Document:

Exhibit 10.3

RESTRICTED
STOCK AGREEMENT

THIS AGREEMENT (the “Agreement”)
is entered into as of ___________, 2005 (the “Award Date”) by and
between Veeco Instruments Inc., a Delaware corporation (the “Company”)
and ____________, an employee of the Company, hereinafter referred to as the “Participant.”

WHEREAS, the Company has
adopted the Veeco Instruments Inc. 2000 Stock Incentive Plan (as it may be
amended from time to time, the “Plan”), the terms of which are hereby
incorporated by reference and made a part of this Agreement; and

WHEREAS, Section 8 of the
Plan provides for the issuance of awards of the Company’s common stock, par
value $0.01 per share (“Common Stock”), subject to certain restrictions
(“Restricted Stock”); and

WHEREAS, the Committee
defined in Section 2 of the Plan (the “Committee”) has determined that
it would be to the advantage and in the best interest of the Company and its
stockholders to award shares of Restricted Stock to the Participant pursuant to
the terms and conditions set forth herein; and

NOW, THEREFORE, in
consideration of the mutual covenants herein contained and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto do hereby agree as follows:

ARTICLE I

DEFINITIONS

 

Section
1.1             In General.  Capitalized terms used but not defined herein
shall have the meanings assigned to such terms in the Plan.  In addition, wherever the following term is
used in this Agreement, it shall have the meaning specified below, unless the
context clearly indicates otherwise.

Section
1.2             “Restrictions”
shall mean the restrictions on sale or other transfer set forth in Section 4.2
and the exposure to forfeiture set forth in Section 3.1.

ARTICLE
II.

RESTRICTED STOCK  AWARD

Section
2.1             Award of
Restricted Stock.  In consideration
of the Participant’s agreement to remain in the employ of the Company, in
exchange for the promises contained herein, and for other good and valuable
consideration which the Committee has determined exceeds the aggregate par
value of the shares of Common Stock subject to the Award (as defined below), as
of the Award Date, the Company issues to the Participant the number of shares
of Restricted Stock set forth on the signature page hereof (the “Award”).

Section
2.2             Award Subject to
Plan.  The Award granted hereunder is
subject to the terms and provisions of the Plan, including without limitation
Section 8 thereof.

 

 

 

ARTICLE III.

RESTRICTIONS

Section 3.1             Forfeiture;
Repurchase Right.

(a)           Unless
otherwise provided by written agreement between the Company and Participant,
any Award which is not vested upon the Participant’s termination of employment
with the Company (as determined in good faith by the Committee) shall thereupon
be forfeited immediately and without any further action by the Company.

(b)           Upon
termination of employment of a Participant, the Company shall have the right,
but not the obligation, to purchase any Restricted Stock then held by such
Participant at a cash price per share equal to the price paid by the
Participant for such Restricted Stock; provided that no such right of
repurchase shall exist in the event of a Normal Termination (as defined in the
Plan).

Section 3.2             Vesting
and Lapse of Restrictions.  Subject
to Sections 3.1 and 3.3, the Restrictions shall lapse with respect to the
Restricted Stock subject to the Award as follows: 

	
  Date:

  	
   

  	
  Restrictions Shall

  Lapse with Respect to:

  
	
  First
  Anniversary of Award Date

  	
   

  	
  One-third
  of the Award

  
	
  Second
  Anniversary of Award Date

  	
   

  	
  One-third
  of the Award

  
	
  Third
  Anniversary of Award Date

  	
   

  	
  One-third
  of the Award

  

 

provided, in each case, that the
Participant remains continuously employed in active service by the Company from
the Award Date through such vesting date.

Section 3.3             Lapse
of Restrictions Upon Certain Events. 
Notwithstanding Section 3.2, but subject to Section 3.1, in the event
that Participant has entered into a written agreement with the Company prior to
or concurrently with the grant of the Award hereunder which provides for the
acceleration of vesting of stock options issued by the Company to Participant
(a “Prior Option Agreement”), then, upon the occurrence of an event which
triggers the acceleration of vesting of stock options under the Prior Option
Agreement, the Award will become vested and the Restrictions with regard
thereto shall lapse.

Section 3.4             Legend.  Until such time as Restrictions have lapsed,
the Company may, at any time, place legends referencing the Restrictions and
any applicable federal and/or state securities laws restrictions on
certificates representing shares of Restricted Stock issued pursuant to this
Agreement.  The legend may include the
following:

“THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS SET FORTH IN THE
AWARD AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION.”

 

2

 

Section 3.5             Payment
of Taxes; Issuance of Shares.

