Document:

Exhibit 10.1

 

November 22,
2005

 

Scott
McClendon

Chairman
of the Board

Overland
Storage, Inc.

4820
Overland Avenue

San Diego, CA  92123-1599

 

Re: Agreement to Decrease Annual Salary

 

Scott:

 

Reference is made to the Employment Agreement (the “Employment Agreement”)
and the Retention Agreement (the “Retention Agreement”), each dated March 12,
2001 and each between Overland Storage, Inc. (the “Company”) and the
undersigned.  Capitalized terms used in
this letter that are not otherwise defined shall have the meanings given them
in the Employment Agreement and the Retention Agreement, as applicable.

 

I am writing this letter to confirm the voluntary offer I made at the November 15,
2005 meeting of the Board of Directors of the Company to have my gross annual
base salary reduced from $500,000 to $395,000, effective as of that date (the “Salary
Reduction”).  This reduction, if
accepted, will be binding going forward, and the Company, through its Board of
Directors, will have sole and absolute discretion to modify my compensation, as
set forth in Section 2.4 of the Employment Agreement, including any
increase in compensation. Please be advised that this offer is subject to our
understanding that (i) solely for purposes of determining the “Severance
Payment,” as defined in Section 5.2 of the Employment Agreement, “Base
Salary” shall be calculated using the greater of (x) my salary in effect
immediately prior to this reduction ($500,000) and (y) my salary in effect at
the time of termination of my employment; and (ii) solely for purposes of determining
the severance payable under Section 4.1(b) of the Retention
Agreement, “Base Salary” shall be calculated using the greatest of (x) my salary
in effect immediately prior to this reduction ($500,000), (y) my salary at the
time of a Change of Control and (z) my salary at the time of the Termination
Date.  For all other purposes of the
Employment Agreement and the Retention Agreement, “Base Salary” shall be $395,000.

 

I acknowledge and agree that the Salary Reduction will reduce the annual
bonus I am eligible for under Section 2.2 of the Employment Agreement and
accordingly, the “Target Bonus,” as defined in the Retention Agreement.  I further acknowledge and agree that (i) the
Salary Reduction does not and will not constitute “Good Reason” under either Section 5.3
of the Employment Agreement or under Section 1.5 of the Retention
Agreement, and (ii) nothing in this letter shall be deemed to restrict or
otherwise limit the Company’s right to modify my compensation in the future pursuant
to Section 2.4 of the Employment Agreement, inclusive of the right to
reduce my Base Salary by 10% without giving rise to “Good Reason” under Section 5.3
of the Employment Agreement or Section 1.5 of the Retention Agreement.

 

1

 

Please
execute the acknowledgment below to indicate your agreement with the foregoing.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  /s/
  Christopher Calisi

  	
   

  
	
   

  	
  Christopher
  Calisi

  

 

 

ACKNOWLEDGED
AND AGREED TO:

 

 

	
  By:

  	
  /s/ Scott McClendon

  	
   

  
	
   

  	
  Scott
  McClendon, Chairman of the Board

  

 

2Exhibit 10.1

 

FIRST AMENDMENT TO CREDIT AGREEMENT

 

THIS FIRST AMENDMENT TO
CREDIT AGREEMENT (this “Amendment”) is entered into as of November 22,
2005 by and between INFOSONICS CORPORATION, a Maryland corporation (“Borrower”),
and WELLS FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION (“Trade Bank”).

 

RECITALS

 

WHEREAS,
Borrower is currently indebted to Trade Bank pursuant to the terms and
conditions of that certain Credit Agreement between Borrower and Trade Bank
dated as of October 6, 2005, as amended from time to time (“Credit
Agreement”).

 

WHEREAS, Trade Bank and
Borrower have agreed to certain changes in the terms and conditions set forth
in the Credit Agreement and have agreed to amend the Credit Agreement to
reflect said changes.

 

NOW,
THEREFORE, for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree that the Credit Agreement shall
be amended as follows:

 

I.                                         Article I.  CREDIT
FACILITY.  Section 1.2
Credit Extension Limit is
hereby deleted in its entirety, and the following substituted therefor:

 

“1.2  Credit
Extension Limit.  The
aggregate outstanding amount of all Credit Extensions may at no time exceed the
lesser of (a) Twenty-five Million Dollars ($25,000,000) or (b) the
sum of Borrowing Base, plus any outstandings on the Standby Letters of Credit
subfacility from the date hereof through February 28, 2006, or (c) the
sum of Borrowing Base, less any outstandings on the Standby Letters of Credit
subfacility from March 1, 2006 and thereafter (“Overall Credit Limit”).  The aggregate outstanding amount of all
Credit Extensions outstanding at any time under the Revolving Credit Facility
may not excess that amount specified as the “Credit Limit” in the Supplement
for the Facility, and the aggregate outstanding amount of all Credit Extensions
outstanding at any time under each Subfacilitiy (or any subcategory thereof)
may not exceed that amount specified as the “Credit Sublimit” in the Supplement
for the Facility.  An amount equal to
100% of each unfunded Credit Extension shall be used in calculating the
outstanding amount of Credit Extensions under this Agreement.

 

The Subfacility of the
Revolving Credit Facility is Sandby Letters of Credit.”

 

 

II.                                     EXHIBIT B – REVOLVING CREDIT FACILITY SUPPLEMENT
shall be deleted in its entirety, and the attached EXHIBIT B – REVOLVING CREDIT FACILITY

 

SUPPLEMENT,
all terms of which are incorporated herein by this reference, shall be
substituted therefor.

 

Except
as specifically provided herein, all terms and conditions of the Credit
Agreement remain in full force and effect, without waiver or modification.  All terms defined in the Credit Agreement
shall have the same meaning when used in this Amendment.  This Amendment and the Credit Agreement shall
be read together, as one document.

 

Borrower
hereby remakes all representations and warranties contained in the Credit
Agreement and reaffirms all covenants set forth therein. Borrower further
certifies that as of the date of this Amendment there exists no Event of
Default as defined in the Credit Agreement, nor any condition, act or event
which with the giving of notice or the passage of time or both would constitute
any such Event of Default.

 

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

 

 

	
  INFOSONICS
  CORPORATION

  	
  WELLS FARGO HSBC
  TRADE BANK,

  NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/

  	
  Joseph Ram

  	
   

  	
  By:

  	
  /s/ Dean Yasuda

  	
   

  
	
   

  	
   

  	
  Joseph Ram

  	
   

  	
   

  	
  Dean Yasuda

  	
   

  
	
  Title:

  	
  Chief Executive
  Officer

  	
   

  	
  Title:

  	
  Vice PresidentExhibit 4.01

 

DIGIRAD
CORPORATION

 

And

 

AMERICAN STOCK TRANSFER & TRUST COMPANY

 

 

PREFERRED STOCK RIGHTS AGREEMENT

 

Dated as of November 22, 2005

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 1.

  	
  Certain Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 2.

  	
  Appointment of Rights Agent

  	
  7

  
	
   

  	
   

  	
   

  
	
  Section 3.

  	
  Issuance of Rights Certificates

  	
  7

  
	
   

  	
   

  	
   

  
	
  Section 4.

  	
  Form of Rights Certificates

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 5.

  	
  Countersignature and Registration

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 6.

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

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 7.

  	
  Exercise of Rights; Exercise Price; Expiration Date
  of Rights

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 8.

  	
  Cancellation and Destruction of Rights Certificates

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 9.

  	
  Reservation and Availability of Preferred Shares

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 10.

  	
  Record Date

  	
  14

  
	
   

  	
   

  	
   

  
	
  Section 11.

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

  	
  15

  
	
   

  	
   

  	
   

  
	
  Section 12.

  	
  Certificate of Adjusted Exercise
  Price or Number of Shares

  	
  21

  
	
   

  	
   

  	
   

  
	
  Section 13.

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

  	
  21

  
	
   

  	
   

  	
   

  
	
  Section 14.

  	
  Fractional Rights and Fractional
  Shares

  	
  25

  
	
   

  	
   

  	
   

  
	
  Section 15.

  	
  Rights of Action

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 16.

  	
  Agreement of Rights Holders

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 17.

  	
  Rights Certificate Holder Not
  Deemed a Stockholder

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 18.

  	
  Concerning the Rights Agent

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 19.

  	
  Merger or Consolidation or Change
  of Name of Rights Agent

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 20.

  	
  Duties of Rights Agent

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 21.

  	
  Change of Rights Agent

  	
  30

  

 

ii

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 22.

  	
  Issuance of New Rights Certificates

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 23.

  	
  Redemption

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 24.

  	
  Exchange

  	
  32

  
	
   

  	
   

  	
   

  
	
  Section 25.

  	
  Notice of Certain Events

  	
  34

  
	
   

  	
   

  	
   

  
	
  Section 26.

  	
  Notices

  	
  34

  
	
   

  	
   

  	
   

  
	
  Section 27.

  	
  Supplements and Amendments

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 28.

  	
  Successors

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 29.

  	
  Determinations and Actions by the
  Board of Directors, etc

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 30.

  	
  Benefits of this Agreement

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 31.

  	
  Severability

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 32.

  	
  Governing Law

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 33.

  	
  Counterparts

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 34.

  	
  Descriptive Headings

  	
  36

  
	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  Form of Certificate of Designation

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
  Form of Rights Certificate

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
  Summary of Rights

  	
   

  

 

iii

 

PREFERRED STOCK RIGHTS AGREEMENT

 

This Preferred Stock
Rights Agreement is dated as of November 22, 2005, between Digirad
Corporation, a Delaware corporation, (the “Company”),
and American Stock Transfer & Trust Company (the “Rights
Agent”).

 

On November 21, 2005,
(the “Rights Dividend Declaration Date”),
the Board of Directors of the Company authorized and declared a dividend of one
Preferred Share Purchase Right (a “Right”)
for each Common Share (as hereinafter defined) of the Company outstanding as of
the Close of Business (as hereinafter defined) on December 12, 2005 (the “Record Date”), each Right
representing the right to purchase one one-thousandth (0.001) of a share of Series A
Participating Preferred Stock (as such number may be adjusted pursuant to the
provisions of this Agreement), having the rights, preferences and privileges
set forth in the form of Certificate of Designations of Rights, Preferences and
Privileges of Series A Participating Preferred Stock attached hereto as Exhibit A,
upon the terms and subject to the conditions herein set forth, and further
authorized and directed the issuance of one Right (as such number may be
adjusted pursuant to the provisions of this Agreement) with respect to each
Common Share that shall become outstanding between the Record Date and the
earlier of the Distribution Date and the Expiration Date (as such terms are
hereinafter defined), and in certain circumstances after the Distribution Date.

