall be
 proportionately adjusted so that the holder of any Right exercised after such
 time shall be entitled to receive, upon payment of the Purchase Price then in
 effect, the aggregate number and kind of shares of Preferred Stock or capital
 stock, as the case may be, which, if such Right had been exercised
 immediately prior to such date and at a time when the Preferred Stock
 transfer books of the Company were open, such holder would have owned upon
 such exercise and been entitled to receive by virtue of such dividend,
 subdivision, combination or reclassification; provided, however, that in no
 event shall the consideration to be paid upon the exercise of one Right be
 less than the aggregate par value of the shares of capital stock of the
 Company issuable upon exercise of one Right. If an event occurs which would
 require an adjustment under both Section 11(a)(i) and Section 11(a)(ii), the
 adjustment provided for in this Section 11(a)(i) shall be in addition to, and
 shall be made prior to any adjustment required pursuant to Section 11(a)(ii).
 

 
	
  

 	
  

 
	
  

 	
           (ii)
 Subject to Section 24 of this Agreement, in the event any Person (other than
 the Company, any Subsidiary of the Company, any employee benefit plan of the
 Company or any Subsidiary of the Company, or any Person or entity organized,
 appointed or established by the Company for or pursuant to the terms of any
 such plan), alone or together with its Affiliates and Associates, shall, at
 any time after the date of this Agreement, become an Acquiring Person, unless
 the event causing such Person to become an Acquiring Person is an acquisition
 of shares of Common Stock pursuant to a tender offer or an exchange offer for
 all outstanding shares of Common Stock at a price and on terms determined by
 at least a majority of the members of the Board of Directors who are not
 officers of the Company, after receiving advice from one or more investment
 banking firms, to be (a) at a price which is fair to shareholders and not
 inadequate (taking into account all factors which such members of the Board
 deem relevant, including, without limitation, prices which could reasonably
 be achieved if the Company or its assets were sold on an orderly basis
 designed to realize maximum value) and (b) otherwise in the best interests of
 the Company and its shareholders, then, promptly following ten (10) days
 after the date of the occurrence of such event (the “Flip-In Event”), proper
 provision shall be made so that each holder of a Right (except as provided
 below and in Section 7(e) hereof) shall thereafter have the right to receive,
 upon exercise thereof at the then current Purchase Price in accordance with
 the terms of this Agreement, in lieu of a number of one one-hundredths of a
 share of Preferred Stock as would otherwise be issuable upon exercise of a
 Right, such number of shares of Common Stock of the Company as shall equal
 the result obtained by (x) multiplying the then current Purchase Price by the
 number of one one-hundredths of a share of Preferred Stock for which a Right
 was exercisable immediately prior to the first occurrence of a Flip-In Event,
 and (y) dividing that product by 50% of the current market price (determined
 pursuant to Section 11(d) hereof) per share of Common Stock on the date of
 such first occurrence (such number of shares, the “Adjustment Shares”). 

 

14

	
  

 	
  

 
	
  

 	
           (iii)
 In the event that (x) the number of shares of Common Stock which are
 authorized by the Company’s articles of incorporation, but which are not
 outstanding or reserved for issuance for purposes other than upon exercise of
 the Rights, are not sufficient to permit the exercise in full of the Rights
 in accordance with the foregoing subparagraph (ii) of this Section 11(a), or
 (y) if the majority of the members of the Company’s Board of Directors
 determine that such action is necessary or appropriate and not contrary to
 the interests of holders of Rights (excluding those owned by the Acquiring
 Person), the Company 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, 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) Common Stock or other equity securities of
 the Company (including, without limitation, shares, or units of shares, of
 preferred stock which the Board of Directors of the Company has deemed to
 have the same value as shares of Common Stock (such shares of preferred stock
 “Common Stock Equivalents”)), (4) debt securities of the Company, (5) other
 assets, or (6) any combination of the foregoing, having an aggregate value
 equal to the Current Value, where such aggregate value has been determined by
 the Board of Directors of the Company based upon the advice of a nationally
 recognized investment banking firm selected by the Board of Directors of the
 Company; provided, however, if the Company shall not have made adequate
 provision to deliver value pursuant to clause (B) above within thirty (30)
 days following the later of (x) the first occurrence of a Flip-In Event and
 (y) the date on which the Company’s right of redemption pursuant to Section
 23(a) expires (the later of (x) and (y) being referred to herein as the
 “Flip-In Trigger Date”), then the Company shall be obligated to deliver, upon
 the surrender for exercise of a Right and without requiring payment of the
 Purchase Price, shares of Common Stock (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 likely that sufficient additional shares of Common Stock
 could be authorized for issuance upon exercise in full of the Rights, the
 thirty (30) day period set forth above may be extended to the extent
 necessary, but not more than ninety (90) days after the Flip-In Trigger Date,
 in order that the Company may seek shareholder approval for the authorization
 of such additional shares (such thirty (30) day period, as it may be
 extended, the “Substitution Period”). To the extent that the Company
 determines that some action need be taken pursuant to the first and/or second
 sentences of this Section 11(a)(iii), the Company (x) shall provide, subject
 to Section 7(e) hereof, 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 such
 shareholder approval for such 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(a)(iii), the value of the Common Stock shall
 be the current market price (as determined pursuant to Section 11(d) hereof)
 per share of the Common Stock on the Flip-In Trigger Date and the value of
 any Common Stock Equivalent shall be deemed to have the same value as the
 Common Stock on such date.

 

15

	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

 	
           (c)
 In case the Company shall fix a record date for a distribution to all holders
 of Preferred Stock (including any such distribution made in connection with a
 consolidation or merger in which the Company is the continuing corporation)
 of evidences of indebtedness, cash (other than a regular quarterly cash
 dividend out of the earnings or retained earnings of the Company), assets
 (other than a dividend payable in Preferred Stock, but including any dividend
 payable in stock other than Preferred Stock) or subscription rights or
 warrants (excluding those referred to in Section 11(b)), 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 market price (as determined
 pursuant to Section 11(d) hereof) per share of Preferred Stock on such record
 date, less the fair market value (as determined in good faith by the Board,
 whose determination shall be described in a statement filed with the Rights
 Agent) of the portion of the cash, assets or evidences of indebtedness so to
 be distributed or of such subscription rights or warrants applicable to a
 share of Preferred Stock and the denominator of which shall be such current
 market price (as determined pursuant to Section 11(d) hereof) per share of
 Preferred Stock; 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 be adjusted to be the Purchase Price which
 would have been in effect if such record date had not been fixed. 

 

16

	
  

 	
  

 
	
  

 	
           (d)
 (i) For the purpose of any computation hereunder, other than computations
 made pursuant to Section 11(a)(iii) hereof, the current market price per
 share of Common Stock on any date shall be deemed to be the average of the daily
 closing prices per share of such Common Stock for the thirty (30) consecutive
 Trading Days (as such term is hereinafter defined) immediately prior to such
 date, and for purposes of computations made pursuant to Section 11(a)(iii)
 hereof, the “current market price” per share of Common Stock on any date
 shall be deemed to be the average of the daily closing prices per share of
 such Common Stock for the ten (10) consecutive Trading Days immediately
 following such date; provided, however, that in the event that the current
 market price per share of the Common Stock is determined during a period
 following the announcement by the issuer of such Common Stock of (A) a
 dividend or distribution on such Common Stock payable in shares of such
 Common Stock or securities convertible into shares of such Common Stock
 (other than the Rights), or (B) any subdivision, combination or
 reclassification of such Common Stock, and prior to the expiration of the
 requisite thirty (30) Trading Day or ten (10) Trading Day period, as set
 forth above, 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 market price” shall be properly adjusted
 to take into account ex-dividend trading. 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 New York Stock Exchange or, if the shares of Common Stock are not listed
 or admitted to trading on the New York Stock Exchange, as reported in the
 principal consolidated transaction reporting system with respect to
 securities listed on the principal national securities exchange on which the
 shares of Common Stock are listed or admitted to trading or, if the shares of
 Common Stock are not listed or admitted to trading on any national securities
 exchange, the last quoted sale 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
 the National Association of Securities Dealers, Inc. Automated Quotation
 System (“Nasdaq”) or such other system then in use, or, if on any such date
 the shares of Common Stock 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 Common Stock selected by the Board. If on
 any such date no market maker is making a market in the Common Stock, the
 fair value of such shares on such date as determined in good faith by the
 Board shall be used. The term “Trading Day” shall mean a day on which the
 principal national securities exchange on which the shares of Common Stock
 are listed or admitted to trading is open for the transaction of business or,
 if the shares of Common Stock are not listed or admitted to trading on any
 national securities exchange, a Business Day. If the Common Stock is not
 publicly held or not so listed or traded, “current market price” per share
 shall mean the fair value per share as determined in good faith by the
 majority of the members of the Company’s Board of Directors, whose
 determination shall be described in a statement filed with the Rights Agent
 and shall be conclusive for all purposes. 