(a)           Participant understands, acknowledges
and agrees that the value of the Restricted Stock is subject to state and
federal income taxes and certain rules which require the Company to withhold
amounts necessary to pay these taxes. 
Participant hereby authorizes the Company to reduce the number of shares of Restricted Stock delivered to
Participant at the time the restrictions lapse by the number of shares of Restricted
Stock required to satisfy the tax withholding requirements (based on the fair
market value of shares at such time). 
Such shares of Restricted Stock shall be returned to the Company.  Participant’s acknowledgement and acceptance
of these tax withholding provisions are conditions precedent to the right of
Participant to receive the Restricted Stock under the Plan and this Agreement.

(b)           In lieu of the reduction of shares
delivered described in paragraph (a) above, Participant may pay to the Company
the amount of tax required to be withheld in cash, by check or in other form
satisfactory to the Company.  Such
payment must be made by the date on which the Restrictions lapse or such later
date as is established by the Company (not to exceed 15 days after the date on
which the Restrictions lapse).

(c)           The Shares will be deposited directly
into Participant’s brokerage account with the Company’s approved broker when
vested and the applicable withholding obligations have been satisfied.

Section 3.6             Certain
Changes in Capitalization.  If the
shares of the Company’s Common Stock as a whole are increased, decreased,
changed into or exchanged for a different number or kind of shares or
securities of the Company, whether through merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock
split, combination of shares, exchange of shares, change in corporate structure
or the like, the Committee, in its sole discretion, shall have the discretion
and power to determine and to make effective provision for acceleration of the
time or times at which any Restrictions shall lapse or be removed.  In addition, in the case of the occurrence of
any event described in this Section 3.6, the Committee, subject to the
provisions of the Plan and this Agreement, shall make an appropriate and
proportionate adjustment in the number and kind of shares of Restricted Stock,
to the end that after such event the Participant’s proportionate interest shall
be maintained as before the occurrence of such event.  Any such adjustment made by the Committee
shall be final and binding upon the Participant, the Company and all other
interested persons. In the event that the Participant receives any new or
additional or different shares or securities by reason of any transaction or
event described in this Section 3.6, such new or additional or different shares
or securities which are attributable to the Participant in his capacity as the
registered owner of the Restricted Stock then subject to Restrictions, shall be
considered to be Restricted Stock and shall be subject to all of the
Restrictions.

Section 3.7             Section
83(b) Election.  Participant
understands that Section 83(a) of the Code taxes as ordinary income the
difference between the amount, if any, paid for the shares of Common Stock and
the Fair Market Value of such shares at the time the Restrictions on such
shares lapse.  Participant understands
that, notwithstanding the preceding sentence, Participant may elect to be taxed
at the time of the Award Date, rather that at the time the Restrictions lapse,
by filing an election under Section 83(b) of the Code (an “83(b)
Election”) with the Internal Revenue Service within 30 days of the Award
Date. In the event Participant files an 83(b) Election, Participant will
recognize ordinary income in an amount equal to the 

 

 

3

 

difference between the
amount, if any, paid for the shares of Common Stock and the Fair Market Value
of such shares as of the Award Date. Participant further understands that an
additional copy of such 83(b) Election form should be filed with his or her
federal income tax return for the calendar year in which the date of this
Agreement falls.  Participant
acknowledges that the foregoing is only a summary of the effect of United
States federal income taxation with respect to the award of Restricted Stock
hereunder, and does not purport to be complete. PARTICIPANT FURTHER ACKNOWLEDGES
THAT THE COMPANY IS NOT RESPONSIBLE FOR FILING THE PARTICIPANT’S 83(b)
ELECTION, AND THE COMPANY HAS DIRECTED PARTICIPANT TO SEEK INDEPENDENT ADVICE
REGARDING THE APPLICABLE PROVISIONS OF THE CODE, THE INCOME TAX LAWS OF ANY
MUNICIPALITY, STATE OR FEDERAL GOVERNMENT OR FOREIGN COUNTRY IN WHICH
PARTICIPANT MAY RESIDE, AND THE TAX CONSEQUENCES OF PARTICIPANT’S DEATH.

ARTICLE
IV.

OTHER PROVISIONS

Section 4.1             Book
Entry; Escrow.  The Shares
representing the Restricted Stock will be held in book-entry or global
certificate form.  If the Company instead
chooses to issue share certificates representing the Restricted Stock, the
certificates for the Restricted Stock shall be deposited in escrow with the
Secretary or Assistant Secretary of the Company or such other escrow holder as
the Company may appoint; provided, however,
that in no event shall the Participant retain physical custody of any
certificates representing unvested Restricted Stock issued to him.  The deposited certificates shall remain in
escrow until all of the Restrictions lapse or shall have been removed.

Section
4.2             Restricted Stock
Not Transferable.  No Restricted
Stock or any interest or right therein or part thereof shall be liable for the
debts, contracts or engagements of the Participant or his successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect; provided, however,
that this Section 4.2 shall not prevent transfers by will or by applicable laws
of descent and distribution.