 

NOW, THEREFORE, in
consideration of the promises 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, who or which, together with all Affiliates and Associates of such
Person, shall be the Beneficial Owner of 20% or more of the Common Shares then
outstanding, but shall not include 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 holding Common Shares for or pursuant to the terms of
any such plan.  Notwithstanding the foregoing, no Person shall be deemed
to be an Acquiring Person as the result of an acquisition of Common Shares by
the Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 20% or more
of the Common Shares of the Company then outstanding; provided, however,
that if a Person shall become the Beneficial Owner of 20% or more of the Common
Shares of the Company then outstanding by reason of share purchases by the
Company and shall, after such share purchases by the Company, become the
Beneficial Owner of any additional Common Shares of the Company (other than
pursuant to a dividend or distribution paid or made by the Company on the
outstanding Common Shares in Common Shares or pursuant to a split or subdivision
of the outstanding Common Shares), then such Person shall be deemed to be an
Acquiring Person unless upon becoming the Beneficial Owner of such additional
Common Shares of the Company such Person does not beneficially own

 

 

20% or more of the Common Shares of the Company then
outstanding.  Notwithstanding the
foregoing, (i) if the Company’s Board of Directors determines in good
faith that a Person who would otherwise be an “Acquiring Person,” as defined
pursuant to the foregoing provisions of this paragraph (a), has become such
inadvertently (including, without limitation, because (A) such Person was
unaware that it beneficially owned a percentage of the Common Shares that would
otherwise cause such Person to be an “Acquiring Person,” as defined pursuant to
the foregoing provisions of this paragraph (a), or (B) such Person was
aware of the extent of the Common Shares it beneficially owned but had no
actual knowledge of the consequences of such beneficial ownership under this
Agreement) and without any intention of changing or influencing control of the
Company, and if such Person divested or divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer be an “Acquiring
Person,” as defined pursuant to the foregoing provisions of this paragraph (a),
then such Person shall not be deemed to be or to have become an “Acquiring
Person” for any purposes of this Agreement including, without limitation Section 1(gg)
hereof; and (ii) if, as of the date hereof, any Person is the Beneficial
Owner of 20% or more of the Common Shares outstanding, such Person shall not be
or become an “Acquiring Person,” as defined pursuant to the foregoing
provisions of this paragraph (a), unless and until such time as such Person
shall become the Beneficial Owner of additional Common Shares (other than
pursuant to a dividend or distribution paid or made by the Company on the
outstanding Common Shares in Common Shares or pursuant to a split or
subdivision of the outstanding Common Shares), unless, upon becoming the
Beneficial Owner of such additional Common Shares, such Person is not then the
Beneficial Owner of 20% or more of the Common Shares then outstanding.

 

(b)           “Adjustment Fraction” shall have the
meaning set forth in Section 11(a)(i) hereof.

 

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

 

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

 

(i)            which
such Person or any of such Person’s Affiliates or Associates beneficially owns,
directly or indirectly, for purposes of Section 13(d) of the Exchange
Act and Rule 13d-3 thereunder (or any comparable or successor law or
regulation);

 

(ii)           which such
Person or any of such Person’s Affiliates or Associates has (A) the right
to acquire (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; provided, however, that a
Person shall not be deemed pursuant to this Section 1(d)(ii)(A) to be
the Beneficial Owner of, or to beneficially own, (1) securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person’s Affiliates or Associates until such tendered securities
are accepted for purchase

 

2

 

or exchange, or (2) securities which a Person or
any of such Person’s Affiliates or Associates may be deemed to have the right
to acquire pursuant to any merger or other acquisition agreement between the
Company and such Person (or one or more of its Affiliates or Associates) if
such agreement has been approved by the Board of Directors of the Company prior
to there being an Acquiring Person; or (B) the right to vote pursuant to
any agreement, arrangement or understanding; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security under this Section 1(d)(ii)(B) if the agreement,
arrangement or understanding to vote such security (1) arises solely from
a revocable proxy or consent given to such Person in response to a public proxy
or consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations of the Exchange Act and (2) is not
also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or

 

(iii)          which
are beneficially owned, directly or indirectly, by any other Person (or any
Affiliate or Associate thereof) with which such Person or any of such Person’s
Affiliates or Associates has any agreement, arrangement or understanding,
whether or not in writing (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities) for the purpose of acquiring, holding, voting (except
to the extent contemplated by the proviso to Section 1(d)(ii)(B)) or disposing
of any securities of the Company; provided, however, that in no
case shall an officer or director of the Company be deemed (x) the
Beneficial Owner of any securities beneficially owned by another officer or
director of the Company solely by reason of actions undertaken by such persons
in their capacity as officers or directors of the Company or (y) the
Beneficial Owner of securities held of record by the trustee of any employee
benefit plan of the Company or any Subsidiary of the Company for the benefit of
any employee of the Company or any Subsidiary of the Company, other than the
officer or director, by reason of any influence that such officer or director
may have over the voting of the securities held in the plan.

 

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

 

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

 

(g)           “Common Stock Equivalents” shall
have the meaning set forth in Section 11(a)(iii) hereof.

 

(h)           “Common Shares” when used with
reference to the Company shall mean the shares of Common Stock of the Company,
par value at $0.0001 per share.  Common
Shares when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.

 

3

 

(i)            “Company” shall mean Digirad Corporation,
a Delaware corporation, subject to the terms of Section 13(a)(iii)(C) hereof.

 

(j)            “Current Per Share Market Price” of
any security (a “Security” for purposes of this definition), for all
computations other than those made pursuant to Section 11(a)(iii) hereof,
shall mean the average of the daily closing prices per share of such Security
for the thirty (30) consecutive Trading Days immediately prior to such date,
and for purposes of computations made pursuant to Section 11(a)(iii) hereof,
the Current Per Share Market Price of any Security on any date shall be deemed
to be the average of the daily closing prices per share of such Security for
the ten (10) consecutive Trading Days immediately prior to such date; provided,
however, that in the event that the Current Per Share Market Price of
the Security is determined during a period following the announcement by the
issuer of such Security of (i) a dividend or distribution on such Security
payable in shares of such Security or securities convertible into such shares
or (ii) any subdivision, combination or reclassification of such Security,
and prior to the expiration of the applicable thirty (30) Trading Day or ten (10) Trading
Day period, after the ex-dividend date for such dividend or distribution, or
the record date for such subdivision, combination or reclassification, then,
and in each such case, the Current Per Share Market Price shall be
appropriately adjusted to reflect the current market price per share equivalent
of such Security.  The closing price for
each day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Security is not listed or
admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Security is
listed or admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last sale price or, if such
last sale price is not reported, the average of the high bid and low asked
prices in the over-the-counter market, as reported by Nasdaq or such other
system then in use, or, if on any such date the Security is not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Security selected by the
Board of Directors of the Company.  If on
any such date no market maker is making a market in the Security, the fair value
of such shares on such date as determined in good faith by the Board of
Directors of the Company shall be used. 
If the Preferred Shares are not publicly traded, the Current Per Share
Market Price of the Preferred Shares shall be conclusively deemed to be
(x) the Current Per Share Market Price of the Common Shares as determined
pursuant to this Section 1(i), as appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof, multiplied by (y) 1,000.  If
the Security is not publicly held or so listed or traded, Current Per Share
Market Price shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent and shall be conclusive for all
purposes.

 

(k)           “Current Value” shall have the
meaning set forth in Section 11(a)(iii) hereof.

 

(l)            “Distribution Date” shall mean the
earlier of (i) the Close of Business on the tenth (10th) day (or
such later date as may be determined by action of the Company’s Board of

 

4

 

Directors) after the Shares Acquisition Date (or, if
the tenth (10th) day after the Shares Acquisition Date occurs before
the Record Date, the Close of Business on the Record Date) or (ii) the
Close of Business on the tenth (10th) Business Day (or such later
date as may be determined by action of the Company’s Board of Directors) after
the date that a tender or exchange offer by any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the Company or of
any Subsidiary of the Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan) is
first published or sent or given within the meaning of Rule 14d-2(a) of
the General Rules and Regulations under the Exchange Act, if, assuming the
successful consummation thereof, such Person would be an Acquiring Person.

 

(m)          “Equivalent Shares” shall mean
Preferred Shares and any other class or series of capital stock of the
Company which is entitled to the same rights, privileges and preferences
as the Preferred Shares.

 

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

 

(o)           “Exchange Ratio” shall have the
meaning set forth in Section 24(a) hereof.

 

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

 

(q)           “Expiration Date” shall mean the
earliest to occur of: (i) the Close of Business on the Final Expiration
Date, (ii) the Redemption Date, or (iii) the time at which the Board
of Directors orders the exchange of the Rights as provided in Section 24
hereof.

 

(r)            “Final Expiration Date” shall mean December 12,
2015.

 

(s)           “Nasdaq”  shall mean The Nasdaq Stock
Market, Inc.

 

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

 

(u)           “Post-Event Transferee” shall have
the meaning set forth in Section 7(e) hereof.

 

(v)           “Preferred Shares” shall mean shares
of Series A Participating Preferred Stock, par value $0.0001 per share, of
the Company.

 

(w)          “Pre-Event Transferee” shall have
the meaning set forth in Section 7(e) hereof.

 

(x)            “Principal Party”  shall have the
meaning set forth in Section 13(b) hereof.

 

(y)           “Record Date” shall have the meaning
set forth in the recitals at the beginning of this Agreement.

 

5

 

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

 

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

 

(bb)         “Rights Agent” shall mean (i) American
Stock Transfer & Trust Company, (ii) its successor or replacement
as provided in Sections 19 and 21 hereof or (iii) any additional
Person appointed pursuant to Section 2 hereof.

 

(cc)         “Rights Certificate”  shall mean a
certificate substantially in the form attached hereto as Exhibit B.

 

(dd)         “Rights Dividend Declaration Date”
shall have the meaning set forth in the recitals at the beginning of this
Agreement.

 

(ee)         “Section 11(a)(ii) Trigger Date”
shall have the meaning set forth in Section 11(a)(iii) hereof.

 

(ff)           “Section 13 Event” shall mean
any event described in clause (i), (ii) or (iii) of Section 13(a) hereof.

 

(gg)         “Securities Act” shall mean the
Securities Act of 1933, as amended.

 

(hh)         “Shares Acquisition Date” shall mean
the first date of public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to Section 13(d) of
the Exchange Act) by the Company or an Acquiring Person that an Acquiring
Person has become such; provided that, if such Person is determined not
to have become an Acquiring Person pursuant to Section 1(a) hereof,
then no Shares Acquisition Date shall be deemed to have occurred by virtue of
such event.

 

(ii)           “Spread” shall have the meaning set
forth in Section 11(a)(iii) hereof.

 

(jj)           “Subsidiary” of any Person shall
mean any corporation or other entity of which an amount of voting securities
sufficient to elect a majority of the directors or Persons having similar
authority of such corporation or other entity is beneficially owned, directly
or indirectly, by such Person, or any corporation or other entity otherwise
controlled by such Person.

 

(kk)         “Substitution Period” shall have the
meaning set forth in Section 11(a)(iii) hereof.

 

(ll)           “Summary of Rights”  shall mean a
summary of this Agreement substantially in the form attached hereto as Exhibit C.

 

(mm)       “Total Exercise Price” shall have
the meaning set forth in Section 4(a) hereof.

 

6

 

(nn)         “Trading Day” shall mean a day on
which the principal national securities exchange on which a referenced security
is listed or admitted to trading is open for the transaction of business or, if
a referenced security is not listed or admitted to trading on any national
securities exchange, a Business Day.

 

(oo)         A “Triggering Event” shall be deemed
to have occurred upon any Person becoming an Acquiring Person.

 

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 Shares) in accordance with the terms and conditions hereof, and
the Rights Agent hereby accepts such appointment.  The Company may from time to time appoint
such co-Rights Agents as it may deem necessary or desirable, upon ten (10) days’
prior written notice to the Rights Agent. 
The Rights Agent shall have no duty to supervise, and shall in no event
be liable for, the acts or omissions of any co-Rights Agent.

 

Section 3.               Issuance
of Rights Certificates.