 

17

	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (ii)
 For the purpose of any computation hereunder, the “current market price” per
 share of Preferred Stock shall be determined in the same manner as set forth
 above for the Common Stock in clause (i) of this Section 11(d) (other than
 the last sentence thereof). If the current market price per share of
 Preferred Stock cannot be determined in the manner provided above, the
 “current market price” per share of Preferred Stock shall be conclusively
 deemed to be an amount equal to 100 times the current market price per share
 of Common Stock, as appropriately adjusted for stock splits, stock dividends
 or similar transactions after the date hereof. If neither the Common Stock
 nor the Preferred Stock is publicly held or so listed or traded, “current
 market price” per share shall mean the fair value per share as determined in
 good faith by the majority of the members of the Company’s Board of
 Directors, whose determination shall be described in a statement filed with
 the Rights Agent and shall be conclusive for all purposes. 

 
	
  

 	
  

 	
  

 
	
  

 	
           (e)
 Anything herein to the contrary notwithstanding, no adjustment in the
 Purchase Price shall be required unless such adjustment would require an
 increase or decrease of at least one percent (1%) in the Purchase Price;
 provided, however, that any adjustments which by reason of this Section 11(e)
 are not required to be made shall be carried forward and taken into account
 in any subsequent adjustment. All calculations under this Section 11 shall be
 made to the nearest cent or to the nearest ten-thousandth of a share of
 Common Stock or other share or one-millionth of a share of Preferred Stock,
 as the case may be. Notwithstanding the first sentence of this Section 11(e),
 any adjustment required by this Section 11 shall be made no later than the
 earlier of (i) three (3) years from the date of the transaction which
 mandates such adjustment, or (ii) the Expiration Date. 

 
	
  

 	
  

 	
  

 
	
  

 	
           (f)
 If as a result of an adjustment made pursuant to Section 11(a) or Section 13,
 the holder of any Right thereafter exercised shall become entitled to receive
 any shares of capital stock other than Preferred Stock, 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 contained in Section 11(a), (b),
 (c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7,
 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on
 like terms to any such other shares. 

 

18

	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 

19

	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

 	
           (k)
 Before taking any action that would cause an adjustment reducing the Purchase
 Price below the then stated or par value, if any, of the shares of Preferred
 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
 non-assessable shares or fractions of shares of Preferred Stock, Common Stock
 or other securities at such adjusted Purchase Price. 

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

 	
           (m)
 Anything in this Section 11 to the contrary notwithstanding, the Company
 shall be entitled to make such reductions in the Purchase Price, in addition
 to those adjustments expressly required by this Section 11, as and to the
 extent that in their sole discretion the majority of the members of the
 Company’s Board of Directors shall determine to be advisable in order that
 any (i) consolidation or subdivision of the Preferred Stock, (ii) issuance
 wholly for cash of any shares of Preferred Stock at less than the current
 market price, (iii) issuance wholly for cash of shares of Preferred Stock or
 securities which by their terms are convertible into or exchangeable for
 shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights,
 options or warrants referred to in this Section 11, hereafter made by the
 Company to holders of its Preferred Stock shall not be taxable to such
 shareholders. 

 
	
  

 	
  

 
	
  

 	
           (n)
 The Company covenants and agrees that it shall not, at any time after the
 Distribution Date, (i) consolidate with, (ii) merge with or into, or (iii)
 sell or transfer (or permit any Subsidiary to sell or transfer), in one or
 more transactions, assets, cash flow or earning power aggregating more than
 50% of the assets, cash flow or earning power of the Company and its
 Subsidiaries (taken as a whole) to, any other Person if at the time of or
 immediately after such consolidation, merger or sale there are any rights,
 warrants or other instruments or securities outstanding or agreement in
 effect which would substantially diminish or otherwise eliminate the benefits
 intended to be afforded by the Rights. 

 

20

	
  

 	
  

 
	
  

 	
           (o)
 The Company covenants and agrees that, after the Stock Acquisition Date, it
 will not, except as permitted by Section 23 hereof, take (or permit any
 Subsidiary to take) any action the purpose or effect of which is to diminish
 substantially or otherwise eliminate the benefits intended to be afforded by
 the Rights. 

 
	
  

 	
  

 
	
  

 	
           (p)
 Anything in this Agreement to the contrary notwithstanding, in the event that
 the Company shall at any time after the date of this Agreement and prior to
 the Distribution Date (i) declare a dividend on the outstanding shares of
 Common Stock payable in shares of Common Stock, (ii) subdivide the
 outstanding Common Stock, (iii) combine the outstanding Common Stock into a
 smaller number of shares, or (iv) issue any shares of its capital stock in a
 reclassification of the outstanding Common Stock, the number of Rights
 associated with each share of Common Stock shall be proportionately adjusted
 so that the number of Rights thereafter associated with each share of Common
 Stock following any such event shall equal the result obtained by multiplying
 the number of Rights associated with each share of Common Stock immediately
 prior to such event by a fraction the numerator of which shall be the total
 number of shares of Common Stock outstanding immediately prior to the
 occurrence of the event and the denominator of which shall be the total
 number of shares of Common Stock outstanding immediately following the
 occurrence of such event. 

 
	
  

 	
  

 
	
  

 	
           (q)
 The exercise of Rights under Section 11(a)(ii) shall only result in the loss
 of rights under Section 11(a)(ii) to the extent so exercised and shall not
 otherwise affect the rights represented by the Rights under this Rights
 Agreement, including the rights represented by Section 13. 

 

          Section
12. Certificate of Adjusted Purchase Price or Number of Stock. Whenever
an adjustment is made as provided in Sections 11 and 13 hereof, 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 Preferred Stock and
the Common Stock a copy of such certificate, and (c) mail a brief summary
thereof to each holder of a Rights Certificate in accordance with Section 26
hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained. 

21

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

	
  

 	
  

 	
  

 
	
  

 	
           (a)
 In the event that, following the Stock Acquisition Date, directly or
 indirectly, (x) the Company shall consolidate with, or merge with and into,
 any other Person, and the Company shall not be the continuing or surviving
 corporation of such consolidation or merger, (y) any Person shall consolidate
 with, or merge with or into, the Company, and the Company shall be the
 continuing or surviving corporation of such consolidation or merger and, in
 connection with such consolidation or merger, all or part of the outstanding
 shares of Common Stock shall be changed into or exchanged for stock or other
 securities of any other Person or cash or any other property, or (z) the
 Company shall sell or otherwise transfer (or one or more of its Subsidiaries
 shall sell or otherwise transfer), in one or more transactions, assets, cash
 flow or earning power aggregating more than 50% of the assets, cash flow or
 earning power of the Company and its Subsidiaries (taken as a whole) to any Person
 or Persons (other than the Company or any Subsidiary of the Company), then,
 and in each such case, proper provision shall be made so that: 

 
	
  

 	
  

 
	
  

 	
  

 	
           (i)
 each holder of a Right, shall thereafter have the right to receive, upon the
 exercise thereof at the then current Purchase Price in accordance with the
 terms of this Agreement, such number of validly authorized and issued, fully
 paid, non-assessable and freely tradeable shares of Common Stock of the
 Principal Party (as hereinafter defined), free and clear of liens, rights of
 call or first refusal, encumbrances or other adverse claims, as shall be
 equal to the result obtained by (1) multiplying the then current Purchase
 Price by the then number of one one-hundredths of a share of Preferred Stock
 for which a Right is exercisable immediately prior to the first occurrence of
 an event described in clauses (x), (y) and (z) of this Section 13 (or, if a
 transaction described in Section 11(a)(ii) hereof has occurred prior to the
 first occurrence of an event described in clauses (x), (y) and (z) of this
 Section 13(a), multiplying the number of such one one-hundredths of a share
 for which a Right was exercisable prior to the first occurrence of an event
 described in Section 11(a)(ii) by the Purchase Price in effect immediately
 prior to such first occurrence) and (2) dividing that product (which,
 following the first occurrence of an event described in clauses (x), (y) and
 (z) of this Section 13(a) shall be referred to as the “Purchase Price” for
 each Right and for all purposes of this Agreement) by 50% of the current
 market price (determined pursuant to Section 11(d)(i) hereof) per share of
 the Common Stock of such Principal Party on the date of consummation 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, it being specifically intended that the provisions of Section 11
 hereof shall apply 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 shares of its Common Stock) in
 connection with the consummation of any such transaction as may be necessary
 to assure that the provisions hereof shall thereafter be applicable, as nearly
 as reasonably may be possible, in relation to its shares of Common Stock
 thereafter deliverable upon the exercise of the Rights. 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (b)
 “Principal Party” shall mean: 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (i)
 in the case of any transaction described in (x) or (y) of the first sentence
 of Section 13(a), the Person that is the issuer of any securities into which
 shares of Common Stock of the Company are converted in such merger or
 consolidation, and if no securities are so issued, the Person that is the
 other party to such merger or consolidation; and