Section 4.3             Rights
as Stockholder.  Except as otherwise
provided herein, upon issuance of the shares of Restricted Stock pursuant to
Section 4.1, the Participant shall have all the rights of a stockholder with
respect to said shares, subject to the Restrictions herein, including the right
to vote the shares and to receive all dividends or other distributions paid or
made with respect to the shares or Restricted Stock; provided, however, that any and all shares of Common Stock received by the Participant
with respect to such Restricted Stock as a result of stock dividends, stock
splits or any other form of recapitalization shall also be subject to the
Restrictions until the Restrictions on the underlying shares of Restricted
Stock lapse or are removed pursuant to this Agreement.

Section
4.4             Not a Contract of
Employment.  Nothing in this
Agreement or in the Plan shall confer upon the Participant any right to
continue in the employ of the Company or any of its Subsidiaries or shall
interfere with or restrict in any way the rights of the Company or its
Subsidiaries, which are hereby expressly reserved, to discharge the Participant
at any time for

 

4

 

 any reason whatsoever, with or without cause,
except as may otherwise be provided by any written agreement entered into by
and between the Company and the Participant.

Section 4.5             Governing
Law.   The laws of the State of
Delaware shall govern the interpretation, validity, administration, enforcement
and performance of the terms of this Agreement regardless of the law that might
be applied under principles of conflicts of laws.

Section
4.6             Conformity to
Securities Laws.  The Participant
acknowledges that the Plan and this Agreement are intended to conform to the
extent necessary with all provisions of the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
and any and all regulations and rules promulgated thereunder by the Securities
and Exchange Commission, including without limitation Rule 16b-3 under the
Exchange Act.  Notwithstanding anything
herein to the contrary, the Plan shall be administered, and the Awards are
granted, only in such a manner as to conform to such laws, rules and
regulations.  To the extent permitted by
applicable law, the Plan and this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.

Section
4.7             Amendment,
Suspension and Termination.  The
Awards may be wholly or partially amended or otherwise modified, suspended or
terminated at any time or from time to time by the Committee or the Board, provided that, except as may otherwise
be provided by the Plan, neither the amendment, suspension nor termination of
this Agreement shall, without the consent of the Participant, alter or impair
any rights or obligations under any Award.

Section
4.8             Notices.  Notices required or permitted hereunder shall
be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit in the United States mail by certified mail, with
postage and fees prepaid, addressed to the Participant to his address shown in
the Company records, and to the Company at its principal executive office.

Section
4.9             Severability.
The invalidity or unenforceability of any paragraph or provision of this
Agreement shall not affect the validity or enforceability of any other
paragraph or provision, and all other provisions shall remain in full force and
effect.  If any provision of this
Agreement is held to be excessively broad, then such provision shall be
reformed and construed by limiting and reducing it so as to be enforceable to
the maximum extent permitted by law.

Section
4.10           Certain Provisions
Applicable to Participants Employed at International Locations.  The Company will assess its requirements
regarding tax, social insurance and any other payroll tax (“Tax-Related Items”)
withholding and reporting in connection with the shares of Restricted Stock.  These requirements may change from time to
time as laws or interpretations change. 
Regardless of the actions of the Company in this regard, Participant
hereby acknowledges and agrees that the ultimate liability for any and all Tax-Related
Items is and remains his or her responsibility and liability and that the
Company makes no representations nor undertakings regarding treatment of any
Tax-Related Items in connection with any aspect of the grant of Restricted
Stock and do not commit to structure the terms of the grant or any aspect of
the Restricted Stock to reduce or eliminate the Participant’s liability
regarding Tax-Related Items.  In the
event that the Company must withhold any Tax-Related Items as a result of the
grant or vesting of the Restricted Stock, Participant agrees to make
arrangements satisfactory to the Company to satisfy all withholding
requirements.  Participant 

 

5

 

authorizes the Company to
withhold all applicable Tax-Related Items legally due from the Participant from
his or her wages or other cash compensation paid him or her by the Company.

Section
4.11           Data Privacy.  By entering into this
Agreement and as a condition of the grant of the Restricted Stock, Participant
consents to the collection, use and transfer of personal data as described in
this Section.  Participant understands
that the Company and its subsidiaries hold certain personal information about
the Participant, including the Participant’s name, home address and telephone
number, date of birth, social security number or identification number, salary,
nationality, job title, any shares of stock or directorships held in the
Company, details of all options or any other entitlement to shares of stock
(restricted or otherwise) awarded, cancelled, exercised, vested, unvested or
outstanding in Participant’s favor, for the purpose of managing and
administering the Plan (“Data”). 
Participant further understands that the Company and/or its subsidiaries
will transfer Data amongst themselves as necessary for the purpose of
implementation, administration and management of Participant’s participation in
the Plan, and that the Company and/or any of its subsidiaries may each further
transfer Data to any third parties assisting the Company in the implementation,
administration and management of the Plan (“Data Recipients”).  Participant understands that these Data
Recipients may be located in the Participant’s country of residence, the
European Economic Area, or elsewhere throughout the world, such as the United States.  Participant authorizes the Data Recipients to
receive, possess, use, retain and transfer the Data, in electronic or other
form, for the purposes of implementing, administering and managing
Participant’s participation in the Plan, including any transfer of such Data,
as may be required for the administration of the Plan and/or the subsequent
holding of shares on the Participant’s behalf, to a broker or other third party
with whom Participant may elect to deposit any shares of stock acquired upon vesting
of the shares of Restricted Stock. 
Participant understands that he or she may, at any time, review the
Data, require any necessary amendments to it or withdraw the consent herein in
writing by contacting the Company. 
Withdrawal of consent may, however, affect Participant’s ability to
participate in the Plan.