 

(a)           Until
the Distribution Date, (i) the Rights will be evidenced (subject to the
provisions of Sections 3(b) and 3(c) hereof) by the certificates
for Common Shares registered in the names of the holders thereof (which
certificates shall also be deemed to be Rights Certificates) and not by
separate Rights Certificates and (ii) the right to receive Rights
Certificates will be transferable only in connection with the transfer of
Common Shares.  Until the earlier of the
Distribution Date or the Expiration Date, the surrender for transfer of certificates
for Common Shares shall also constitute the surrender for transfer of the
Rights associated with the Common Shares represented thereby.  As soon as practicable after the Distribution
Date, the Company will prepare and execute, the Rights Agent will countersign,
and the Company will send or cause to be sent (and the Rights Agent will, if
requested, send) by first-class, postage-prepaid mail, to each record holder of
Common Shares as of the Close of Business on the Distribution Date, at the address
of such holder shown on the records of the Company, a Rights Certificate
evidencing one Right for each Common Share so held, subject to adjustment as
provided herein.  In the event that an
adjustment in the number of Rights per Common Share has been made pursuant to Section 11
hereof, then at the time of distribution of the Rights Certificates,
the Company shall make the necessary and appropriate rounding adjustments
(in accordance with Section 14(a) hereof) so that Rights Certificates
representing only whole numbers of Rights are distributed and cash is paid in
lieu of any fractional Rights (in accordance with Section 14(a) hereof).  As of the Distribution Date, the Rights will
be evidenced solely by such Rights Certificates and may be transferred by the
transfer of the Rights Certificates as permitted hereby, separately and apart
from any transfer of Common Shares, and the holders of such Rights Certificates
as listed in the records of the Company or any transfer agent or registrar for
the Rights shall be the record holders thereof.

 

(b)           On
the Record Date or as soon as practicable thereafter, the Company will send a
copy of the Summary of Rights by first-class, postage-prepaid mail, to each
record holder of Common Shares as of the Close of Business on the Record Date,
at the address of such holder shown

 

7

 

on the records of the Company’s transfer agent and
registrar.  With respect to certificates
for Common Shares outstanding as of the Record Date, until the Distribution
Date, the Rights will be evidenced by such certificates registered in the names
of the holders thereof together with the Summary of Rights.

 

(c)           Unless
the Board of Directors by resolution adopted at or before the time of the
issuance of any Common Shares after the Record Date but prior to the earlier of
the Distribution Date or the Expiration Date (or, in certain circumstances
provided in Section 22 hereof, after the Distribution Date) specifies to
the contrary, Rights shall be issued in respect of all Common Shares that are
so issued, and Certificates representing such Common Shares shall also be
deemed 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 A RIGHTS AGREEMENT BETWEEN DIGIRAD CORPORATION AND AMERICAN
STOCK TRANSFER & TRUST COMPANY, AS THE RIGHTS AGENT, DATED AS OF
NOVMEBER 22, 2005 (THE “RIGHTS AGREEMENT”), THE TERMS OF WHICH ARE HEREBY
INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL EXECUTIVE OFFICES OF DIGIRAD CORPORATION 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. THE COMPANY
WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT
WITHOUT CHARGE AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR.  UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE
RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR
BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON
BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY BECOME NULL AND
VOID.

 

With respect
to such certificates containing the foregoing legend, until the earlier of the
Distribution Date or the Expiration Date, the Rights associated with the Common
Shares represented by such certificates shall be evidenced by such certificates
alone, and the surrender for transfer of any such certificate shall also
constitute the transfer of the Rights associated with the Common Shares
represented thereby.

 

(d)           In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed canceled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.

 

8

 

Section 4.               Form of
Rights Certificates.

 

(a)           The
Rights Certificates (and the forms of election to purchase Common Shares and of
assignment to be printed on the reverse thereof) shall be substantially in the
form of Exhibit B hereto and may have such marks of identification
or designation and such legends, summaries or endorsements printed thereon as
the Company may deem appropriate and are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any applicable law or
with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange or a national market system, on which the
Rights may from time to time be listed or included, 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 (or in the case of Rights issued with
respect to Common Shares issued by the Company after the Record Date, as of the
date of issuance of such Common Shares) and on their face shall entitle the
holders thereof to purchase such number of one-thousandths (0.001) of a
Preferred Share as shall be set forth therein at the price set forth therein
(such exercise price per one one-thousandth (0.001) of a Preferred Share being
hereinafter referred to as the “Exercise Price”
and the aggregate Exercise Price of all Preferred Shares issuable upon exercise
of one Right being hereinafter referred to as the “Total
Exercise Price”), but the number and type of securities
purchasable upon the exercise of each Right and the Exercise 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 Post-Event Transferee, (iii) a
Pre-Event Transferee or (iv) any subsequent transferee receiving
transferred Rights from a Post-Event Transferee or a Pre-Event Transferee,
either directly or through one or more intermediate transferees, 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) 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 THE RIGHTS
AGREEMENT.

 

Section 5.               Countersignature
and Registration.

 

(a)           The
Rights Certificates shall be executed on behalf of the Company by its Chairman
of the Board, its Chief Executive Officer, its Chief Financial Officer, its
President or any Vice President, either manually or by facsimile signature, and
by the Secretary or an Assistant Secretary of the Company, either manually or
by facsimile signature, and shall have affixed thereto the Company’s seal (if
any) or a facsimile thereof.  The Rights
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. 
In

 

9

 

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 on behalf of
the Company had not ceased to be such officer of the Company; and any Rights
Certificate 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
office designated for such purposes, 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 Sections 7(e), 14 and 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 Rights Certificates
may be transferred, split up, combined or exchanged for another Rights
Certificate or Rights Certificates, entitling the registered holder to purchase
a like number of one-thousandths (0.001) of a Preferred Share (or, following a
Triggering Event, other securities, cash or other assets, as the case may be)
as the Rights Certificate or Rights Certificates surrendered then entitled such
holder to purchase.  Any registered
holder desiring to transfer, split up, combine or exchange any Rights Certificate
or Rights Certificates 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 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 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 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
Sections 7(e), 14 and 24 hereof, 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 from the registered holder 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.

 

(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, at the

 

10

 

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

 

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

 

(a)           Subject
to Sections 7(e), 23(b) and 24(b) hereof, the registered holder
of any Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein) in whole or in part at any time after the
Distribution Date and prior to the Close of Business on the Expiration Date by
surrender of the Rights Certificate, with the form of election to purchase on
the reverse side thereof duly executed, to the Rights Agent at the office of
the Rights Agent designated for such purpose, together with payment of the
Exercise Price for each one-thousandth (0.001) of a Preferred Share (or,
following a Triggering Event, other securities, cash or other assets as the
case may be) as to which the Rights are exercised.

 

(b)           The
Exercise Price for each one-thousandth (0.001) of a Preferred Share issuable
pursuant to the exercise of a Right shall initially be $20.00 shall be subject to adjustment from time
to time as provided in Sections 11 and 13 hereof and shall be payable in
lawful money of the United States of America in accordance with paragraph (c) below.

 

(c)           Upon
receipt of a Rights Certificate representing exercisable Rights, with the form
of election to purchase duly executed, accompanied by payment of the Exercise
Price for the number of one-thousandths (0.001) of a Preferred Share (or,
following a Triggering Event, other securities, cash or other assets as the
case may be) to be purchased and an amount equal to any applicable transfer tax
required to be paid by the holder of such Rights Certificate in accordance with
Section 9(e) hereof, the Rights Agent shall, subject to Section 20(k)
hereof, thereupon promptly (i) (A) requisition from any transfer
agent of the Preferred Shares (or make available, if the Rights Agent is the
transfer agent for the Preferred Shares) a certificate or certificates for the
number of one-thousandths (0.001) of a Preferred Share (or, following a
Triggering Event, other securities, cash or other assets as the case may be) to
be purchased and the Company hereby irrevocably authorizes its transfer agent
to comply with all such requests or (B) if the Company shall have elected
to deposit the total number of one-thousandths (0.001) of a Preferred Share
(or, following a Triggering Event, other securities, cash or other assets as
the case may be) issuable upon exercise of the Rights hereunder with a
depository agent, requisition from the depository agent depository receipts
representing such number of one-thousandths (0.001) of a Preferred Share (or,
following a Triggering Event, other securities, cash or other assets as the
case may be) as are to be purchased (in which case certificates for the
Preferred Shares (or, following a Triggering Event, other securities, cash or
other assets as the case may be) represented by such receipts shall be
deposited by the transfer agent with the depository agent) and the Company
hereby directs the depository agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof, (iii) after
receipt of such certificates or depository receipts, cause the same to be
delivered to or upon the order

 

11

 

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 to or upon the order of
the registered holder of such Rights Certificate.  The payment of the Exercise Price (as such
amount may be reduced (including to zero) pursuant to Section 11(a)(iii) hereof)
and an amount equal to any applicable transfer tax required to be paid by the
holder of such Rights Certificate in accordance with Section 9(e) hereof,
may be made in cash or by certified bank check, cashier’s check or bank draft
payable to the order of the Company.  In
the event that the Company is obligated to issue securities of the Company
other than Preferred Shares, pay cash and/or distribute other property pursuant
to Section 11(a) hereof, the Company will make all arrangements
necessary so that such other securities, cash and/or other property are
available for distribution by the Rights Agent, if and when appropriate.

 

(d)           In
case the registered holder of any Rights Certificate shall exercise 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 to the registered holder of such Rights Certificate or to his or her duly
authorized assigns, subject to the provisions of Section 14 hereof.

 

(e)           Notwithstanding
anything in this Agreement to the contrary, from and after the first occurrence
of a Triggering Event, any Rights beneficially owned by (i) an Acquiring
Person or an Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such (a “Post-Event Transferee”), (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person
becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Company’s
Board of Directors has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this Section 7(e) (a
“Pre-Event Transferee”) or (iv) any
subsequent transferee receiving transferred Rights from a Post-Event Transferee
or a Pre-Event Transferee, either directly or through one or more intermediate
transferees, shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise.  The Company shall use all reasonable efforts
to ensure that the provisions of this Section 7(e) and Section 4(b) hereof
are complied with, but shall have no liability to any holder of Rights
Certificates or to any other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or any of such Acquiring
Person’s 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 upon the occurrence of any purported exercise as set forth in Section 7
unless such registered holder shall, in addition to having complied with the
requirements of subsection 7(a), have (i) completed and signed the
certificate contained in the form of election to purchase set forth on the
reverse side of the Rights Certificate surrendered for such exercise and (ii) provided
such additional

 

12

 

evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) 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 to any of its agents, be
delivered to the Rights Agent for cancellation or in canceled form, or, if
surrendered to the Rights Agent, shall be canceled by it, and no 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 Rights
Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof.  The Rights Agent shall
deliver all canceled Rights Certificates to the Company, or shall, at the
written request of the Company, destroy such canceled Rights Certificates, and
in such case shall deliver a certificate evidencing the destruction thereof to
the Company.

 

Section 9.               Reservation
and Availability of Preferred Shares.

 

(a)           The
Company covenants and agrees that it will use its best efforts to cause to be
reserved and kept available out of its authorized and unissued Preferred Shares
not reserved for another purpose (and, following the occurrence of a Triggering
Event, out of its authorized and unissued Common Shares and/or other
securities), the number of Preferred Shares (and, following the occurrence of
the Triggering Event, Common Shares and/or other securities) that will be
sufficient to permit the exercise in full of all outstanding Rights.