 

22

	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (ii)
 in the case of any transaction described in (z) of the first sentence in
 Section 13(a), the Person that is the party receiving the greatest portion of
 the assets, cash flow or earning power transferred pursuant to such
 transaction or transactions; 

 
	
  

 	
  

 	
  

 
	
  

 	
 provided,
 however, that in any such case, (1) if the Common Stock of such Person is not
 at such time and has not been continuously over the preceding twelve (12)
 month period registered under Section 12 of the Exchange Act, and such Person
 is a direct or indirect Subsidiary of another Person the Common Stock of
 which is and has been so registered, “Principal Party” shall refer to such
 other Person; (2) in case such Person is a Subsidiary, directly or indirectly,
 of more than one Person, the Common Stocks of two or more of which are and
 have been so registered, “Principal Party” shall refer to whichever of such
 Persons is the issuer of the Common Stock having the greatest aggregate
 market value; and (3) in case 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 (1) and (2) above
 shall apply to each of the chains of ownership having an interest in such
 joint venture as if such party were a “Subsidiary” of both or all of such
 joint venturers and the Principal Parties in each such chain shall bear the
 obligations set forth in this Section 13 in the same ratio as their direct or
 indirect interests in such Person bear to the total of such interests. 

 
	
  

 	
  

 	
  

 
	
  

 	
           (c)
 The Company shall not consummate any such consolidation, merger, sale or
 transfer unless the Principal Party shall have a sufficient number of
 authorized shares of its Common Stock which have not been issued or reserved
 for issuance to permit the exercise in full of the Rights in accordance with
 this Section 13 and unless prior thereto the Company and such Principal Party
 shall have executed and delivered to the Rights Agent a supplemental
 agreement providing for the terms set forth in paragraphs (a) and (b) of this
 Section 13 and further providing that, as soon as practicable after the date
 of any consolidation, merger or sale of assets mentioned in paragraph (a) of
 this Section 13, the Principal Party at its own expense will: 

 
	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (ii)
 take all other actions as may be necessary to enable the Principal Party to
 issue the securities purchasable upon exercise of the Rights, including but
 not limited to the registration or qualification of such securities under all
 requisite securities laws of jurisdictions of the various states and the
 listing of such securities on such exchanges and trading markets as may be
 necessary or appropriate; and 

 

23

	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (iii)
 will deliver to holders of the Rights historical financial statements for the
 Principal Party and each of its Affiliates which comply in all material
 respects with the requirements for registration on Form 10 under the Exchange
 Act. 

 
	
  

 	
  

 	
  

 
	
  

 	
 The Company
 shall not enter into any transaction of the kind referred to in this Section
 13 if at the time of such transaction there are any rights, warrants,
 instruments or securities outstanding or any agreements or arrangements
 which, as a result of the consummation of such transaction, would eliminate
 or substantially diminish the benefits intended to be afforded by the Rights.
 The provisions of this Section 13 shall similarly apply to successive mergers
 or consolidations or sales or other transfers. The rights under this Section
 13 shall be in addition to the rights to exercise Rights and adjustments
 under Section 11(a)(ii) and shall survive any exercise thereof. 

 
	
  

 	
  

 	
  

 
	
  

 	
           (d)
 Notwithstanding anything in this Agreement to the contrary, Section 13 shall
 not be applicable to a transaction described in subparagraphs (x) and (y) of
 Section 13(a) if (i) such transaction is consummated with a Person or Persons
 who acquired shares of Common Stock pursuant to a tender offer or exchange
 offer for all outstanding shares of Common Stock at a price and on terms
 determined to be in accordance with the provisions of Section 11(a)(ii)
 hereof (or a wholly owned subsidiary of any such Person or Persons), (ii) the
 price per share of Common Stock offered in such transaction is not less than
 the price per share of Common Stock paid to all holders of shares of Common
 Stock whose shares were purchased pursuant to such tender offer or exchange
 offer and (iii) the form of consideration being offered to the remaining
 holders of shares of Common Stock pursuant to such transaction is the same as
 the form of consideration paid pursuant to such tender offer or exchange
 offer. Upon consummation of any such transaction contemplated by this Section
 13(d), all Rights hereunder shall expire. 

 
	
  

 	
  

 	
  

 
	
  

 	
 Section 14. Fractional
 Rights and Fractional Stock. 

 
	
  

 	
  

 	
  

 
	
  

 	
           (a)
 The Company shall not be required to issue fractions of Rights, except prior
 to the Distribution Date as provided in Section 11(p) hereof, or to
 distribute Rights Certificates which evidence fractional Rights. In lieu of
 such fractional Rights, there shall be paid to the registered holders of the
 Rights 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 purposes of this Section 14(a),
 the current market value of a whole Right shall be the closing price of the
 Rights for the Trading Day immediately prior to the date on which such
 fractional Rights would have been otherwise issuable. The closing price of
 the Rights for any day shall be the last sale price, regular way, or, in case
 no such sale takes place on such day, the average of the closing bid and
 asked prices, regular way, in either case as reported in the principal
 consolidated transaction reporting system with respect to securities listed
 or admitted to trading on the New York Stock Exchange or, if the Rights are
 not listed or admitted to trading on the New York Stock Exchange, as reported
 in the principal consolidated transaction reporting system with respect to securities
 listed on the principal national securities exchange on which the Rights are
 listed or admitted to trading, or if the Rights are not listed or admitted to
 trading on any national securities exchange, the last quoted sale 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 fair value of the Rights on such date as
 determined in good faith by the Board shall be used. 

 

24

	
  

 	
  

 
	
  

 	
           (b)
 The Company shall not be required to issue fractions of shares of Preferred
 Stock (other than fractions which are integral multiples of one one-hundredth
 of a share of Preferred Stock) upon exercise of the Rights or to distribute
 certificates which evidence fractional shares of Preferred Stock (other than
 fractions which are integral multiples of one one-hundredth of a share of
 Preferred Stock). Fractions of shares of Preferred Stock in integral
 multiples of one one-hundredth of a share of Preferred Stock 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 shares of Preferred Stock
 represented by such depositary receipts. In lieu of fractional shares of
 Preferred Stock that are not integral multiples of one one-hundredth of a
 share of Preferred Stock, the Company may pay to the registered holders of
 Rights Certificates at the time such Rights are exercised as herein provided
 an amount in cash equal to the same fraction of the current market value of
 one one-hundredth of a share of Preferred Stock. For purposes of this Section
 14(b), the current market value of one one-hundredth of a share of Preferred
 Stock shall be one one-hundredth of the closing sale price of a share of
 Preferred Stock (as determined pursuant to of Section 11(d)(ii) hereof) for
 the Trading Day immediately prior to the date of such exercise. 

 
	
  

 	
  

 
	
  

 	
           (c)
 Following the occurrence of a Triggering Event, the Company shall not be
 required to issue fractions of shares of Common Stock upon exercise of the
 Rights or to distribute certificates which evidence fractional shares of
 Common Stock. In lieu of fractional shares of Common Stock, the Company may
 pay to the registered holders of Rights Certificates at the time such Rights
 are exercised as herein provided an amount in cash equal to the same fraction
 of the current market value of one (1) share of Common Stock. For purposes of
 this Section 14(c), the current market value of one (1) share of Common Stock
 shall be the closing sale price of a share of Common Stock (as determined
 pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to
 the date of such exercise. 

 
	
  

 	
  

 
	
  

 	
           (d)
 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
 of a Right, except as permitted by this Section 14. 