[signature
page follows]

 

6

IN WITNESS WHEREOF, this
Agreement has been executed and delivered by the parties hereto.

	
   

  	
  VEECO
  INSTRUMENTS INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Signed:

  	
   

  
	
   

  	
  [Participant’s
  Typed Name]

  
	
   

  	
   

  
	
   

  	
   

  
	
  Aggregate number of
  shares of Restricted Stock subject to the Award:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
						

 

 

 

7Exhibit 4.1

 

 

 

RIGHTS AGREEMENT

 

by and between

 

IMAGE ENTERTAINMENT, INC.

 

and

 

COMPUTERSHARE TRUST COMPANY, INC.,

 

as Rights Agent

 

Dated as of

 

October 31, 2005

 

 

 

 

TABLE OF CONTENTS

 

 

	
  Section 1.

  	
  Certain Definitions

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.

  	
  Appointment of Rights Agent

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.

  	
  Issue of Rights Certificates

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.

  	
  Form of Rights Certificates

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.

  	
  Countersignature and Registration

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.

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

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.

  	
  Exercise of Rights; Purchase Price; Expiration Date
  of Rights

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 8.

  	
  Cancellation and Destruction of Rights Certificates

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.

  	
  Reservation and Availability
  of Preferred Stock

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 10.

  	
  Preferred Stock Record Date

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.

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

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.

  	
  Certificate of Adjusted Purchase Price or Number of
  Shares

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 13.

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

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 14.

  	
  Fractional
  Rights and Fractional Shares

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 15.

  	
  Rights of
  Action

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 16.

  	
  Agreement
  of Rights Holders

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 17.

  	
  Rights
  Certificate Holder Not Deemed a Stockholder

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 18.

  	
  Concerning
  the Rights Agent

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 19.

  	
  Merger or
  Consolidation or Change of Name of Rights Agent

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 20.

  	
  Duties of
  Rights Agent

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 21.

  	
  Change of
  Rights Agent

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 22.

  	
  Issuance of
  New Rights Certificates

  	
   

  

 

i

 

	
  Section 23.

  	
  Redemption
  and Termination

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 24.

  	
  Exchange

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 25.

  	
  Notice of
  Certain Events

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 26.

  	
  Notices

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 27.

  	
  Supplements
  and Amendments

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 28.

  	
  Successors

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 29.

  	
  Determinations
  and Actions by the Board of Directors

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 30.

  	
  Benefits of
  This Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 31.

  	
  Severability

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 32.

  	
  Governing
  Law

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 33.

  	
  Counterparts

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 34.

  	
  Descriptive
  Headings

  	
   

  

 

EXHIBITS

 

	
  Exhibit A

  	
  Form of
  Certificate of Designation of Series A Junior Participating Preferred
  Stock

  
	
   

  	
   

  
	
  Exhibit B

  	
  Form of
  Rights Certificate

  
	
   

  	
   

  
	
  Exhibit C

  	
  Summary
  of Rights to Purchase Shares of Series A Preferred Stock

  

 

ii

 

RIGHTS AGREEMENT

 

RIGHTS
AGREEMENT, dated as of October 31, 2005 (this “Agreement”),
by and between Image Entertainment, Inc., a Delaware corporation (the “Company”),
and  Computershare Trust Company, Inc.,
a Colorado limited purpose trust company (the “Rights Agent”).

 

WHEREAS,
effective October 31, 2005 (the “Rights Dividend Declaration Date”), the
board of directors of the Company authorized and declared a distribution of one
Right (each, a “Right”) for each share of Common Stock (as hereinafter defined)
of the Company outstanding as of the Close of Business (as hereinafter defined)
on October 31, 2005 (the “Record Date”), each Right initially representing
the right to purchase one one-thousandth of a share (a “Unit”) of Preferred
Stock (as hereinafter defined) upon the terms and subject to the conditions in
this Agreement, and has further authorized and directed the issuance of one
Right with respect to each share of Common Stock of the Company that shall
become outstanding between the Record Date and the earliest of the Distribution
Date, the Redemption Date and the Final Expiration Date (as such terms are
hereinafter defined).