 

(b)           If
the Company shall hereafter list any of its Preferred Shares on a national
securities exchange, then so long as the Preferred Shares (and, following the
occurrence of a Triggering Event, Common Shares and/or other securities)
issuable and deliverable upon exercise of the Rights may be listed on such
exchange, the Company shall use its best efforts to cause, from and after such
time as the Rights become exercisable (but only to the extent that it is
reasonably likely that the Rights will be exercised), 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 earliest date after the first occurrence of a Triggering Event in
which the consideration to be delivered by the Company upon exercise of the
Rights is described in Section 11(a)(ii) or Section 11(a)(iii) hereof,
or as soon as is required by law following the Distribution Date, as the case
may be, a registration statement under the Securities Act with respect to 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
Securities Act) until the earlier of (A) the date as of which the Rights
are no longer exercisable for such securities and (B) the date of
expiration of the Rights.  The Company
may temporarily suspend, for a period not to exceed ninety (90) days after the
date set forth in clause (i) of the first sentence of this Section 9(c),
the

 

13

 

exercisability of the Rights in order to prepare and
file such registration statement and permit it to become effective.  Upon any such suspension, the Company shall
issue a public announcement stating, and notify the Rights Agent, that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement and notification to the Rights Agent at such time as the
suspension is no longer in effect.  The
Company will also take such action as may be appropriate under, or to ensure
compliance with, the securities or “blue sky” laws of the various states in
connection with the exercisability of the Rights.  Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction, unless the requisite qualification in such jurisdiction shall
have been obtained, or an exemption therefrom shall be available, and until a
registration statement has been declared and remains effective.

 

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

 

(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 original issuance or delivery of the Rights Certificates or of
any Preferred Shares (or other securities of the Company) 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 certificates or depository receipts for the Preferred
Shares (or other securities of the Company) in a name other than that of, the
registered holder of the Rights Certificate evidencing Rights surrendered for
exercise or to issue or to deliver any certificates or depository receipts for
Preferred Shares (or other securities of the Company) upon the exercise of any
Rights until any 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.             Record
Date.  Each Person in whose name any certificate for a number of
one-thousandths (0.001) of a Preferred Share (or other securities of the
Company) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of Preferred Shares (or other
securities of the Company) 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 Total Exercise Price with respect to which
the Rights have been exercised (and any applicable transfer taxes) was made; provided,
however, that if the date of such surrender and payment is a date upon
which the 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 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 holder of Preferred Shares (or other securities
of the Company) for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other

 

14

 

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 Exercise Price, Number of Shares or Number of Rights.  The Exercise
Price, the number and kind of shares or other property covered by each Right
and the number of Rights outstanding are subject to adjustment from time to
time as provided in this Section 11.

 

(a)           (i)      Anything
in this Agreement to the contrary notwithstanding, in the event that the
Company shall at any time after the date of this Agreement (A) declare a
dividend on the Preferred Shares payable in Preferred Shares, (B) subdivide
the outstanding Preferred Shares, (C) combine the outstanding Preferred
Shares (by reverse stock split or otherwise) into a smaller number of Preferred
Shares, or (D) issue any shares of its capital stock in a reclassification
of the Preferred Shares (including any such reclassification in connection with
a consolidation or merger in which the Company is the continuing or surviving
corporation), then, in each such event, except as otherwise provided in this Section 11
and Section 7(e) hereof: (1) the Exercise Price in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that the
Exercise Price thereafter shall equal the result obtained by dividing the
Exercise Price in effect immediately prior to such time by a fraction (the “Adjustment Fraction”), the
numerator of which shall be the total number of Preferred Shares (or shares of
capital stock issued in such reclassification of the Preferred Shares)
outstanding immediately following such time and the denominator of which shall
be the total number of Preferred Shares outstanding immediately prior to such
time; 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 such
Right; and (2) the number of one-thousandths (0.001) of a Preferred Share
(or share of such other capital stock) issuable upon the exercise of each Right
shall equal the number of one-thousandths (0.001) of a Preferred Share (or
share of such other capital stock) as was issuable upon exercise of a Right
immediately prior to the occurrence of the event described in clauses (A)-(D) of
this Section 11(a)(i), multiplied by the Adjustment Fraction; provided,
however, that, no such adjustment shall be made pursuant to this Section 11(a)(i) to
the extent that there shall have simultaneously occurred an event described in
clause (A), (B), (C) or (D) of Section 11(n) with a
proportionate adjustment being made thereunder.  Each Common Share that
shall become outstanding after an adjustment has been made pursuant to this Section 11(a)(i) shall
have associated with it the number of Rights, exercisable at the Exercise Price
and for the number of one-thousandths (0.001) of a Preferred Share (or shares
of such other capital stock) as one Common Share has associated with it
immediately following the adjustment made pursuant to this Section 11(a)(i).

 

(ii)      Subject to Section 24
of this Agreement, in the event that a Triggering Event shall have occurred,
then promptly following such Triggering Event each holder of a Right, except as
provided in Section 7(e) hereof, shall thereafter have the right to
receive for each Right, upon exercise thereof in accordance with the terms of
this Agreement and payment of the Exercise Price in effect immediately prior to
the occurrence of the Triggering Event, in lieu of a number of

 

15

 

one-thousandths (0.001) of a Preferred Share, such
number of Common Shares of the Company as shall equal the quotient
obtained by dividing (A) the product obtained by multiplying (1) the
Exercise Price in effect immediately prior to the occurrence of the Triggering
Event by (2) the number of one-thousandths (0.001) of a Preferred Share
for which a Right was exercisable (or would have been exercisable if the
Distribution Date had occurred) immediately prior to the first occurrence of a
Triggering Event, by (B) fifty percent (50%) of the Current Per Share
Market Price for Common Shares on the date of occurrence of the Triggering
Event; provided, however, that the Exercise Price and the number
of Common Shares of the Company so receivable upon exercise of a Right shall be
subject to further adjustment as appropriate in accordance with Section 11(e) hereof
to reflect any events occurring in respect of the Common Shares of the Company
after the occurrence of the Triggering Event.

 

(iii)      In lieu of
issuing Common Shares in accordance with Section 11(a)(ii) hereof,
the Company may, if the Company’s Board of Directors determines that such
action is necessary or appropriate and not contrary to the interest of holders
of Rights and, in the event that the number of Common Shares which are authorized
by the Company’s Certificate of Incorporation but 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, or if any necessary
regulatory approval for such issuance has not been obtained by the Company, the
Company shall:  (A) determine the
excess of (1) the value of the Common Shares issuable upon the exercise of
a Right (the “Current Value”) over (2) the
Exercise Price (such excess, the “Spread”)
and (B) with respect to each Right, make adequate provision to substitute
for such Common Shares, upon exercise of the Rights, (1) cash, (2) a
reduction in the Exercise Price, (3) other equity securities of the
Company (including, without limitation, shares or units of shares of any series
of preferred stock which the Company’s Board of Directors has deemed to have
the same value as Common Shares (such shares or units of shares of preferred
stock are herein called “Common Stock Equivalents”)),
except to the extent that the Company has not obtained any necessary
stockholder or regulatory approval for such issuance, (4) debt securities
of the Company, except to the extent that the Company has not obtained any
necessary stockholder or regulatory approval for such issuance, (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 Company’s Board of Directors based upon the advice of a nationally
recognized investment banking firm selected by the Company’s Board of
Directors; provided, however, that if the Company shall not have
made adequate provision to deliver value pursuant to clause (B) above
within thirty (30) days following the later of (x) the first occurrence of
a Triggering 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 “Section 11(a)(ii) Trigger
Date”), then the Company shall be obligated to deliver, upon the
surrender for exercise of a Right and without requiring payment of the Exercise
Price, Common Shares (to the extent available), except to the extent that the
Company has not obtained any necessary stockholder or regulatory approval for such
issuance, and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread.  If
the Company’s Board of Directors shall determine in good faith that it is
likely that sufficient additional Common Shares could be authorized for
issuance upon exercise in full of the Rights or that any necessary regulatory
approval for such issuance will be obtained, the thirty (30) day period set
forth above may be extended to the extent necessary, but not more than

 

16

 

ninety (90) days after the Section 11(a)(ii) Trigger
Date, in order that the Company may seek stockholder approval for the
authorization of such additional shares or take action to obtain such
regulatory approval (such 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 any authorization of additional shares, to take any action to
obtain any required regulatory approval 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 Shares shall be the Current Per Share Market Price of
the Common Shares on the Section 11(a)(ii) Trigger Date and the value
of any Common Stock Equivalent shall be deemed to have the same value as the
Common Shares on such date.

 

(b)           In
case the Company shall, at any time after the date of this Agreement, fix a
record date for the issuance of rights, options or warrants to all holders of
Preferred Shares entitling such holders (for a period expiring within
forty-five (45) calendar days after such record date) to subscribe for or purchase
Preferred Shares or Equivalent Shares or securities convertible into Preferred
Shares or Equivalent Shares at a price per share (or having a conversion price
per share, if a security convertible into Preferred Shares or Equivalent
Shares) less than the then Current Per Share Market Price of the Preferred
Shares or Equivalent Shares on such record date, then, in each such case, the
Exercise Price to be in effect after such record date shall be determined by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of Preferred Shares
and Equivalent Shares (if any) outstanding on such record date, plus the number
of Preferred Shares or Equivalent Shares, as the case may be, which the
aggregate offering price of the total number of Preferred Shares or Equivalent
Shares, as the case may be, to be offered or issued (and/or the aggregate
initial conversion price of the convertible securities to be offered or issued)
would purchase at such current market price, and the denominator of which shall
be the number of Preferred Shares and Equivalent Shares (if any) outstanding on
such record date, plus the number of additional Preferred Shares or Equivalent
Shares, as the case may be, 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 Company’s Board of Directors, whose
determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and the holders of the
Rights.  Preferred Shares and Equivalent
Shares owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation.  Such adjustment shall be made successively
whenever such a record date is fixed, and in the event that such rights,
options or warrants are not so issued, the Exercise Price shall be

 

17

 

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

 

(c)           In
case the Company shall, at any time after the date of this Agreement, fix a
record date for the making of a distribution to all holders of the Preferred
Shares or of any class or series of Equivalent Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend, if any,
or a dividend payable in Preferred Shares) or subscription rights, options or
warrants (excluding those referred to in Section 11(b)), then, in each
such case, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the Current Per
Share Market Price of a Preferred Share or an Equivalent Share on such record
date, less the fair market value per Preferred Share or Equivalent Share (as
determined in good faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent) of the portion
of the cash, assets or evidences of indebtedness so to be distributed or of
such subscription rights or warrants applicable to a Preferred Share or
Equivalent Share, as the case may be, and the denominator of which shall be
such Current Per Share Market Price of a Preferred Share or Equivalent Share on
such record date; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable 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 Exercise Price shall be
adjusted to be the Exercise Price which would have been in effect if such
record date had not been fixed.

 

(d)           Anything
herein to the contrary notwithstanding, no adjustment in the Exercise Price
shall be required unless such adjustment would require an increase or decrease
of at least one percent (1%) of the Exercise Price; provided, however,
that any adjustments which by reason of this Section 11(d) 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 (0.0001) of a Common Share or other share or one
hundred-thousandth (0.00001) of a Preferred Share, as the case may be.  Notwithstanding the first sentence of this Section 11(d),
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
requires such adjustment or (ii) the Expiration Date.

 

(e)           If
as a result of an adjustment made pursuant to Section 11(a) or Section 13(a) hereof,
the holder of any Right thereafter exercised shall become entitled to receive
any shares of capital stock other than Preferred Shares, thereafter the number
of such other shares so receivable upon exercise of any Right and, if required,
the Exercise Price thereof, shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Preferred Shares contained in Sections 11(a), 11(b),
11(c), 11(d), 11(g), 11(h), 11(i), 11(j), 11(k) and 11(l), and the provisions
of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares shall
apply on like terms to any such other shares.

 

18

 

(f)            All Rights originally issued by the
Company subsequent to any adjustment made to the Exercise Price hereunder shall
evidence the right to purchase, at the adjusted Exercise Price, the number of
one-thousandths (0.001) of a Preferred Share purchasable from time to time
hereunder upon exercise of the Rights, all subject to further adjustment as
provided herein.