 

25

          Section
15. Rights of Action. All rights of action in respect of this Agreement,
excepting the rights of action given to the Rights Agent under Section 18
hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of
the Common Stock); and any registered holder of any Rights Certificate (or,
prior to the Distribution Date, of the Common Stock), without the consent of
the Rights Agent or of the holder of any other Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), may in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Rights Certificate in the manner
provided in such Rights 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 hereunder and injunctive relief against
actual or threatened violations of the obligations hereunder of any Person
subject to this Agreement. Holders of Rights shall be entitled to recover the
reasonable costs and expenses, including attorneys’ fees, incurred by them in
any action to enforce the provisions of this Agreement. 

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

	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

 	
           (b)
 after the Distribution Date, the Rights Certificates are transferable only on
 the registry books of the Rights Agent if surrendered at the office or
 offices of the Rights Agent designated for such purposes, duly endorsed or
 accompanied by a proper instrument of transfer; 

 
	
  

 	
  

 
	
  

 	
           (c)
 subject to Section 6 and Section 7(f) hereof, the Company and the Rights
 Agent may deem and treat the person in whose name a Rights Certificate (or,
 prior to the Distribution Date, the associated Common Stock certificate) is
 registered as the absolute owner thereof and of the Rights evidenced thereby
 (notwithstanding any notations of ownership or writing on the Rights
 Certificate or the associated Common Stock certificate made by anyone other
 than the Company or the Rights Agent) for all purposes whatsoever, and
 neither the Company nor the Rights Agent shall be affected by any notice to
 the contrary; and 

 
	
  

 	
  

 
	
  

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

 

26

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

	
  

 	
  

 
	
  

 	
 Section 18. Concerning
 the Rights Agent. 

 
	
  

 	
  

 
	
  

 	
           (a)
 The Company agrees to pay to the Rights Agent reasonable compensation for all
 services rendered by it hereunder and, from time to time, on demand of the
 Rights Agent, its reasonable expenses and counsel fees and disbursements 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. 

 
	
  

 	
  

 
	
  

 	
           (b)
 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 Rights Certificate or
 certificate for Common Stock or for other securities of the Company,
 instrument of assignment or transfer, power of attorney, endorsement,
 affidavit, letter, notice, direction, consent, certificate, statement, or
 other paper or document believed by it to be genuine and to be signed,
 executed and, where necessary, verified or acknowledged, by the proper Person
 or Persons or otherwise upon the advice of counsel as set forth in Section 20
 hereof. 

 
	
  

 	
  

 
	
  

 	
 Section 19. Merger
 or Consolidation or Change of Name of Rights Agent. 

 
	
  

 	
  

 
	
  

 	
           (a)
 Any corporation into which the Rights Agent or any successor Rights Agent may
 be merged or with which it may be consolidated, or any corporation resulting
 from any merger or consolidation to which the Rights Agent or any successor
 Rights Agent shall be a party, or any corporation succeeding to the corporate
 trust 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, however, that such corporation would be eligible for
 appointment as a successor Rights Agent under the provisions of Section 21
 hereof. In case at the time such successor Rights Agent shall succeed to the
 agency created by this Agreement, any of the Rights Certificates shall have
 been countersigned but not delivered, any such successor Rights Agent may adopt
 the countersignature of a predecessor Rights Agent and deliver such Rights
 Certificates so countersigned; and in case at that time any of the Rights
 Certificates shall not have been countersigned, any successor Rights Agent
 may countersign such Rights Certificates either in the name of the
 predecessor or in the name of the successor Rights Agent; and in all such
 cases such Rights Certificates shall have the full force provided in the
 Rights Certificates and in this Agreement. 

 

27

	
  

 	
  

 
	
  

 	
           (b)
 In case at any time the name of the Rights Agent shall be changed and at such
 time any of the Rights Certificates shall have been countersigned but not
 delivered, the Rights Agent may adopt the countersignature under its prior
 name and deliver Rights Certificates so countersigned; and in case at that
 time any of the Rights Certificates shall not have been countersigned, the
 Rights Agent may countersign such Rights Certificates either in its prior
 name or in its changed name; and in all such cases such Rights Certificates
 shall have the full force provided in the Rights 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 Rights Certificates, by their
acceptance thereof, shall be bound: 

	
  

 	
  

 
	
  

 	
           (a)
 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. 

 
	
  

 	
  

 
	
  

 	
           (b)
 Whenever in the performance of its duties under this Agreement the Rights
 Agent shall deem it necessary or desirable that any fact or matter
 (including, without limitation, the identity of any Acquiring Person and the
 determination of “current market price”) 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 the Chief Executive Officer, the President, the Chief
 Financial Officer, the Treasurer or 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. 

 
	
  

 	
  

 
	
  

 	
           (c)
 The Rights Agent shall be liable hereunder only for its own negligence, bad
 faith or willful misconduct. 

 
	
  

 	
  

 
	
  

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

 

28

	
  

 	
  

 
	
  

 	
           (e)
 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 Rights 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 Rights Certificate; nor shall
 it be responsible for any adjustment required under the provisions of
 Sections 11 or 13 hereof 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 adjustment);
 nor shall it by any act hereunder be deemed to make any representation or
 warranty as to the authorization or reservation of any shares of Common Stock
 or Preferred Stock to be issued pursuant to this Agreement or any Rights
 Certificate or as to whether any shares of Common Stock or Preferred Stock
 will, when so issued, be validly authorized and issued, fully paid and
 nonassessable. 

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

 	
           (g)
 The Rights Agent is hereby authorized and directed to accept instructions
 with respect to the performance of its duties hereunder from the Chief
 Executive Officer, the President, the Chief Financial Officer, the Treasurer
 or 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, 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. 

 
	
  

 	
  

 
	
  

 	
           (h)
 The Rights Agent and any shareholder, director, officer or employee of the
 Rights Agent may buy, sell or deal in any of the Rights or other securities
 of the Company or 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. 

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 

29

          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 Stock and Preferred Stock, by registered or certified mail,
and to the holders of the Rights Certificates by first-class mail. 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 Stock and
Preferred Stock, by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 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 Rights
Certificate (who shall, with such notice, submit his Rights Certificate for
inspection by the Company), then the registered holder of any Rights
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) a corporation
organized and doing business under the laws of the United States or of the
States of Minnesota or New York (or of any other state of the United States so
long as such corporation is authorized to do business as a banking institution
in the States of Minnesota or New York), in good standing, having a principal
office in the States of Minnesota or New York, which is authorized under such
laws to exercise 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
$50,000,000 or (b) an Affiliate controlled by a corporation described in clause
(a) of this sentence. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment, the Company shall file
notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Common Stock and the Preferred Stock, and mail a notice thereof in
writing to the registered holders of the Rights 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 Rights Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Rights Certificates evidencing Rights in such form as
may be approved by the Board to reflect any adjustment or change in the
Purchase Price per share and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution
Date and prior to the redemption or expiration of the Rights, the Company (a)
shall, with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, granted or
awarded as of the Distribution Date, or upon the exercise, conversion or
exchange of securities hereinafter issued by the Company, and (b) may, in any
other case, if deemed necessary or appropriate by the Board of Directors of the
Company, issue Rights Certificates representing the appropriate number of
Rights in connection with such issuance or sale; provided, however, that (i) no
such Rights 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
Rights Certificate would be issued, and (ii) no such Rights 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 and Termination. 

	
  

 	
  

 
	
  

 	
           (a)
 (i) By a decision by the majority of the members of the Company’s Board of
 Directors, the Board may, at its option, at any time prior to the close of
 business on the earlier of (i) the Flip-In Event, or (ii) the Final
 Expiration Date, redeem all but not less than all of the then outstanding
 Rights at a redemption price of $.01 per Right, appropriately adjusted to
 reflect any stock split, stock dividend or similar transaction occurring
 after the date hereof (such redemption price being hereinafter referred to as
 the “Redemption Price”). The redemption of the Rights by the Board may be
 made effective at such time, on such basis and with such conditions as the
 Board in its sole discretion may establish. Notwithstanding anything
 contained in this Agreement to the contrary, the Rights shall not be
 exercisable after the first occurrence of an event described in Section
 11(a)(ii) until such time as the Company’s right of redemption hereunder has
 expired. The Company may, at its option, pay the Redemption Price in cash,
 shares of Common Stock (based on the “current market price”, as defined in
 Section 11(d)(i) hereof, of the Common Stock at the time of redemption) or
 any other form of consideration deemed appropriate by the Board of Directors.
 