 

NOW, THEREFORE,
in consideration of the foregoing and the mutual agreements herein set forth,
the parties hereto, intending to be legally bound, hereby agree as follows:

 

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

 

“Acquiring Person” shall mean (i) any Person
(as such term is hereinafter defined) who or which, together with all Affiliates
and Associates (as such terms are hereinafter defined) of such Person, shall be the
Beneficial Owner (as such term is hereinafter defined) of 30% or more of the
shares of Common Stock of the Company then outstanding, but shall not include
the Company, any Subsidiary (as such term is hereinafter defined) of the
Company, any employee benefit plan of the Company or any Subsidiary of the
Company, or any entity holding shares of Common Stock of the Company for or
pursuant to the terms of any such plan. 
Notwithstanding the foregoing:

 

(i)            no Person shall become an “Acquiring
Person” as the result of an acquisition of shares of Common Stock by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 30% or more
of the shares of Common Stock of the Company then outstanding; provided, however, that
if a Person shall become the Beneficial Owner of 30% or more of the shares of
Common Stock of the Company then outstanding as a result of any such
acquisition of shares of Common Stock by the Company and shall, after such
acquisition of shares by the Company, become the Beneficial Owner of any
additional shares of Common Stock of the Company (other than as a result of a
stock dividend, stock split or similar transaction effected by the Company in
which all holders of Common Stock of the Company are treated equally) then such
Person shall be deemed to be an “Acquiring Person” hereunder;

 

1

 

(ii)           no Person who, alone or together with
all Affiliates and Associates of such Person, was, at the time of the public
announcement by the Company of the declaration by its board of directors on October 31,
2005 of the dividend distribution of the Rights, the Beneficial Owner of 30% or
more of the Common Stock of the Company then outstanding shall be deemed to
have become an Acquiring Person unless and until such time as (A) such
Person or any Affiliate or Associate of such Person thereafter becomes the
Beneficial Owner of any additional Common Stock of the Company (other than as a
result of a stock dividend, stock split or similar transaction effected by the
Company in which all holders of Common Stock of the Company are treated
equally); and

 

(iii)          if the board of directors of the
Company determines in good faith that a Person who would otherwise be an “Acquiring
Person” as defined pursuant to the provisions of subparagraph (i), has become
such inadvertently, and such Person divests as promptly as practicable a
sufficient number of shares of Common Stock of the Company so that such Person
would no longer be an “Acquiring Person,” then such Person shall not be deemed
to be an “Acquiring Person” for any purpose of this Agreement.

 

“Adjustment Shares” shall have the meaning set forth
in Section 11(a)(ii).

 

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

 

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 (as hereinafter
defined) and Rule 13d-3 thereunder (or any comparable or successor law or
regulation); or

 

(ii)           which such Person or any of such
Person’s Affiliates or Associates, directly or indirectly, has (A) the
right to acquire (whether such right is exercisable immediately, contingently
or only after the passage of time) pursuant to any agreement, arrangement or
understanding (whether or not in writing, other than customary agreements with
and between underwriters and selling group members with respect to a bona fide
public offering of securities), or upon the exercise of conversion rights,
exchange rights, rights (other than the Rights), warrants or options, or
otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to beneficially
own, securities tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any of such Person’s Affiliates or Associates until
such tendered securities are accepted for purchase or exchange; or (B) the
right to vote pursuant to any agreement, arrangement or understanding; provided further, however, that a Person shall not be deemed
the “Beneficial Owner” of, or to “beneficially own,” any security under this
subparagraph (ii) as a result of any agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding:  (x) arises solely
from a revocable proxy given in response to a public proxy or consent

 

2

 

solicitation made
pursuant to, and in accordance with, the applicable provisions of the Exchange
Act and the Exchange Act Regulations, and (y) is not reportable by such
Person 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 first mentioned Person (or any of such first mentioned 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 clause (B) of subparagraph (ii) above)
or disposing of any securities of the Company; provided,
however, that in no case shall any officer or director of the
Company be deemed (A) 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 (B) 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 such 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;

 

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

 

“Business Day” shall mean any day other than a
Saturday, a Sunday, or a day on which banking institutions in The City of Los
Angeles are authorized or obligated by law or executive order to close.

 

“Close of Business” on any given date shall mean 5:00 p.m.,
Pacific Time, on such date; provided, however, that if such date is not a Business Day it shall
mean 5:00 p.m., Pacific Time, on the next succeeding Business Day.

 

“Common Stock” when used with reference to the Company
shall mean the shares of common stock, par value $0.0001 per share, of the
Company.  “Common Stock” when used with
reference to any Person other than the Company shall mean the capital stock (or
other 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.

 

“Company” shall have the meaning set forth in the
forepart of this Agreement.

 

“Current Per Share Market Price” shall have the
meaning set forth in Section 11(d)(i).

 

3

 

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

 

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

 

“Equivalent Preferred Stock” shall have the meaning
set forth in Section 11(b).

 

“Exchange Act” shall mean the Securities Exchange Act
of 1934, as amended, or any successor statute.