 

(g)           Unless the Company shall have
exercised its election as provided in Section 11(h), upon each adjustment
of the Exercise Price as a result of the calculations made in Section 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 Exercise
Price, that number of Preferred Shares (calculated to the nearest one
hundred-thousandth (0.00001) of a share) obtained by (i) multiplying
(x) the number of Preferred Shares covered by a Right immediately prior to
this adjustment, by (y) the Exercise Price in effect immediately prior to
such adjustment of the Exercise Price, and (ii) dividing the product so
obtained by the Exercise Price in effect immediately after such adjustment of
the Exercise Price.

 

(h)           The Company may elect on or after the
date of any adjustment of the Exercise Price as a result of the calculations
made in Section 11(b) or (c) to adjust the number of Rights, in
substitution for any adjustment in the number of Preferred Shares purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of
one-thousandths (0.001) of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. 
Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one
hundred-thousandth (0.00001)) obtained by dividing the Exercise Price in effect
immediately prior to adjustment of the Exercise Price by the Exercise Price in
effect immediately after adjustment of the Exercise 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 Exercise Price is adjusted or any day thereafter, but, if any
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(h), 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 Exercise
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.

 

(i)            Irrespective of any adjustment or
change in the Exercise Price or the number of Preferred Shares issuable upon
the exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Exercise Price per one one-thousandth
(0.001) of a

 

19

 

Preferred Share and the number of one-thousandths
(0.001) of a Preferred Share which were expressed in the initial Rights
Certificates issued hereunder.

 

(j)            Before taking any action that would
cause an adjustment reducing the Exercise Price below the par or stated value,
if any, of the number of one-thousandths (0.001) of a Preferred Share 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 as fully paid and nonassessable shares such number of
one-thousandths (0.001) of a Preferred Share at such adjusted Exercise Price.

 

(k)           In any case in which this Section 11
shall require that an adjustment in the Exercise 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 issuing to the holder of any Right exercised after
such record date of the number of one-thousandths (0.001) of a Preferred Share
and other capital stock or securities of the Company, if any, issuable upon
such exercise over and above the number of one-thousandths (0.001) of a Preferred
Share and other capital stock or securities of the Company, if any, issuable
upon such exercise on the basis of the Exercise 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 (fractional or
otherwise) upon the occurrence of the event requiring such adjustment.

 

(l)            Anything in this Section 11 to
the contrary notwithstanding, prior to the Distribution Date, the Company shall
be entitled to make such reductions in the Exercise Price, in addition to those
adjustments expressly required by this Section 11, as and to the extent
that it in its sole discretion shall determine to be advisable in order that
any (i) consolidation or subdivision of the Preferred or Common Shares, (ii) issuance
wholly for cash of any Preferred or Common Shares at less than the current
market price, (iii) issuance wholly for cash of Preferred or Common Shares
or securities which by their terms are convertible into or exchangeable for
Preferred or Common Shares, (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 or Common Shares shall not be
taxable to such stockholders.

 

(m)          The Company covenants and agrees that,
after the Distribution Date, it will not, except as permitted by Sections 23,
24 or 27 hereof, take (or permit to be taken) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by
the Rights.

 

(n)           In the event that the Company shall
at any time after the date of this Agreement (A) declare a dividend on the
Common Shares payable in Common Shares, (B) subdivide the outstanding
Common Shares, (C) combine the outstanding Common Shares (by reverse stock
split or otherwise) into a smaller number of Common Shares, or (D) issue
any shares of its capital stock in a reclassification of the Common Shares
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), then,
in each such event, except as otherwise provided in this Section 11(a) and
Section 7(e) hereof: (1) each Common Share (or shares of capital
stock issued in such

 

20

 

reclassification of the Common Shares) outstanding
immediately following such time shall have associated with it the number of
Rights as were associated with one Common Share immediately prior to the
occurrence of the event described in clauses (A)-(D) above; (2) the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification shall
be adjusted so that the Exercise Price thereafter shall equal the result
obtained by multiplying the Exercise Price in effect immediately prior to such
time by a fraction, the numerator of which shall be the total number of Common
Shares outstanding immediately prior to the event described in clauses (A)-(D) above,
and the denominator of which shall be the total number of Common Shares
outstanding immediately after such event; 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 such Right; and (3) the number of one-thousandths
(0.001) of a Preferred Share (or shares of such other capital stock) issuable
upon the exercise of each Right outstanding after such event shall equal the
number of one-thousandths (0.001) of a Preferred Share (or shares of such other
capital stock) as were issuable with respect to one Right immediately prior to
such event.  Each Common Share that shall
become outstanding after an adjustment has been made pursuant to this Section 11(n)
shall have associated with it the number of Rights, exercisable at the Exercise
Price and for the number of one-thousandths (0.001) of a Preferred Share (or
shares of such other capital stock) as one Common Share has associated with it
immediately following the adjustment made pursuant to this Section 11(n).  If an event occurs which would require an
adjustment under both this Section 11(n) and Section 11(a)(ii) hereof,
the adjustment provided for in this Section 11(n) shall be in addition to,
and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof.

 

Section 12.             Certificate of Adjusted Exercise
Price or Number of Shares.  Whenever an adjustment is made as provided
in Sections 11 and 13 hereof, the Company shall promptly (a) prepare
a certificate setting forth such adjustment and a brief statement of the facts
accounting for such adjustment, (b) file with the Rights Agent and with
each transfer agent for the Preferred Shares 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. 
Notwithstanding the foregoing sentence, the failure of the Company to
make such certification or give such notice shall not affect the validity of
such adjustment or the force or effect of the requirement for such adjustment.  The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment contained therein and
shall not be deemed to have knowledge of such adjustment unless and until it
shall have received such certificate.

 

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

 

(a)           In the event that, following a
Triggering Event, directly or indirectly:

 

(i)            the
Company shall consolidate with, or merge with and into, any other Person (other
than a wholly-owned Subsidiary of the Company in a transaction the principal
purpose of which is to change the state of incorporation of the Company and
which complies with Section 11(m) hereof);

 

21

 

(ii)           any
Person shall consolidate with the Company, or merge with and into the Company
and the Company shall be the continuing or surviving corporation of such
consolidation or merger and, in connection with such merger, all or part of the
Common Shares shall be changed into or exchanged for stock or other securities
of any other person (or the Company); or

 

(iii)          the
Company shall sell or otherwise transfer (or one or more of its Subsidiaries
shall sell or otherwise transfer), in one or more transactions, assets or
earning power aggregating fifty percent (50%) or more of the assets or earning
power of the Company and its Subsidiaries (taken as a whole) to any other
Person or Persons (other than the Company or one or more of its wholly owned
Subsidiaries in one or more transactions, each of which individually (and
together) complies with Section 11(m) hereof), then, concurrent with and
in each such case,

 

(A)  each holder of a Right (except as provided in Section 7(e) hereof)
shall thereafter have the right to receive, upon the exercise thereof at a
price equal to the Total Exercise Price applicable immediately prior to the
occurrence of the Section 13 Event in accordance with the terms of this
Agreement, such number of validly authorized and issued, fully paid,
nonassessable and freely tradeable Common Shares of the Principal Party (as
hereinafter defined), free of any liens, encumbrances, rights of first refusal
or other adverse claims, as shall be equal to the result obtained by dividing
such Total Exercise Price by an amount equal to fifty percent (50%) of the
Current Per Share Market Price of the Common Shares of such Principal Party on
the date of consummation of such Section 13 Event, provided, however,
that the Exercise Price and the number of Common Shares of such Principal Party
so receivable upon exercise of a Right shall be subject to further adjustment
as appropriate in accordance with Section 11(e) hereof;

 

(B)   such Principal Party shall thereafter be
liable for, and shall assume, by virtue of such Section 13 Event, all the
obligations and duties of the Company pursuant to this Agreement;

 

(C)   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 only to such Principal Party
following the first occurrence of a Section 13 Event;

 

(D)  such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares) in connection with the consummation of any such transaction as
may be necessary to ensure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights; and

 

(E)   upon the subsequent occurrence of any
consolidation, merger, sale or transfer of assets or other extraordinary
transaction in respect of such Principal Party, each holder of a Right shall
thereupon be entitled to receive, upon exercise of a Right and payment of the
Total Exercise Price as provided in this Section 13(a), such cash, shares,
rights, warrants and other property which such holder would have been entitled
to receive had such holder, at the time of such transaction, owned the Common
Shares of the Principal Party receivable upon the exercise of such Right
pursuant to this Section 13(a), and such Principal Party shall take such
steps (including, but

 

22

 

not limited to, reservation of shares of stock) as may
be necessary to permit the subsequent exercise of the Rights in accordance with
the terms hereof for such cash, shares, rights, warrants and other property.

 

(F)   For purposes hereof, the “earning power” of
the Company and its Subsidiaries shall be determined in good faith by the
Company’s Board of Directors on the basis of the operating income of each
business operated by the Company and its Subsidiaries during the three fiscal
years preceding the date of such determination (or, in the case of any business
not operated by the Company or any Subsidiary during three full fiscal years
preceding such date, during the period such business was operated by the
Company or any Subsidiary).

 

(b)           For purposes of this Agreement, the
term “Principal Party” shall mean:

 

(i)            in
the case of any transaction described in clause (i) or (ii) of Section 13(a) hereof:
(A) the Person that is the issuer of the securities into which the Common
Shares are converted in such merger or consolidation, or, if there is more than
one such issuer, the issuer the Common Shares of which have the greatest
aggregate market value of shares outstanding, or (B) if no securities are
so issued, (x) the Person that is the other party to the merger, if such
Person survives said merger, or, if there is more than one such Person, the Person
the Common Shares of which have the greatest aggregate market value of shares
outstanding or (y) if the Person that is the other party to the merger
does not survive the merger, the Person that does survive the merger (including
the Company if it survives) or (z) the Person resulting from the
consolidation; and

 

(ii)           in
the case of any transaction described in clause (iii) of Section 13(a) hereof,
the Person that is the party receiving the greatest portion of the assets or
earning power transferred pursuant to such transaction or transactions, or, if
more than one Person that is a party to such transaction or transactions
receives the same portion of the assets or earning power so transferred and
each such portion would, were it not for the other equal portions, constitute
the greatest portion of the assets or earning power so transferred, or if the
Person receiving the greatest portion of the assets or earning power cannot be
determined, whichever of such Persons is the issuer of Common Shares having the
greatest aggregate market value of shares outstanding; provided that in
any such case described in the foregoing clause (b)(i) or (b)(ii), if the
Common Shares of such Person are not at such time or have not been continuously
over the preceding 12-month period registered under Section 12 of the
Exchange Act, then (1) if such Person is a direct or indirect Subsidiary
of another Person the Common Shares of which are and have been so registered,
the term “Principal Party” shall refer to such other Person, or (2) if
such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Shares of which are and have been so registered, the term “Principal
Party” shall refer to whichever of such Persons is the issuer of Common Shares
having the greatest aggregate market value of shares outstanding, or (3) if
such Person is owned, directly or indirectly, by a joint venture formed by two
or more Persons that are not owned, directly or indirectly by the same Person,
the rules set forth in clauses (1) and (2) above shall apply to
each of the owners having an interest in the venture as if the Person owned by
the joint venture was a Subsidiary of both or all of such joint venturers, and
the Principal Party in each such case shall bear

 

23

 

the obligations set forth in this Section 13 in
the same ratio as its interest in such Person bears to the total of such
interests.