 
	
  

 	
  

 
	
  

 	
           (ii)
 In addition, the majority of the members of the Company’s Board of Directors
 may redeem all but not less than all of the then outstanding Rights at the
 Redemption Price following the occurrence of a Flip-In Event but prior to any
 event described in Section 13(a) either (x) if each of the following shall
 have occurred and remain in effect: (1) a Person who is an Acquiring Person
 shall have transferred or otherwise disposed of a number of shares of Common
 Stock in a manner satisfactory to the majority of the members of the
 Company’s Board of Directors such that such Person is thereafter a Beneficial
 Owner of voting securities having less than sixteen and one-half percent
 (16.5%) of the voting power of the Company, and (2) there is no other Person,
 immediately following the occurrence of the event described in clause (1),
 who is an Acquiring Person, or (y) in connection with any transaction not
 involving an Acquiring Person or an Affiliate or Associate of an Acquiring
 Person. 

 

31

	
  

 	
  

 
	
  

 	
           (b)
 In the case of a redemption permitted under Section 23(a)(i), immediately
 upon the action of the Board of Directors of the Company ordering the
 redemption of the Rights, evidence of which shall have been filed with the
 Rights Agent 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. In the case of a
 redemption permitted only under Section 23(a)(ii), evidence of which shall
 have been filed with the Rights Agent, the right to exercise the Rights will
 terminate and represent only the right to receive the Redemption Price only
 after ten (10) business days following the giving of notice of such redemption
 to the holders of such Rights. Within ten (10) days after the action of the
 Board of Directors, ordering any such redemption of the Rights, the Company
 shall give notice of such redemption to the Rights Agent and the holders of
 the then outstanding Rights by mailing such notice to the Rights Agent and to
 all such holders at their last addresses as they appear upon the registry
 books of the Rights Agent or, prior to the Distribution Date, on the registry
 books of the Transfer Agent for the Common Stock. Any notice which is mailed
 in the manner herein provided shall be deemed given, whether or not the
 holder receives the notice. Each such notice of redemption will state the
 method by which the payment of the Redemption Price will be made. 

 
	
  

 	
  

 
	
  

 	
 Section 24. Exchange.
 

 
	
  

 	
  

 
	
  

 	
           (a)
 The Board may, at its option, at any time after the occurrence of a
 Triggering Event, exchange all or part of the then outstanding and
 exercisable Rights (which shall not include Rights that have become null and
 void pursuant to the provisions of Section 7(e) hereof) for Common Stock at
 an exchange ratio determined by dividing (x) the Purchase Price per Right and
 (y) the current price per share of the Company’s Common Stock on the date
 that the rights become exercisable, appropriately adjusted to reflect any
 stock split, stock dividend or similar transaction occurring after the date
 hereof (such exchange ratio being hereinafter referred to as the “Exchange
 Ratio”). Notwithstanding the foregoing, the Board shall not be empowered to
 effect such exchange at any time after any Person (other than the Company,
 any Subsidiary of the Company, any employee benefit plan of the Company or
 any such Subsidiary, or any entity holding Common Stock for or pursuant to
 the terms of any such plan), together with all Affiliates and Associates of
 such Person, becomes the Beneficial Owner of fifty (50%) or more of the
 voting power of the Company. 

 
	
  

 	
  

 
	
  

 	
           (b)
 Immediately upon the action of the Board ordering the exchange of any Rights
 pursuant to paragraph (a) of this Section 24 and without any further action
 and without any notice, the right to exercise such Rights shall terminate and
 the only right thereafter of a holder of such Rights shall be to receive that
 number of shares of Common Stock equal to the number of such Rights held by
 such holder multiplied by the Exchange Ratio. 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 Stock for Rights will be effected and, in
 the event of any partial exchange, the number of Rights which will be
 exchanged. Any partial exchange shall be effected pro rata based on the
 number of Rights (other than Rights which have become null and void pursuant
 to the provisions of Section 7(e) hereof) held by each holder of Rights. 

 

32

	
  

 	
  

 
	
  

 	
           (c)
 In any exchange pursuant to this Section 24, the Company, at its option, may
 substitute Preferred Stock (or equivalent preferred stock, as such term is
 defined in Section 11(b) hereof) for some or all of the Common Stock
 exchangeable for Rights, at the initial rate of one one-hundredth of a share
 of Preferred Stock (or equivalent preferred stock) for each share of Common
 Stock, as appropriately adjusted to reflect adjustments in the voting rights
 of the Preferred Stock pursuant to the terms thereof, so that the fraction of
 a share of Preferred Stock delivered in lieu of each share of Common Stock
 shall have the same voting rights as one share of Common Stock. 

 
	
  

 	
  

 
	
  

 	
           (d)
 In the event that there shall not be sufficient shares of Common Stock or
 Preferred Stock issued but not outstanding or authorized but unissued to
 permit any exchange of Rights as contemplated in accordance with this Section
 24, the Company shall take all such action as may be necessary to authorize
 additional Common Stock or Preferred Stock for issuance upon exchange of the
 Rights. 

 
	
  

 	
  

 
	
  

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

 

          Section
25. Notice of Certain Events. In case the Company shall propose, at any
time after the Distribution Date, (a) to pay any dividend payable in stock of
any class to the holders of Preferred Stock or to make any other distribution
to the holders of Preferred Stock (other than a regular quarterly cash dividend
out of earnings or retained earnings of the Company), or (b) to offer to the
holders of Preferred Stock rights or warrants to subscribe for or to purchase
any additional shares of Preferred Stock or shares of stock of any class or any
other securities, rights or options, or (c) to effect any reclassification of
its Preferred Stock (other than a reclassification involving only the
subdivision of outstanding shares of Preferred Stock), or (d) to effect any
consolidation or merger into or with, or to effect any sale or other transfer
(or to permit one or more of its Subsidiaries to effect any sale or other
transfer), in one or more transactions, of more than 50% of the assets, cash
flow or earning power of the Company and its Subsidiaries (taken as a whole)
to, any other Person, or (e) to effect the liquidation, dissolution or winding
up of the Company, then, in each such case, the Company shall give to each
holder of a Rights Certificate, to the extent feasible and in accordance with
Section 26 hereof, a notice of such proposed action, which shall specify the
record date for the purposes of such stock dividend, 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 shares of Preferred
Stock, 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 twenty (20)
days prior to the record date for determining holders of the shares of
Preferred Stock for purposes of such action, and in the case of any such other
action, at least twenty (20) days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of the
shares of Preferred Stock whichever shall be the earlier. 

33

          In
case any of the events set forth in Section 11(a)(ii) of this Agreement shall
occur, then, in any such case, (i) the Company shall as soon as practicable
thereafter give to each holder of a Rights Certificate, to the extent feasible
and in accordance with Section 26 hereof, a notice of the occurrence of such
event, which shall specify the event and the consequences of the event to
holders of Rights under Section 11(a)(ii) hereof, and (ii) all references in
the preceding paragraph to Preferred Stock shall be deemed thereafter to refer
to Common Stock and/or, if appropriate, other securities. 

          Section
26. Notices. Notices or demands authorized by this Agreement to be given
or made by the Rights Agent or by the holder of any Rights 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: 

	
  

 	
  

 	
  

 
	
  

 	
 Communications
 Systems, Inc.

 10900 Red Circle Drive 

 Minnetonka, Minnesota 55343 

 Attention: Chief Financial Officer 

 	
  

 

Subject to the
provisions of Section 21, any notice or demand authorized by this Agreement to
be given or made by the Company or by the holder of any Rights 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: 

	
  

 	
  

 	
  

 
	
  

 	
 Wells Fargo
 Bank, N.A.

 161 N. Concord Exchange

 South St. Paul, Minnesota 55075

 Attention: Stock Transfer Department

 	
  

 

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

34

          Section
27. Supplements and Amendments. The Board and the Rights Agent shall
from time to time, if the Board so directs, supplement or amend this Agreement
without the approval of any holders of Rights Certificates in order (i) to cure
any ambiguity, (ii) to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein, (iii)
prior to the Distribution Date, to change or supplement any of the provisions
hereunder which the Board may deem necessary or desirable or (iv) following the
Distribution Date, to change or supplement any of the provisions hereunder in
any manner which the Board may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Rights Certificates (other
than an Acquiring Person or an Affiliate or Associate of an Acquiring Person).
Notwithstanding the foregoing, following the Distribution Date, this Agreement
shall not be supplemented or amended to lengthen any time period relating to
the Rights, including, without limitation, the time period during which the
Rights may be redeemed, unless such lengthening is for the purpose of
protecting, enhancing or clarifying the rights of and benefits to the holders
of the Rights (excluding in each case Rights held by an Acquiring Person or an
Associate or Affiliate of an Acquiring Person whose Rights have or may become
null and void pursuant to Section 7(e) hereof). Upon the delivery of a
certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment unless the
Rights Agent shall have determined in good faith that such supplement or
amendment would adversely affect its interests under this Agreement. Prior to
the Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock. 