 

“Exchange Act Regulations” shall mean the Rules and
Regulations under the Exchange Act, as amended from time to time (including any
successor rules).

 

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

 

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

 

“NASDAQ” shall have the meaning set forth in Section 11(d).

 

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

 

“Preferred Stock” shall mean shares of Series A
Junior Participating Preferred Stock, par value $0.0001 per share, of the
Company, having the rights and preferences set forth in the Form of
Certificate of Designation attached to this Agreement as Exhibit A.

 

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

 

“Principal Party” shall have the meaning set forth in Section 13.

 

“Purchase Price” shall have the meaning set forth in Section 7(b).

 

“Record Date” shall have the meaning set forth in the
recitals to this Agreement.

 

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

 

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

 

“Right” shall have the meaning set forth in the
recitals to this Agreement.

 

“Rights Agent” shall have the meaning set forth in the
forepart of this Agreement and shall include any Person that shall become a
successor Rights Agent pursuant to the terms of this Agreement.

 

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

 

“Rights Dividend Declaration Date” shall have the
meaning set forth in the recitals to this Agreement.

 

4

 

“Section 11(a)(ii) Event” shall mean any
event described in Section 11(a)(ii)(A), (B) or (C).

 

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

 

“Section 13 Event” shall have the meaning set
forth in Section 13.

 

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

 

“Securities Act” shall mean the Securities Act of
1933, as amended, or any successor statute.

 

“Share 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.

 

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

 

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

 

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

 

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

 

“Triggering Event” shall mean any Section 11(a)(ii) Event
or any Section 13 Event.

 

“Unit” shall have the meaning set forth in the
recitals to this Agreement.

 

Section 2.               Appointment
of Rights Agent.  The Company hereby
appoints the Rights Agent to act as agent for the Company in accordance with
the terms and conditions of this Agreement, and the Rights Agent hereby accepts
such appointment.  The Company may from
time to time appoint co-Rights Agents as it may deem necessary or desirable
upon ten days’ prior written notice to the Rights Agent and any co-Rights
Agents.  The Rights Agent shall have no
duty to supervise, and in no event shall be liable for, the acts or omissions
of any such co-Rights Agent.

 

Section 3.               Issue of Rights Certificates.

 

(a)           Until the earlier of
(i) the Close of Business on the tenth day after the Share Acquisition Date
(or such later date as may be determined by action of the board of directors of
the Company) and (ii) the Close of Business on the tenth day (or such
later date as may be determined by action of the Company’s board of directors
prior to such time as any Person becomes an Acquiring Person and of which later
date the Company will give the Rights Agent

 

5

 

prompt written notice) 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 holding shares of Common Stock for or pursuant to the
terms of any such plan) is commenced within the meaning of Rule 14d-2(a) of
the Exchange Act Regulations or of the first public announcement of the
intention of any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or of any Subsidiary of the Company or
any entity holding shares of Common Stock for or pursuant to the terms of any
such plan) to commence a tender or exchange offer, if upon consummation thereof
such Person would be the Beneficial Owner of 30% or more of the shares of
Common Stock of the Company then outstanding (the earlier of the events
described in (i) and (ii) above being the “Distribution Date”),
(x) the Rights will be evidenced (subject to the provisions of Section 3(b))
by the certificates for shares of Common Stock of the Company 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 (y) the right
to receive Rights Certificates will be transferable only in connection with the
transfer of shares of Common Stock of the Company.  As soon as practicable after the Distribution
Date, the Company will notify the Rights Agent of the occurrence of the
Distribution Date and the Company will prepare and execute, the Rights Agent
will countersign, and the Company will send or cause to be sent (and the Rights
Agent will, if requested and provided with all necessary information, send) by
first-class, insured, postage-prepaid mail, to each record holder of shares of
Common Stock of the Company as of the Close of Business on the Distribution
Date, at the address of such holder shown on the records of the Company, a
Rights Certificate, in substantially the form of Exhibit B (a “Rights
Certificate”), evidencing one Right for each share of Common Stock so
held.  From and after the Distribution
Date, the Rights will be evidenced solely by such Rights Certificates.  The Rights Agent shall have no duty or
obligation to take any action under any section of this Agreement which
requires the payment by a Rights holder of applicable taxes and governmental
charges unless and until the Rights Agent is satisfied that all such taxes
and/or charges have been paid.

 

(b)           On the Record Date,
or as soon as practicable thereafter, the Company will send, or cause to be
sent, a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form of Exhibit C (the “Summary of Rights”), by
first-class, postage-prepaid mail, to each record holder of shares of Common
Stock of the Company as of the Close of Business on the Record Date, at the
address of such holder shown on the records of the Company.  Until the earlier of the Distribution Date or
the Expiration Date, the surrender for transfer of any certificate for shares
of Common Stock of the Company shall also constitute the transfer of the Rights
associated with the shares of Common Stock represented thereby.