 

(c)           The Company shall not consummate any Section 13
Event unless the Principal Party shall have a sufficient number of authorized
Common Shares that 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 issuer shall have executed and
delivered to the Rights Agent a supplemental agreement confirming that such
Principal Party shall, upon consummation of such Section 13 Event, assume
this Agreement in accordance with Sections 13(a) and 13(b) hereof,
that all rights of first refusal or preemptive rights in respect of the
issuance of Common Shares of such Principal Party upon exercise of outstanding
Rights have been waived, that there are no 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 and that such transaction
shall not result in a default by such Principal Party under this Agreement, and
further providing that, as soon as practicable after the date of such Section 13
Event, such Principal Party will:

 

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

 

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

 

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

 

In the event that at any
time after the occurrence of a Triggering Event some or all of the Rights shall
not have been exercised at the time of a transaction described in this Section 13,
the Rights which have not theretofore been exercised shall thereafter be
exercisable in the manner described in Section 13(a) (without taking
into account any prior adjustment required by Section 11(a)(ii)).

 

(d)           In case the “Principal Party” for
purposes of Section 13(b) hereof has provision in any of its
authorized securities or in its certificate of incorporation or by-laws or
other instrument governing its corporate affairs, which provision would have
the effect of (i) causing such Principal Party to issue (other than to
holders of Rights pursuant to Section 13 hereof), in connection with, or
as a consequence of, the consummation of a Section 13 Event, Common Shares
or Equivalent Shares of such Principal Party at less than the then Current Per
Share Market Price

 

24

 

thereof or securities exercisable for, or convertible
into, Common Shares or Equivalent Shares of such Principal Party at less than
such then Current Per Share Market Price, or (ii) providing for any
special payment, tax or similar provision in connection with the issuance of
the Common Shares of such Principal Party pursuant to the provisions of Section 13
hereof, then, in such event, the Company hereby agrees with each holder of
Rights that it shall not consummate any such transaction unless prior thereto
the Company and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing that the provision in question
of such Principal Party shall have been canceled, waived or amended, or that
the authorized securities shall be redeemed, so that the applicable provision
will have no effect in connection with or as a consequence of, the consummation
of the proposed transaction.

 

(e)           The Company covenants and agrees that
it shall not, at any time after the Distribution Date, effect or permit to
occur any Section 13 Event, if (i) at the time or immediately after
such Section 13 Event there are any rights, warrants or other instruments
or securities outstanding or agreements in effect which would substantially
diminish or otherwise eliminate the benefits intended to be afforded by the
Rights, (ii) prior to, simultaneously with or immediately after such Section 13
Event, the stockholders of the Person who constitutes, or would constitute, the
“Principal Party” for purposes of Section 13(b) hereof shall have
received a distribution of Rights previously owned by such Person or any of its
Affiliates or Associates or (iii) the form or nature of organization of
the Principal Party would preclude or limit the exercisability of the Rights.

 

(f)            The provisions of this Section 13
shall similarly apply to successive mergers or consolidations or sales or other
transfers.

 

Section 14.             Fractional Rights and Fractional
Shares.

 

(a)           The Company shall not be required to
issue fractions of Rights or to distribute 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 the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable, as determined pursuant to
the second sentence of Section 1(i) hereof.

 

(b)           The Company shall not be required to
issue fractions of Preferred Shares (other than fractions that are integral
multiples of one one-thousandth (0.001) of a Preferred Share) upon exercise of
the Rights or to distribute certificates which evidence fractional Preferred
Shares (other than fractions that are integral multiples of one one-thousandth
(0.001) of a Preferred Share).  Interests
in fractions of Preferred Shares in integral multiples of one one-thousandth
(0.001) of a Preferred Share may, at the election of the Company, be evidenced
by depository receipts, pursuant to an appropriate agreement between the
Company and a depository selected by it; provided, that such agreement
shall provide that the holders of such depository receipts shall have all the
rights, privileges and preferences to which they are entitled as beneficial
owners of the Preferred Shares

 

25

 

represented by such depository receipts.  In lieu of fractional Preferred Shares that
are not integral multiples of one one-thousandth (0.001) of a Preferred Share,
the Company shall 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 a Preferred Share.  For purposes of this Section 14(b), the
current market value of a Preferred Share shall be (x) one thousand
multiplied by (y) the closing price of a Common Share (as determined
pursuant to the second sentence of Section 1(i) hereof) for the
Trading Day immediately prior to the date of such exercise.

 

(c)           The Company shall not be required to
issue fractions of Common Shares or to distribute certificates which evidence
fractional Common Shares upon the exercise or exchange of Rights.  In lieu of such fractional Common Shares, the
Company shall pay to the registered holders of 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 a Common Share.  For purposes of this Section 14(c), the
current market value of a Common Share shall be the closing price of a Common
Share (as determined pursuant to the second sentence of Section 1(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 Right expressly waives his or her right to receive any
fractional Rights or any fractional shares (other than fractions that are
integral multiples of one one-thousandth (0.001) of a Preferred Share) upon
exercise of a Right.

 

Section 15.             Rights of Action.  All
rights of action in respect of this Agreement, excepting the rights of action
given to the Rights Agent pursuant to 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 Shares); and any
registered holder of any Rights Certificate (or, prior to the Distribution
Date, of the Common Shares), without the consent of the Rights Agent or of the
holder of any other Rights Certificate (or, prior to the Distribution Date, of
the Common Shares), may, in his or her own behalf and for his or her 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 or her
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 will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened
violations of, the obligations of any Person subject to this Agreement.

 

Section 16.             Agreement of 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 the Common
Shares;

 

26

 

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

 

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

 

Section 17.             Rights Certificate Holder Not
Deemed a Stockholder.  No holder, as such, of any Rights Certificate
shall be entitled to vote, receive dividends or be deemed for any purpose to be
the holder of the Preferred Shares or any other securities of the Company which
may at any time be issuable on the exercise of the Rights represented thereby,
nor shall anything contained herein or in any Rights Certificate be construed
to confer upon the holder of any Rights Certificate, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice
of meetings or other actions affecting stockholders (except as specifically
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 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 gross 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 in the premises.  In no event
will the Rights Agent be liable for special, indirect, incidental or consequential
loss or damage of any kind whatsoever, even if the Rights Agent has been
advised of the possibility of such loss or damage.

 

(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 the Preferred Shares or
Common Shares or for other securities of the Company, instrument of assignment
or transfer, power of attorney, endorsement, affidavit, letter, notice,
direction, consent, certificate, statement or other

 

27

 

paper or document reasonably 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 the 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 Rights Agent 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.

 

(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 (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 Per Share 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

 

28

 

be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer, 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 to the Company and any other Person only for its own gross
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 (except its countersignature thereof)
or be required to verify the same, but all such statements and recitals are and
shall be deemed to have been made by the Company only.

 

(e)           The Rights Agent shall not 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 change in the
exercisability of the Rights or any adjustment in the terms of the Rights
(including the manner, method or amount thereof) provided for in
Sections 3, 11, 13, 23 or 24, or the ascertaining of the existence of
facts that would require any such change or adjustment (except with respect to
the exercise of Rights evidenced by Rights Certificates after receipt by the
Rights Agent of a certificate furnished pursuant to Section 12 describing
such change or adjustment); nor shall it by any act hereunder be deemed to make
any representation or warranty as to the authorization or reservation of any
Preferred Shares to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any Preferred Shares will, when issued, be validly
authorized and issued, fully paid and nonassessable.

 

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

 

(g)           The Rights Agent is hereby authorized
and directed to accept instructions with respect to the performance of its
duties hereunder from any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer, 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 by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions.  Any
application by the Rights Agent for written instructions from the Company may,
at the option of the Rights Agent, set forth in writing any action proposed to
be taken or omitted by the Rights Agent under this Rights Agreement and the
date on and/or after which such action shall be taken or such omission shall be
effective.  The Rights Agent shall not be
liable for any action taken by, or omission of, the Rights Agent in accordance
with a proposal included in any

 

29

 

such application on or after the date specified in
such application (which date shall not be less than five (5) Business Days
after the date on which any officer of the Company actually receives such
application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking any such action (or the effective date in
the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken
or omitted.

 

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

 

(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, default,
neglect or misconduct of any such attorneys or agents or for any loss to the
Company resulting from any such act, default, neglect or misconduct, provided
reasonable care was exercised in the selection and continued employment
thereof.

 

(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.

 

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

 

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 Preferred Shares and
the Common Shares 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 Preferred
Shares and the Common Shares 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

 

30

 

incapacity by the resigning or incapacitated Rights
Agent or by the holder of a Rights Certificate (who shall, with such notice,
submit his or her 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.  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 Preferred Shares and
the Common Shares, 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 its
Board of Directors to reflect any adjustment or change in the Exercise Price
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 Common Shares following
the Distribution Date and prior to the redemption or expiration of the Rights,
the Company (a) shall, with respect to Common Shares so issued or sold
pursuant to the exercise of stock options or under any employee plan or
arrangement or upon the exercise, conversion or exchange of other securities of
the Company outstanding at the date hereof 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 and this sentence
shall be null and void ab initio if, and to the extent that, such
issuance or this sentence would create a significant risk of or result in
material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued or would create a significant risk of or result
in such options’ or employee plans’ or arrangements’ failing to qualify for
otherwise available special tax treatment 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.

 

Section 23.             Redemption.

 

(a)           The Company may, at its option and
with the approval of the Board of Directors, at any time prior to the Close of
Business on the earlier of (i) the fifth day following the Shares
Acquisition Date (or such later date as may be determined by action of the
Company’s Board of Directors and publicly announced by the Company) and (ii) the
Final Expiration Date, redeem all but not less than all the then outstanding
Rights at a redemption price of $0.001 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after

 

31

 

the date hereof (such redemption price being herein
referred to as the “Redemption Price”) and the
Company may, at its option, pay the Redemption Price either in Common Shares
(based on the Current Per Share Market Price thereof at the time of redemption)
or cash.  Such redemption of the Rights
by the Company may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.  The date on which the Board of Directors
elects to make the redemption effective shall be referred to as the “Redemption Date.”

 

(b)           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.  The
Company shall promptly give public notice of any such redemption; provided,
however, that the failure to give, or any defect in, any such notice
shall not affect the validity of such redemption.  Within ten (10) days after the action of
the Board of Directors ordering the 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 all such holders at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares.  Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice.  Each such
notice of redemption will state the method by which the payment of the
Redemption Price will be made.  Neither
the Company nor any of its Affiliates or Associates may redeem, acquire or
purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in Section 24 hereof,
and other than in connection with the purchase of Common Shares prior to the
Distribution Date.

 

Section 24.             Exchange.

 

(a)           Subject to applicable laws, rules and
regulations, and subject to subsection 24(c) below, the Company may,
at its option, by action of the Board of Directors, 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 void
pursuant to the provisions of Section 7(e) hereof) for Common Shares
at an exchange ratio of one Common Share per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such exchange ratio being hereinafter referred to as the “Exchange Ratio”).  Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any such Subsidiary, or any entity holding
Common Shares for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50%
or more of the Common Shares then outstanding.

 

(b)           Immediately upon the action of the
Board of Directors ordering the exchange of any Rights pursuant to subsection 24(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

 

32

 

holder of such Rights shall be to receive that number
of Common Shares equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio.  The
Company shall 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
shall mail a notice of any such exchange to all of the holders of such Rights
at their last addresses as they appear upon the registry books of the Rights
Agent.  Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder
receives the notice.  Each such notice of
exchange will state the method by which the exchange of the Common Shares for
Rights will be effected and, in the event of any partial exchange, the number
of Rights which will be exchanged.  Any
partial exchange shall be effected pro rata based on the number of Rights
(other than Rights which have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.