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

          Section
29. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) 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 Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock). 

          Section
30. Administration of Agreement. The majority of the members of the
Company’s Board of Directors shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board or the Company or as may be necessary or advisable in the
administration of this Agreement, including without limitation the right and
power to interpret the Agreement and to make all determinations deemed
necessary or advisable for the administration of this Agreement. All such acts,
interpretations and determinations done or made by the Board in good faith
shall be final, conclusive and binding on the Company, the Rights Agent and the
holders of the Rights. Accordingly, the majority of the members of the
Company’s Board of Directors shall not be liable to the holders of Rights
Certificates or any other party for any determination made, action taken, or
action omitted to be taken pursuant to the terms of this Agreement, if such
determination, action or omitted action was made or taken in good faith. 

35

          Section
31. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; provided,
however, that notwithstanding anything in this Agreement to the contrary, if
any such term, provision, covenant or restriction is held by such court or authority
to be invalid, void or unenforceable and the Board of Directors of the Company
determines in its good faith judgment that severing the invalid language from
this Agreement would adversely affect the purpose or effect of this Agreement,
the right of redemption set forth in Section 23 hereof shall be reinstated and
shall not expire until the close of business on the tenth day following the
date of such determination by the Board of Directors of the Company. Without
limiting the foregoing, if any provision requiring that a determination be made
by less than the entire Board is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, such determination shall
then be made by the entire Board. 

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

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

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

36

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

	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 COMMUNICATIONS
 SYSTEMS, INC.

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Attest:

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 By 

 	
 /s/ David T.
 McGraw

 	
  

 	
 By

 	
 /s/ Jeffrey
 K. Berg

 
	
  

 	
 Its

 	
 Secretary

 	
  

 	
  

 	
 Its

 	
 Chief
 Executive Officer

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 WELLS FARGO
 BANK, N.A.

 
	
  

 	
  

 	
  

 	
  

 
	
 Attest:

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 By

 	
 /s/ Suzanne
 M. Swits

 	
  

 	
 By

 	
 /s/ Becky
 Paulson

 
	
  

 	
 Its 

 	
 Assistant
 Secretary

 	
  

 	
  

 	
 Its

 	
 Vice
 President

 

37

EXECUTION COPY 

Exhibit A 

FORM OF

AMENDED AND RESTATED CERTIFICATE OF
DESIGNATION, PREFERENCES

AND RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

of

Communications Systems, Inc.

Pursuant to Section 302A.401 and Section
302A.133 of the Minnesota

Business Corporation Act

          We,
Jeffrey K. Berg, President and Chief Executive Officer, and David T. McGraw,
Secretary and Treasurer, of Communications Systems, Inc., a corporation
organized and existing under the Minnesota Business Corporation Act, in
accordance with the provisions of Section 302A.401 and Section 302A.133
thereof, DO HEREBY CERTIFY: 

	
  

 	
  

 
	
 A.

 	
 That by
 resolution of the Board of Directors of the Company adopted on October 26,
 1999 and by a Certificate of Designation, Preferences and Rights of Series A
 Junior Participating Preferred Stock filed in the office of the Secretary of
 State of the State of Minnesota on November 8, 1999, the Company authorized
 the issuance of a series of one hundred fifty thousand (150,000) Series A
 Junior Participating Preferred Stock of the Company (the “Series A Junior
 Preferred Stock”) and established the powers, designations, preferences and
 rights and the qualifications, limitations or restrictions thereof. 

 
	
  

 	
  

 
	
 B.

 	
 That no
 shares of Series A Junior Participating Preferred Stock of the Company have
 been issued. 

 
	
  

 	
  

 
	
 C.

 	
 That
 pursuant to the authority conferred upon the Board of Directors of this
 Company in accordance with the Articles of Incorporation of the Company and
 Section 302A.401 and Section 302A.133 of the Minnesota Business Corporation
 Law the Board of Directors of the Company on December 18, 2009, adopted the
 following resolution amending and restating the provisions of the Series A
 Junior Preferred Stock. 

 

          RESOLVED,
that pursuant to the authority vested in the Board of Directors of this
Corporation in accordance with the provisions of its Articles of Incorporation,
the Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Shares of the Company is hereby amended and restated to
read in its entirety as follows: 

          Section
1. Designation and Amount. The shares of such series shall be designated
as “Series A Junior Participating Preferred Stock,” no par value, and the
number of shares constituting such series shall be 150,000. Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided that no decrease shall reduce the number of shares of Series A Junior
Participating Preferred Stock to a number less than that of the shares then
outstanding plus the number of shares issuable upon exercise of outstanding
rights, options or warrants or upon conversion of outstanding securities issued
by the Corporation. 

A-1

          Section
2. Dividends and Distributions.  

          (A)
Subject to the prior and superior rights of the holders of any shares of any
series of preferred stock now or hereafter ranking prior and superior to the
shares of Series A Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series A Junior Participating Preferred
Stock, in preference to the holders of shares of Common Stock, $.05 par value
per share (the “Common Stock”), of the Corporation and any other junior stock,
shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the last day of March, June, September and December in each
year (each such date being referred to herein as a “Quarterly Dividend Payment
Date”), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Junior Participating
Preferred Stock, in an amount per whole share (rounded to the nearest cent),
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series A Junior Participating Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision (by stock split or
otherwise) or combination (by reverse stock split or otherwise) or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise) into a greater or lesser number of shares of Common Stock, then in
each such case the amount to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event (and rounding the result
to the nearest whole number); and provided further that if at any time after
January 4, 2010 the Corporation
shall issue any shares of its capital stock in a reclassification or change of
the outstanding shares of Common Stock (including any such reclassification or
change in connection with a merger in which the Corporation is the surviving
corporation), then in such event the amount to which holders of Series A Junior
Participating Preferred Stock are entitled shall be appropriately adjusted to
reflect such reclassification or change. 

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

          (C)
The holders of shares of Series A Junior Participating Preferred Stock shall
not be entitled to receive any dividends or other distributions except as
provided herein. 

A-2

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

          (A)
Each share of Series A Junior Participating Preferred Stock shall entitle the
holder thereof to one hundred (100) votes, subject to adjustment in the manner
set forth in Section 2(A), on all matters on which holders of the Common Stock
or stockholders generally are entitled to vote. 

          (B)
Except as otherwise provided herein or by applicable law, the holders of shares
of Series A Junior Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation. 

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

          Section
4. Certain Restrictions. 

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

	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 

A-3

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

          Section
5. Reacquired Shares. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall, upon their cancellation, become authorized but
unissued shares of preferred stock and may be reissued as part of a new series
of preferred stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth herein
or as otherwise required by law. 

          Section
6. Liquidation, Dissolution or Winding Up. 

          (A)
Upon any liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received $100 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the “Liquidation Preference”). Following the payment of the full
amount of the Liquidation Preference, no additional distributions shall be made
to the holders of shares of Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Common Stock shall have
received an amount per share (the “Common Adjustment”) equal to the quotient
obtained by dividing (i) the Liquidation Preference by (ii) 100 (as
appropriately adjusted as set forth in subparagraph C below to reflect such
events as stock splits, stock dividends and recapitalization with respect to
the Common Stock) (such number in clause (ii) being herein referred to as the
“Adjustment Number”). Following the payment of the full amount of the
Liquidation Preference and the Common Adjustment in respect of all outstanding
shares of Series A Junior Preferred Stock and Common Stock, respectively,
holders of Series A Junior Participating Preferred Stock and holders of shares
of Common Stock shall proportionately share in the remaining assets in the
ratio of the Adjustment Number (per share of Preferred Stock) to 1 (per share
of Common Stock). 

          (B)
In the event there are not sufficient assets available to permit payment in
full of the Liquidation Preference and the liquidation preferences of all other
series of preferred stock, if any, which rank on a parity with the Series A
Junior Participating Preferred Stock, then such remaining assets shall be
distributed ratably to the holders of such parity shares in proportion to their
respective liquidation preferences. In the event there are not sufficient
assets available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock. 

A-4

          (C)
In the event the Corporation shall at any time (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event. 