 

(c)           Certificates
evidencing shares of Common Stock of the Company which become outstanding
(whether originally issued or delivered from the Company’s treasury) or are
otherwise transferred after the Record Date but prior to the earlier of the
Distribution Date and the Expiration Date shall have impressed on, printed on,
written on or otherwise affixed to them the following legend (or such other
legend as the Company may deem appropriate that is not inconsistent with the
provisions of this Agreement but which does not affect the rights, duties or
indemnities of the Rights Agent):

 

This certificate also evidences and entitles the
holder hereof to certain rights as set forth in a Rights Agreement between Image

 

6

 

Entertainment, Inc., and Computershare Trust
Company, Inc., dated as of October 31, 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 Image Entertainment, Inc.  Under certain circumstances, as set forth in
the Rights Agreement, such Rights will be evidenced by separate certificates
and will no longer be evidenced by this certificate.  Image Entertainment, Inc. 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, as set forth in
the Rights Agreement, Rights issued to any Person who becomes an Acquiring
Person (as 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.

 

If the Company purchases
or acquires any shares of Common Stock of the Company prior to the Distribution
Date, any Rights associated with such shares of Common Stock of the Company
shall be deemed cancelled and retired so that the Company shall not be entitled
to exercise any Rights associated with any shares of Common Stock of the
Company which are no longer outstanding.

 

Section 4.               Form of
Rights Certificates.

 

(a)           The Rights
Certificates (and the forms of election to purchase Units of Preferred Stock
and of assignment to be printed on the reverse thereof) shall be substantially
the same as Exhibit B and may have such marks of identification or
designation and such legends, summaries or endorsements printed thereon as the
Company may deem appropriate (but which do not affect the rights, duties or
immunities of the Rights Agent) and as are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any applicable law or
with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange or transaction reporting system on which the
Rights may from time to time be listed or traded, or to conform to usage.  Subject to the provisions of Sections 11
and 22, the Rights Certificates shall entitle the holders thereof to purchase
the number of Units as shall be set forth therein at the price per Unit set
forth therein, but the number of such Units and the Purchase Price shall be
subject to adjustment as provided herein.

 

(b)           Any Rights
Certificate issued pursuant to this Agreement that represents Rights beneficially
owned by:  (i) an Acquiring Person
or any Associate or Affiliate of an Acquiring Person; (ii) a transferee of
an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such; or (iii) a transferee
of an Acquiring Person (or of any such Associate or Affiliate) that 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 such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the board of directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of

 

7

 

Section 7(e); shall in each case contain (to the
extent the Rights Agent has notice thereof and 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 by and between Image Entertainment, Inc. and Computershare
Trust Company, Inc., as Rights Agent, dated as of October 31, 2005
(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 any officer of the
Company, either manually or by facsimile signature, shall have affixed thereto
the Company’s seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature.  The Rights
Certificates shall be countersigned by the Rights Agent and shall not be valid
for any purpose unless countersigned.  In
case any officer of the Company who shall have signed any of the Rights
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights
Agent and issued and delivered by the Company with the same force and effect as
though the person who signed such Rights Certificates had not ceased to be such
officer of the Company.  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
this Agreement any such person was not such an officer.

 

(b)           Following the
Distribution Date and receipt by the Rights Agent of notice thereof, the Rights
Agent will keep or cause to be kept, at its office designated for such purpose,
books for registration and transfer of the Rights Certificates issued under
this Agreement.  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 4(b), 7(e) and 14, at any time after the Close
of Business on the Distribution Date, and at or prior to the Close of Business
on the Expiration Date, any Rights Certificate or Rights Certificates may be
transferred, split up, combined or exchanged for another Rights Certificate or
Rights Certificates evidencing exercisable Rights, entitling the registered
holder to purchase a like number of Units of Preferred Stock (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 

 

8

 

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 or Rights Certificates
until the registered holder shall have properly completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate or Rights Certificates and shall have provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company or the
Rights Agent shall reasonably request. 
Thereupon the Rights Agent shall, subject to Sections 4(b), 7(e) and
14, 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 holders
of Rights Certificates 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. 
The Rights Agent shall have no duty or obligation to take any action
under any section of this Agreement which requires the payment by a Rights
holder of applicable taxes and governmental charges unless and until the Rights
Agent is satisfied that all such taxes and/or charges have been paid.

 

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

 

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

 

(a)           The registered
holder of any Rights Certificate evidencing exercisable Rights may exercise the
Rights evidenced thereby (except as otherwise provided in this Agreement) in
whole or in part at any time after the Distribution Date upon surrender of the
Rights Certificate, with the form of election to purchase and the related
certification properly completed and duly executed, to the Rights Agent at the
office of the Rights Agent designated for such purpose, together with payment
of the Purchase Price for each Right being exercised (as such amount may be
reduced (including to zero) pursuant to Section 11(a)(iii)) and an amount
equal to any applicable transfer tax or charge required to be paid by the
holder of such Rights Certificate in accordance with Section 9 in cash, or
by certified check, wire transfer or bank draft payable to the order of the
Company), at or prior to the earliest of (i) the Close of Business on the
tenth anniversary hereof (the “Final Expiration Date”), (ii) the time at
which the Rights are redeemed as provided in Section 23 (the “Redemption
Date”), and (iii) the time at which such Rights are exchanged as provided
in Section 24 (the earliest of (i), (ii) and (iii) being the “Expiration
Date”).