 

(c)           In the event that there shall not be
sufficient Common Shares issued but not outstanding or authorized but unissued
to permit any exchange of Rights as contemplated in accordance with Section 24(a),
the Company shall either take such action as may be necessary to authorize
additional Common Shares for issuance upon exchange of the Rights or
alternatively, at the option of a majority of the Board of Directors, with
respect to each Right (i) pay cash in an amount equal to the Current Value
(as hereinafter defined), in lieu of issuing Common Shares in exchange
therefor, or (ii) issue debt or equity securities or a combination
thereof, having a value equal to the Current Value, in lieu of issuing Common
Shares in exchange for each such Right, where the value of such securities
shall be determined by a nationally recognized investment banking firm selected
by majority vote of the Board of Directors, or (iii) deliver any
combination of cash, property, Common Shares and/or other securities having a
value equal to the Current Value in exchange for each Right.  For purposes of this Section 24(c) only,
the Current Value shall mean the product of the Current Per Share Market Price
of Common Shares on the date of the occurrence of the event described above in
subsection (a), multiplied by the number of Common Shares for which the
Right otherwise would be exchangeable if there were sufficient shares
available.  To the extent that the
Company determines that some action need be taken pursuant to clauses (i),
(ii) or (iii) of this Section 24(c), the Board of Directors may
temporarily suspend the exercisability of the Rights for a period of up to
sixty (60) days following the date on which the event described in Section 24(a) shall
have occurred, in order to seek any authorization of additional Common Shares
and/or to decide the appropriate form of distribution to be made pursuant to
the above provision 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.

 

(d)           The Company shall not be required to
issue fractions of Common Shares or to distribute certificates which evidence
fractional Common Shares.  In lieu of
such fractional Common Shares, there shall be paid to the registered holders of
the Rights Certificates with regard to which such fractional Common Shares
would otherwise be issuable, an amount in cash equal to the same fraction of
the current market value of a whole Common Share (as determined pursuant to the
second sentence of Section 1(i) hereof).

 

(e)           The Company may, at its option, by
majority vote of the Board of Directors, at any time before any Person has
become an Acquiring Person, exchange all or part of the then

 

33

 

outstanding Rights for rights of substantially
equivalent value, as determined reasonably and with good faith by the Board of
Directors based upon the advice of one or more nationally recognized investment
banking firms.

 

(f)            Immediately upon the action of the
Board of Directors ordering the exchange of any Rights pursuant to subsection 24(e) 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 rights in exchange
therefor as has been determined by the Board of Directors in accordance with
subsection 24(e) above.  The
Company shall 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
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 transfer
agent for the Common Shares of the Company. 
Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice.  Each such notice of exchange will state the
method by which the exchange of the Rights will be effected.

 

Section 25.             Notice of Certain Events.

 

(a)           In case the Company shall propose to
effect or permit to occur any Triggering Event or Section 13 Event, the
Company shall give notice thereof to each holder of Rights in accordance with Section 26
hereof at least twenty (20) days prior to occurrence of such Triggering Event
or such Section 13 Event.

 

(b)           In case any Triggering Event or Section 13
Event shall occur, then, in any such case, the Company shall as soon as
practicable thereafter give to each holder of a Rights Certificate, 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 Sections 11(a)(ii) and 13 hereof.

 

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:

 

Digirad Corporation

13950 Stowe Drive

Poway, CA  92064

 

with a copy to:

Wilson Sonsini Goodrich & Rosati

Professional Corporation

12235 El Camino Real, Suite 200

San Diego, CA 
92130

Attention:  Martin
J. Waters, Esq.

 

34

 

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

 

American Stock Transfer & Trust Company

59 Maiden Lane

New York, NY 
10038

Attn:  Corporate
Actions Dept.

 

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.

 

Section 27.             Supplements and Amendments. 
Prior to the occurrence of a Distribution Date, the Company may supplement or
amend this Agreement in any respect without the approval of any holders of
Rights and the Rights Agent shall, if the Company so directs, execute such
supplement or amendment.  From and after
the occurrence of a Distribution Date, the Company and the Rights Agent may
from time to time supplement or amend this Agreement without the approval of
any holders of Rights in order to (i) cure any ambiguity, (ii) correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) shorten or lengthen
any time period hereunder or (iv) to change or supplement the provisions
hereunder in any manner that the Company may deem necessary or desirable and
that shall not adversely affect the interests of the holders of Rights (other
than an Acquiring Person or an Affiliate or Associate of an Acquiring Person); provided,
this Agreement may not be supplemented or amended to lengthen, pursuant to
clause (iii) of this sentence, (A) a time period relating to
when the Rights may be redeemed at such time as the Rights are not then
redeemable or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person). 
Upon the delivery of a certificate from an appropriate officer of the
Company that 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.  Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Shares.

 

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.             Determinations and Actions by
the Board of Directors, etc.  For all purposes of this Agreement, any
calculation of the number of Common Shares outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding Common Shares of which any Person is the Beneficial Owner, shall be
made in accordance with the last

 

35

 

sentence of Rule 13d-3(d)(1)(i) of the
General Rules and Regulations under the Exchange Act.  The Board of Directors of the Company 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 (i) to interpret the
provisions of this Agreement and (ii) to make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights or to amend the
Agreement).  All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (y) below, all omissions with respect to the foregoing) which are done
or made by the Board in good faith, shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights
Certificates and all other parties and (y) with respect to claims
specifically arising from the Agreement, not subject the Board to any liability
to the holders of the Rights.

 

Section 30.             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, the Common Shares) any legal or equitable
right, remedy or claim pursuant to 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, the Common Shares).

 

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.

 

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

 

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

 

Section 34.             Descriptive 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 as of the day and
year first above written.

 

 

	
  “COMPANY”

  	
   

  	
  Digirad
  Corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  “RIGHTS AGENT”

  	
   

  	
  American Stock Transfer &
  Trust Company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

37

 

EXHIBIT A

 

CERTIFICATE
OF DESIGNATION OF RIGHTS, PREFERENCES AND PRIVILEGES OF

SERIES A PARTICIPATING PREFERRED STOCK OF DIGIRAD CORPORATION

 

The undersigned, Gary
Burbach, does hereby certify:

 

1.             That
he is duly elected and acting President of Digirad Corporation, a Delaware corporation
(the “Corporation”).

 

2.             That
pursuant to the authority conferred upon the Board of Directors by the Amended
and Restated Certificate of Incorporation of the said Corporation, the said
Board of Directors of the Corporation on November 21, 2005 adopted the
following resolutions creating a series of 500,000 shares of Preferred Stock
designated as Series A Participating Preferred Stock:

 

“RESOLVED, that
pursuant to the authority vested in the Board of Directors of the Corporation
by the Amended and Restated Certificate of Incorporation, the Board of
Directors does hereby provide for the issue of a series of Preferred Stock of
the Corporation and does hereby fix and herein state and express the
designations, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of such series of Preferred Stock
as follows:

 

Section 1.               Designation
and Amount.  The shares of such
series shall be designated as “Series A
Participating Preferred Stock.” The Series A Participating
Preferred Stock shall have a par value of $0.0001 per share, and the number of
shares constituting such series shall be 500,000.

 

Section 2.               Proportional
Adjustment.  In the event that the
Corporation shall at any time after the issuance of any share or shares of Series A
Participating Preferred Stock (i) declare any dividend on Common Stock of
the Corporation (“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 Corporation shall simultaneously effect a proportional adjustment to
the number of outstanding shares of Series A Participating Preferred
Stock.

 

Section 3.               Dividends
and Distributions.

 

(a)           Subject
to the prior and superior right of the holders of any shares of any series of
Preferred Stock ranking prior and superior to the shares of Series A
Participating Preferred Stock with respect to dividends, the holders of shares
of Series A Participating Preferred Stock shall be entitled to receive
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the 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
Participating Preferred Stock, in an amount per

 

 

share (rounded to the
nearest cent) equal to 1,000 times the aggregate per share amount of all cash
dividends, and 1,000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since
the immediately preceding Quarterly Dividend Payment Date, or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Participating Preferred Stock.

 

(b)           The
Corporation shall declare a dividend or distribution on the Series A
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)           Dividends
shall begin to accrue on outstanding shares of Series A Participating
Preferred Stock from the Quarterly Dividend Payment Date first following the
date of issue of such shares of Series A Participating Preferred Stock,
unless the date of issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or unless the date
of issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue from such Quarterly Dividend Payment Date.  Accrued but unpaid dividends shall not bear
interest.  Dividends paid on the shares
of Series A Participating Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall
be allocated pro rata on a share-by-share basis among all such shares at the
time outstanding.  The Board of Directors
may fix a record date for the determination of holders of shares of Series A
Participating Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.

 

Section 4.               Voting
Rights.  The holders of shares of Series A
Participating Preferred Stock shall have the following voting rights:

 

(a)           Each
share of Series A Participating Preferred Stock shall entitle the holder
thereof to 1,000 votes on all matters submitted to a vote of the stockholders
of the Corporation.

 

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

 

2

 

Section 5.               Certain
Restrictions.

 

(a)           The
Corporation shall not declare any dividend on, make any distribution on, or
redeem or purchase or otherwise acquire for consideration any shares of Common
Stock after the first issuance of a share or fraction of a share of Series A
Participating Preferred Stock unless concurrently therewith it shall declare a
dividend on the Series A Participating Preferred Stock as required by Section 3
hereof.

 

(b)           Whenever
quarterly dividends or other dividends or distributions payable on the Series A
Participating Preferred Stock as provided in Section 3 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Series A Participating Preferred
Stock outstanding shall have been paid in full, the Corporation shall not

 

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

 

(ii)           declare
or pay dividends on, 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 Participating Preferred Stock, except
dividends paid ratably on the Series A 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
on a parity (either as to dividends or upon liquidation, dissolution or winding
up) with the Series A Participating Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such parity 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 Participating Preferred Stock;

 

(iv)          purchase
or otherwise acquire for consideration any shares of Series A
Participating Preferred Stock, or any shares of stock ranking on a parity with
the Series A 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.

 

(c)           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 5,
purchase or otherwise acquire such shares at such time and in such manner.

 

3

 

Section 6.               Reacquired
Shares.  Any shares of Series A
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 and in the
Amended and Restated Certificate of Incorporation, as then amended.

 

Section 7.               Liquidation,
Dissolution or Winding Up.  Upon any
liquidation, dissolution or winding up of the Corporation, the holders of
shares of Series A Participating Preferred Stock shall be entitled to
receive an aggregate amount per share equal to 1,000 times the aggregate amount
to be distributed per share to holders of shares of Common Stock plus an amount
equal to any accrued and unpaid dividends on such shares of Series A
Participating Preferred Stock.

 

Section 8.               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 Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to 1,000 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common
Stock is changed or exchanged.

 

Section 9.               No
Redemption.  The shares of Series A
Participating Preferred Stock shall not be redeemable.

 

Section 10.             Ranking.  The Series A Participating Preferred
Stock shall rank junior to all other series of the Corporation’s Preferred
Stock as to the payment of dividends and the distribution of assets, unless the
terms of any such series shall provide otherwise.

 

Section 11.             Amendment.  The Amended and Restated Certificate of
Incorporation of the Corporation shall not be further amended in any manner
which would materially alter or change the powers, preference or special rights
of the Series A Participating Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of a majority of the
outstanding shares of Series A Participating Preferred Stock, voting
separately as a series.

 

Section 12.             Fractional
Shares.  Series A 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 distributions and to have the benefit
of all other rights of holders of Series A Participating Preferred Stock.

 

4

 

RESOLVED FURTHER, that
the President or any Vice President and the Secretary or any Assistant
Secretary of this Corporation be, and they hereby are, authorized and directed
to prepare and file a Certificate of Designation of Rights, Preferences and
Privileges in accordance with the foregoing resolution and the provisions of
Delaware law and to take such actions as they may deem necessary or appropriate
to carry out the intent of the foregoing resolution.”