          Section
7. Consolidation, Merger etc. In case the Corporation shall enter into
any consolidation, merger combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series A
Junior Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series A Junior Participating
Preferred Stock shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event. 

          Section
8. No Redemption. The shares of Series A Junior Participating Preferred
Stock shall not be redeemable. 

          Section
9. Ranking. The Series A Junior Participating Preferred Stock shall rank
junior to all other series of the Corporation’s preferred stock which may
hereafter be authorized as to the payment of dividends and the distribution of
assets, unless the terms of any such series shall provide otherwise. 

          Section
10. Amendment. The Articles of Incorporation of the Corporation shall
not be amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Junior Participating Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of two-thirds (2/3) or more of the outstanding shares of Series A
Junior Participating Preferred Stock, voting separately as a class. 

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

A-5

          IN
WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm
the foregoing as true under the penalties of perjury this 28th day
of December, 2009. 

	
  

 	
  

 	
  

 
	
 Attest:

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
 /s/ David T.
 McGraw

 	
  

 	
 /s/ Jeffrey
 K. Berg

 
	
 David T.
 McGraw

 Secretary and Treasurer

 	
  

 	
 Jeffrey K.
 Berg

 President and Chief Executive Officer

 

A-6

Exhibit B 

Form of Rights Certificate

	
  

 	
  

 
	
 Certificate
 No. R-

 	
 Rights 

 

	
  

 	
  

 
	
  

 	
 NOT
 EXERCISABLE AFTER DECEMBER 23, 2019, OR EARLIER IF REDEEMED BY THE COMPANY.
 THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01
 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT REFERRED TO HEREIN.
 UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON
 (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER
 OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS
 CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN
 ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
 TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHT
 CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE
 CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]1

 

	
  

 	
  

 	
  

 
	
  

 	
  

 
	
  

 	
 1 The portion of the legend in brackets shall
 be inserted only if applicable and shall replace the preceding sentence. 

 

B-1

Rights Certificate

Communications Systems, 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 Rights
Agreement, dated as of December 23, 2009 (the “Rights Agreement”), between
Communications Systems, Inc., a Minnesota corporation (the “Company”), and
Wells Fargo Bank, N.A. (the “Rights Agent”), to purchase from the Company at
any time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M. (Minneapolis, Minnesota time) on December 23,
2019 at the office or offices of the Rights Agent designated for such purpose,
or its successors as Rights Agent, one one-hundredth of a fully paid,
non-assessable share of Series A Junior Participating Preferred Stock (the
“Preferred Stock”) of the Company, at a purchase price of Forty-one Dollars
($41) per one one-hundredth of a share (the “Purchase Price”), upon
presentation and surrender of this Rights Certificate with the Form of Election
to Exercise duly executed. The number of Rights evidenced by this Rights
Certificate (and the number of shares which may be purchased upon exercise thereof)
set forth above, and the Purchase Price per share set forth above, are the
number and Purchase Price as of December 23, 2009, based on the Preferred Stock
as constituted at such date. 

          If
the Rights evidenced by this Rights Certificate are beneficially owned by (i)
an Acquiring Person or an Affiliate or Associate of any such Acquiring Person
(as such terms are defined in the Rights Agreement), (ii) a transferee of any
such Acquiring Person or Associate or Affiliate of such Acquiring Person except
as provided in Section 4(b) of the Rights Agreement, or (iii) under certain
circumstances, a transferee of persons who became an Acquiring Person or
Affiliate or Associate of such Acquiring Person following such transfer, such
Rights shall become null and void upon the occurrence of a Flip-In Event
described in Section 11(a)(ii) and as described in Section 7(e) of the Rights
Agreement and no holder hereof shall have any right with respect to such Rights
from and after the occurrence of such event. 

          As
provided in the Rights Agreement, the Purchase Price and the number and kind of
shares of Preferred Stock or other securities which may be purchased upon the
exercise of the Rights evidenced by this Rights Certificate are subject to
modification and adjustment upon the happening of certain events. 

          This
Rights Certificate is subject to all of the terms, provisions and conditions of
the Rights Agreement, which terms, provisions and conditions are hereby
incorporated herein by reference and made a part hereof and to which Rights
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under certain circumstances specified in such Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Rights Agent or
the Company. 

B-2

          This
Rights Certificate, with or without other Rights Certificates, upon surrender
at the office or offices of the Rights Agent designated for such purpose, may
be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Rights Certificate or Rights Certificates surrendered shall have entitled such
holder to purchase. If this Rights Certificate shall be exercised (other than
pursuant to Section 11(a)(ii) of the Rights Agreement) in part, the holder
shall be entitled to receive upon surrender hereof another Rights Certificate
or Rights Certificates for the number of whole Rights not exercised. If this
Rights Certificate shall be exercised in whole or in part pursuant to Section
11(a)(ii) of the Rights Agreement, the holder shall be entitled to receive this
Rights Certificate duly marked to indicate that such exercise has occurred as
set forth in the Rights Agreement. 

          Subject
to the provisions of the Rights Agreement, the Rights evidenced by this
Certificate may be redeemed by the Company at its option at a redemption price
of $.01 per Right. 

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

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

B-3

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

          WITNESS
the facsimile signature of the proper officers of the Company. 

	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Dated:

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 ATTEST:

 	
  

 	
 Communications
 Systems, Inc.

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 By

 	
  

 
	
 Title

 	
  

 	
  

 	
 Secretary

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Countersigned:

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 WELLS FARGO
 BANK, N.A.

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 By

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 Authorized
 Signature

 	
  

 	
  

 	
  

 

B-4

[Form of Reverse Side of Rights Certificate]

FORM OF ASSIGNMENT

(To be executed by the registered holder if
such

holder desires to transfer the Rights Certificate.)

          FOR
VALUE RECEIVED ____________________________________ hereby sells, assigns and
transfers unto ___________________________________________________________________________________ 

          (Please
print name and address of transferee) 

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

          The
undersigned hereby certifies (after due inquiry and to the best of its
knowledge) by checking the appropriate boxes that: 

                    (1)
this Rights Certificate 

[     ]
is

or 

[     ]
is not 

being sold,
assigned and transferred by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement); and 

                    (2)
the undersigned 

[     ]
did

or 

[     ]
did not 

acquire the
Rights evidenced by this Rights Certificate from any person who is, was or
subsequently became an Acquiring Person or an Affiliate or Associate of an
Acquiring Person. 

B-5

	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
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 Signature

 	
  

 

Signature
Medallion Guaranteed: 

NOTICE

          The
signature to the foregoing Assignment must correspond to the name as written
upon the face of this Rights Certificate in every particular, without
alteration or enlargement or any change whatsoever. 

B-6

FORM OF ELECTION TO EXERCISE

(To be
executed if holder desires to

exercise Rights represented by the

Rights Certificate.)

To: Communications Systems, Inc.:

          The
undersigned hereby irrevocably elects to exercise_______________Rights
represented by this Rights Certificate to purchase the shares of Preferred
Stock issuable upon the exercise of the Rights (or such other securities 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)

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
 (Please insert social security

 or other identifying number)

 	
  

 

          The
Rights Certificate indicating the balance, if any, of such Rights which may
still be exercised pursuant to Section 11(a)(ii) of the Rights Agreement shall
be returned to the undersigned unless such person requests that the Rights
Certificate be registered in the name of and delivered to: (complete only if
Rights Certificate is to be registered in a name other than the undersigned) 

	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
 (Please print name and address)

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
 (Please insert social security

 or other identifying number)

 	
  

 

B-7

          The
undersigned hereby certifies (after due inquiry and to the best of its knowledge)
by checking the appropriate boxes that: 

                    (1)
the Rights evidenced by this Rights Certificate 

[     ]
are 

or 

[     ]
are not 

being
exercised by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of an Acquiring Person (as such terms are defined in the
Rights Agreement); and 

                    (2)
the undersigned 

[     ]
did 

or 

[     ]
did not 

acquire the
Rights evidenced by this Rights Certificate from any person who is, was or subsequently
became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.

	
  

 	
  

 	
  

 	
  

 	
  

 
	
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 Signature 

 	
  

 

Signature
Medallion Guaranteed: 

NOTICE

The signature
to the foregoing Election to Exercise must correspond to the name as written
upon the face of this Rights Certificate in every particular, without
alteration or enlargement or any change whatsoever. 