 

I further declare
under penalty of perjury that the matters set forth in the foregoing
Certificate of Designation are true and correct of my own knowledge.

 

Executed at Poway,
California on                     ,
2005.

 

	
   

  	
   

  
	
   

  	
  Gary
  Burbach, President

  

 

5

 

EXHIBIT B

 

FORM OF
RIGHTS CERTIFICATE

 

	
  Certificate No. R-

  	
   

  	
  Rights

  

 

NOT EXERCISABLE AFTER THE
EARLIER OF (i) DECEMBER 12, 2015, (ii) THE DATE TERMINATED BY
THE COMPANY OR (iii) THE DATE THE COMPANY EXCHANGES THE RIGHTS PURSUANT TO
THE RIGHTS AGREEMENT.  THE RIGHTS ARE
SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.001 PER RIGHT ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. 
UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME
NULL AND VOID.

 

[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 RIGHTS AGREEMENT.]*

 

RIGHTS
CERTIFICATE

 

DIGIRAD
CORPORATION

 

This certifies
that                                                             ,
or registered assigns, is the registered owner of the number of Rights set
forth above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement dated as of November 22,
2005 the “Rights Agreement”), between Digirad
Corporation, a Delaware corporation (the “Company”),
and American Stock Transfer & Trust Company (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., New York time, on December 12, 2015 at the office of
the

 

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

 

 

Rights Agent designated
for such purpose, or at the office of its successor as Rights Agent, one
one-thousandth (0.001) of a fully paid and non-assessable share of Series A
Participating Preferred Stock, par value $0.0001 per share (the “Preferred Shares”), of the Company,
at an Exercise Price of $20.00 per one-thousandth (0.001) of a Preferred Share
(the “Exercise Price”), upon presentation
and surrender of this Rights Certificate with the Form of Election to
Purchase and related Certificate duly executed. 
The number of Rights evidenced by this Rights Certificate (and the
number of one-thousandths (0.001) of a Preferred Share which may be purchased
upon exercise hereof) set forth above are the number and Exercise Price as of December 12,
2005 based on the Preferred Shares as constituted at such date.  As provided in the Rights Agreement, the
Exercise Price and the number and kind of Preferred Shares 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 the
specific circumstances set forth in the Rights Agreement.  Copies of the Rights Agreement are on file at
the principal executive offices of the Company and the above-mentioned office
of the Rights Agent.

 

Subject to the provisions
of the Rights Agreement, the Rights evidenced by this Rights Certificate (i) may
be redeemed by the Company, at its option, at a redemption price of $0.001 per
Right or (ii) may be exchanged by the Company in whole or in part for
Common Shares, substantially equivalent rights or other consideration as
determined by the Company.

 

This Rights Certificate,
with or without other Rights Certificates, upon surrender at the office 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 amount of securities 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 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.

 

No fractional portion of
less than one one-thousandth (0.001) of a Preferred Share will be issued upon
the exercise of any Right or Rights evidenced hereby but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.

 

No holder of this Rights
Certificate, as such, shall be entitled to vote or receive dividends or be
deemed for any purpose the holder of the Preferred Shares or of any other
securities of the Company which may at any time be issuable on the exercise
hereof, nor shall anything contained in the Rights Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any

 

2

 

corporate action, or to
receive notice of meetings or other actions affecting stockholders (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.

 

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 and its corporate
seal.  Dated as of                               ,
          .

 

	
  ATTEST:

  	
   

  	
  DIGIRAD CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Secretary

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Countersigned:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  AMERICAN STOCK
  TRANSFER & TRUST COMPANY,

  	
   

  
	
  as Rights Agent

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Its:

  	
   

  	
   

  	
   

  
								

 

3

 

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.

  

 

 

Dated:                               ,
        

 

 

	
   

  	
   

  
	
   

  	
  Signature

  

 

 

Signature Guaranteed:

 

Signatures must be
guaranteed by an “Eligible Guarantor Institution” (with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934, as amended.

 

 

CERTIFICATE

 

The undersigned hereby certifies by checking the appropriate boxes
that:

 

(1)           this
Rights Certificate o is o
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 any such Person (as
such terms are defined in the Rights Agreement);

 

(2)           after
due inquiry and to the best knowledge of the undersigned, it o
did o 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 any such Person.

 

Dated:                               ,
        

 

	
   

  	
   

  
	
   

  	
  Signature

  

 

 

Signature Guaranteed:

 

Signatures must be
guaranteed by an “Eligible Guarantor Institution” (with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934, as amended.

 

 

Form of
Reverse Side of Rights Certificate

 

FORM OF ELECTION TO
PURCHASE

 

(To be executed if holder
desires to

exercise the Rights Certificate)

 

To:                                                      

 

The undersigned hereby
irrevocably elects to exercise                                           
Rights represented by this Rights Certificate to purchase the number of
one-thousandths (0.001) of a Preferred Share issuable upon the exercise of such
Rights and requests that certificates for such number of one-thousandths
(0.001) of a Preferred Share issued in the name of:

 

Please insert social
security

or other identifying
number

 

	
   

  
	
  (Please print
  name and address)

  
	
   

  

 

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

 

Please insert social
security

or other identifying
number

 

	
   

  
	
  (Please print
  name and address)

  
	
   

  

 

Dated:                               ,
        

 

	
   

  	
   

  
	
   

  	
  Signature

  

 

 

Signature Guaranteed:

 

Signatures must be
guaranteed by an “Eligible Guarantor Institution” (with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934, as amended.

 

 

CERTIFICATE

 

The undersigned
hereby certifies by checking the appropriate boxes that:

 

(1)           the
Rights evidenced by this Rights Certificate o
are o are not being exercised by or on behalf of a
Person who is or was an Acquiring Person or an Affiliate or Associate of any
such Person (as such terms are defined in the Rights Agreement);

 

(2)           after
due inquiry and to the best knowledge of the undersigned, it o
did o 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 any such Person.

 

Dated:                               ,
        

 

	
   

  	
   

  
	
   

  	
  Signature

  

 

Signature Guaranteed:

 

Signatures must be
guaranteed by an “Eligible Guarantor Institution” (with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934, as amended.

 

 

Form of
Reverse Side of Rights Certificate

 

NOTICE

 

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

 

 

EXHIBIT C

 

SUMMARY
OF STOCKHOLDER RIGHTS PLAN

 

 

DIGIRAD
CORPORATION

 

	
  Distribution and Transfer of
  Rights;  Rights Certificate:

  	
   

  	
  The Board of Directors
  has declared a dividend of one Right for each share of Common Stock of
  Digirad Corporation (the “Company”)
  outstanding. Prior to the Distribution Date referred to below, the Rights
  will be evidenced by and trade with the certificates for the Common Stock.
  After the Distribution Date, the Company will mail Rights certificates to the
  Company’s stockholders and the Rights will become transferable apart from the
  Common Stock.

  
	
   

  	
   

  	
   

  
	
  Distribution Date:

  	
   

  	
  Rights will separate
  from the Common Stock and become exercisable following (a) the tenth day
  (or such later date as may be determined by the Company’s Board of Directors)
  after a person or group acquires beneficial ownership of 20% or more of the
  Company’s Common Stock or (b) the tenth business day (or such later date
  as may be determined by the Company’s Board of Directors) after a person or
  group announces a tender or exchange offer, the consummation of which would
  result in ownership by a person or group of 20% or more of the Company’s
  Common Stock.

  
	
   

  	
   

  	
   

  
	
  Preferred Stock Purchasable
  Upon Exercise of Rights:

  	
   

  	
  After the Distribution
  Date, each Right will entitle the holder to purchase for $20.00 (the “Exercise Price”), one thousandth
  (0.001) of a share of the Company’s Preferred Stock with economic terms
  similar to that of one share of the Company’s Common Stock.

  
	
   

  	
   

  	
   

  
	
  Flip-In:

  	
   

  	
  If an acquirer (an “Acquiring Person”) obtains 20% or
  more of the Company’s Common Stock, then each Right (other than Rights
  owned by an Acquiring Person or its affiliates) will entitle the holder
  thereof to purchase, for the Exercise Price, a number of shares of the
  Company’s Common Stock having a then-current market value of twice the
  Exercise Price.

  
	
   

  	
   

  	
   

  
	
  Flip-Over:

  	
   

  	
  If, after an Acquiring
  Person obtains 20% or more of the Company’s Common Stock, (a) the
  Company merges into another entity, (b) an acquiring entity merges into
  the Company

  

 

 

	
   

  	
   

  	
  or (c) the Company
  sells more than 50% of the Company’s assets or earning power, then
  each Right (other than Rights owned by an Acquiring Person or its affiliates)
  will entitle the holder thereof to purchase, for the Exercise Price, a number
  of shares of Common Stock of the person engaging in the transaction having a
  then current market value of twice the Exercise Price.

  
	
   

  	
   

  	
   

  
	
  Exchange Provision:

  	
   

  	
  At any time after the
  date on which an Acquiring Person obtains 20% or more of the Company’s Common
  Stock and prior to the acquisition by the Acquiring Person of 50% of the
  outstanding Common Stock, the Board of Directors of the Company may exchange
  the Rights (other than Rights owned by the Acquiring Person or its
  affiliates), in whole or in part, for shares of Common Stock of the Company
  at an exchange ratio of one share of Common Stock per Right (subject to
  adjustment).

  
	
   

  	
   

  	
   

  
	
  Redemption of the Rights:

  	
   

  	
  Rights will be
  redeemable at the Company’s option for $0.001 per Right at any time on or
  prior to the fifth day (or such later date as may be determined by the
  Company’s Board of Directors) after public announcement that a Person has
  acquired beneficial ownership of 20% or more of the Company’s Common Stock
  (the “Shares Acquisition Date”).

  
	
   

  	
   

  	
   

  
	
  Expiration of the Rights:

  	
   

  	
  The Rights expire on
  the earliest of (a) December 12, 2015 or (b) exchange or
  redemption of the Rights as described above.

  
	
   

  	
   

  	
   

  
	
  Amendment of Terms of Rights:

  	
   

  	
  The terms of the Rights
  and the Rights Agreement may be amended in any respect without the consent of
  the Rights holders on or prior to the Distribution Date; thereafter, the
  terms of the Rights and the Rights Agreement may be amended without the
  consent of the Rights holders in order to cure any ambiguities or to make
  changes which do not adversely affect the interests of Rights holders (other
  than the Acquiring Person).

  
	
   

  	
   

  	
   

  
	
  Voting Rights:

  	
   

  	
  Rights will not have
  any voting rights.

  
	
   

  	
   

  	
   

  
	
  Anti-Dilution Provisions:

  	
   

  	
  Rights will have the
  benefit of certain customary anti-dilution provisions.

  
	
   

  	
   

  	
   

  
	
  Taxes:

  	
   

  	
  The Rights distribution
  should not be taxable for federal income tax purposes. However, following an
  event which renders the Rights exercisable or upon redemption of the Rights,
  stockholders may recognize taxable income.

  

 

2

 

The foregoing is a
summary of certain principal terms of the Stockholder Rights Plan only and is
qualified in its entirety by reference to the Preferred Stock Rights Agreement
dated as of November 22, 2005 between the Company and American Stock
Transfer & Trust Company, as Rights Agent (the “Rights
Agreement”).  The Rights
Agreement may be amended from time to time. 
A copy of the Rights Agreement is to be filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A
on or about November 29, 2005.  A
copy of the Rights Agreement is available free of charge from the Company.

 

3

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