B-8

EXHIBIT C 

SUMMARY OF SHAREHOLDER RIGHTS PLAN

          On
December 18, 2009 the Board of Directors of Communications Systems, Inc. (the
“Company”) adopted a shareholder rights plan (the “Rights Plan”). The purpose
of the Rights Plan is to deter certain coercive or abusive takeover tactics and
to encourage third parties interested in acquiring the Company to negotiate
with the Board and otherwise assist the Board in representing the interests of
all shareholders. The Rights Plan does not deter negotiated mergers or business
combinations that the Board determines to be in the best interests of the
Company and its stockholders. 

          To
implement the Rights Plan, the Board declared a dividend of one preferred stock
purchase right (the “Right”) for each outstanding share of the Company’s Common
Stock, $.05 par value per share (the “Common Stock”), payable to its shareholders
of record at the close of business on January 4, 2010 (the “Record Date”). Except as set forth below, each Right
entitles the registered holder to purchase from the Company one one-hundredth
(1/100) of a share of Series A Junior Participating Preferred Stock, no par
value (the “Preferred Stock”), at a price of Forty-one Dollars ($41) per one
one-hundredth of a share (the “Purchase Price”). The terms of the Rights are
set forth in a Rights Agreement dated as of December 23, 20009 (the “Rights Agreement”)
between the Company and Wells Fargo Bank, N.A., as Rights Agent. 

          Initially,
the Rights will be attached implicitly to all Common Stock certificates
representing shares then outstanding, and no separate Right certificates will
be distributed. Until the earlier to occur of ten days following (i) a public
announcement that, without the prior consent of the Board of Directors, a
person or group of affiliated or associated persons (an “Acquiring Person”) has
acquired, or obtained the right to acquire, beneficial ownership of voting
securities having 16.5% or more of the voting power of the Company (the “Stock
Acquisition Date”), or (ii) the commencement of (or a public announcement of an
intention to make) a tender offer or exchange offer which would result in any
person or group and related persons having beneficial ownership of voting
securities having 16.5% or more of the voting power of the Company (the earlier
of such dates referred to in (i) and (ii) above being called the “Distribution Date”),
the Rights will be evidenced, with respect to any of the Common Stock
certificates outstanding as of the Record Date, by such Common Stock
certificates. 

          The
Rights Agreement provides that, until the Distribution Date, the Rights will be
transferred with and only with Common Stock certificates. From as soon as
practicable after the Record Date and until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Stock certificates issued
after the Record Date upon transfer or new issuance of the Common Stock will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Stock outstanding as of
the Record Date will also constitute the transfer of the Rights associated with
the Common Stock represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights (“Rights
Certificates”) will be mailed to holders of record of the Common Stock as of
the close of business on the Distribution Date, and the separate Rights
Certificates alone will evidence the Rights. 

C-1

          The
Rights are not exercisable until the Distribution Date. The Rights will expire
on December 23, 2019, unless earlier redeemed by the Company as described
below. 

          In
the event that any person becomes the beneficial owner of 16.5% or more of the
voting power of the Company in a transaction which has not previously been
approved by a majority of the independent directors, ten (10) days thereafter
(the “Flip-In Event”) each holder of a Right will thereafter have the right to
receive, upon exercise thereof at the then current Purchase Price of the Right,
Common Stock (or, in certain circumstances, a combination of cash, other
property, Common Stock or other securities) which has a value of two times the
Purchase Price of the Right (such right being called the “Flip-In Right”). In
the event that the Company is acquired in a merger or other business
combination transaction where the Company is not the surviving corporation or
in the event that 50% or more of its assets, cash flow or earning power is
sold, proper provision shall be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the then
current Purchase Price of the Right, common stock of the acquiring entity which
has a value of two times the Purchase Price of the Right (such right being
called the “Flip-Over Right”). The holder of a Right will continue to have the
Flip-Over Right whether or not such holder exercises the Flip-In Right. Upon
the occurrence of the Flip-In Event, any Rights that are or were at any time
owned by an Acquiring Person shall become null and void insofar as they relate
to the Flip-In Right. 

          For
example, at a Purchase Price of Forty-one Dollars ($41) per Right, if any
person becomes the beneficial owner of 16.5% or more of the voting power of the
Company, ten (10) days thereafter each Right other than a Right owned by such
16.5% beneficial owner would entitle its holder to purchase Eighty-two Dollars
($82) worth of the Company’s Common Stock (or other consideration, as noted
above) for Forty-one Dollars ($41). Assuming that the Common Stock had a per
share value of Twelve Dollars ($12) at such time, the holder of each Right
would effectively be entitled to purchase 6 shares of Common Stock for
Forty-one Dollars ($41). 

          Similarly,
assuming, following the Stock Acquisition Date, the occurrence of a business
combination with another entity in which the Company’s Common Stock is
converted or exchanged, or a sale of 50% or more of the Company’s assets, cash
flow or earning power, each Right would entitle its holder to purchase
Eighty-two Dollars ($82) worth of the acquiring entity’s stock for Forty-one
Dollars ($41). 

          The
Purchase Price payable, and the number of shares of Preferred Stock or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of the Preferred
Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights
or warrants to subscribe for Preferred Stock or convertible securities at less
than the current market price of the Preferred Stock or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular quarterly cash dividends) or of subscription rights
or warrants (other than those referred to above). 

          At
any time after the acquisition by a person or group of affiliated or associated
persons of beneficial ownership of 16.5% or more of the voting power of the
Company and prior to the acquisition by such person or group of 50% or more of
the voting power of the Company, the Board of Directors of the Company may
exchange the Rights for shares of Common Stock (other than Rights owned by such
person or group which have become null and void), in whole or in part, at an
exchange ratio of the Purchase Price divided by the price per share of the
Common Stock at the time (subject to adjustment). 

C-2

          With
certain exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in the Purchase
Price. No fractions of shares will be issued and, in lieu thereof, an
adjustment in cash will be made based on the market price of the Preferred
Stock on the last trading date prior to the date of exercise. 

          At
any time prior to the earlier to occur of (i) the tenth day after the Stock
Acquisition Date, or (ii) the expiration of the Rights, the Company may redeem
the Rights in whole, but not in part, at a price of $.01 per Right (the
“Redemption Price”), which redemption shall be effective at such time as the
Board of Directors shall establish. Additionally, the majority of the members
of the Company’s Board of Directors may, following the tenth day after the
Stock Acquisition Date, redeem the then outstanding Rights in whole, but not in
part, at the Redemption Price provided that either (a) the Acquiring Person
reduces his, her or its beneficial ownership to less than 16.5% of the voting
power of the Company in a manner which is satisfactory to the majority of the
members of the Company’s Board of Directors and there are no other Acquiring
Persons, or (b) such redemption is incidental to a merger or other business
combination transaction or series of transactions involving the Company but not
involving an Acquiring Person or any person who was an Acquiring Person. The
redemption of Rights described in the preceding sentence shall be effective
only after ten (10) business days prior notice. Upon the effective date of the
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. 

          The
Preferred Stock purchasable upon exercise of the Rights will be nonredeemable.
Each share of Preferred Stock will have a preferential quarterly dividend in an
amount equal to 100 times the dividend declared on each share of Common Stock.
In the event of liquidation, the holders of Preferred Stock will receive a
preferred liquidation payment of $100 per whole share of Preferred Stock. Each
whole share of Preferred Stock will have 100 votes, voting together with the
Common Stock. In the event of any merger, consolidation or other transaction in
which Common Stock are exchanged, each share of Preferred Stock will be
entitled to receive 100 times the amount and type of consideration received per
share of Common Stock. The rights of the Preferred Stock as to dividends and
liquidations, and in the event of mergers and consolidations, are protected by
customary anti-dilution provisions. Fractional shares of Preferred Stock in
integral multiples of one one-hundredth of a share of Preferred Stock will be
issued unless the Company elects to distribute depositary receipts in lieu of
such fractional shares. In lieu of fractional shares other than fractions that
are multiples of one one-hundredth of a share, an adjustment in cash will be
made based on the market price of the Preferred Stock on the last trading date
prior to the date of exercise. 

          Until
a Right is exercised, it will not entitle the holder to any rights as a
shareholder of the Company (other than those as an existing shareholder),
including, without limitation, the right to vote or to receive dividends. 

C-3

          The
terms of the Rights may be amended by the Board of Directors of the Company (i)
prior to the Distribution Date in any manner, and (ii) on or after the
Distribution Date to cure any ambiguity, to correct or supplement any provision
of the Rights Agreement which may be defective or inconsistent with any other
provisions, or in any manner not adversely affecting the interests of the
holders of the Rights. 

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

C-4

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