 

(b)           The Purchase Price
for each Unit pursuant to the exercise of a Right shall initially be $12.42
and, shall be subject to adjustment from time to time as provided in
Sections 11 and 13

 

9

 

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 evidencing exercisable Rights (with the form of election to
purchase and certification properly completed and duly executed) accompanied by
payment as provided in Section 7(a), the Rights Agent shall, subject to Section 20(k),
thereupon promptly (i) (A) requisition from any transfer agent of the
Preferred Stock a certificate or certificates for the number of Units 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 Units issuable upon exercise of the Rights
hereunder with a depositary agent, requisition from the depositary agent of a
depositary receipt or depositary receipts representing such number of Units as
are to be purchased (in which case certificates for the Units represented by
such receipt or receipts shall be deposited by the transfer agent with the
depositary agent) and the Company hereby directs the depositary agent to comply
with such requests; (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; (iii) after receipt of such certificates
or depositary receipts, cause the same to be delivered to or upon the order of
the registered holder of such Rights Certificate, registered in such name or
names as may be designated by such holder; and (iv) when appropriate,
after receipt thereof, deliver such cash to or upon the order of the registered
holder of such Rights Certificate.  If
the Company is obligated to issue other securities of the Company, pay cash
and/or distribute other property pursuant to Section 11(a), the Company
will make all arrangements necessary so that such other securities, cash and/or
other property are available for distribution by the Rights Agent, if and when
necessary to comply with the terms of this Agreement.

 

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

 

(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
thereof) who becomes a transferee after the Acquiring Person becomes such; (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate
thereof) who becomes a transferee prior to or concurrently with the Acquiring
Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
the Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the board of
directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this Section 7(e);
or (iv) any subsequent transferee shall not be exercisable without any
further action and no holder of such Rights shall have any rights whatsoever
with respect to such Rights or any Rights Certificate which formerly evidenced
such Rights, and neither the Company nor the Rights Agent shall have any
obligations whatsoever with respect to such Rights or any Rights Certificate,
whether under any provision of

 

10

 

this Agreement or otherwise.  The Company shall use all requisite
commercially reasonable efforts to ensure that the provisions of Section 4(b) and
this Section 7(e) are complied with, but neither the Company nor the
Rights Agent shall have no liability to any holder of Rights Certificates or to
any other Person as a result of its making or failing to make any
determinations with respect to an Acquiring Person or any of such Acquiring
Person’s Affiliates, Associates or transferees or taking or failing to take any
actions with respect any Rights or Rights Certificates of any such Person.

 

(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 this Section 7
unless such registered holder shall have (i) properly completed and duly
executed 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 evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company or the Rights Agent shall reasonably request.

 

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

 

Section 9.               Reservation and Availability
of Preferred Stock.

 

(a)           The Company
covenants and agrees that it will use its commercially reasonable efforts to
cause to be reserved and kept available out of, and to the extent of, its
authorized and unissued Preferred Stock not reserved for another purpose a
number of shares that will be sufficient to permit the exercise in full of all
outstanding Rights.  Upon the occurrence
of any events resulting in an increase in the aggregate number of shares of
Preferred Stock (or other equity securities of the Company) issuable upon exercise
of all outstanding Rights above the number then reserved, the Company shall
make appropriate increases in the number of shares so reserved.

 

(b)           If the Units of
Preferred Stock to be issued and delivered upon the exercise of the Rights are
at any time listed on a national securities exchange or included for quotation
on any transaction reporting system, the Company shall during the period from
the Distribution Date to the Expiration Date use its best efforts to cause all
shares reserved for such issuance to be listed on such exchange or included for
quotation on any such transaction reporting system upon official notice of
issuance upon such exercise.

 

11

 

(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 Section 11(a)(ii) Event
in which the consideration to be delivered by the Company upon exercise of the
Rights has been determined in accordance with Section 11(a)(iii), 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 reasonably
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
Expiration Date.  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 of the offering made upon exercise of the Rights in such
jurisdiction shall have been obtained, or an exemption therefrom shall be
available and until a registration statement has been declared effective.

 

(d)           The Company
covenants and agrees that it will take all such action as may be necessary to
ensure that all Units of Preferred Stock (and, following the occurrence of a
Triggering Event, any other securities that may be delivered upon exercise of
Rights) shall, at the time of delivery of the certificates for such Units of
Preferred Stock or other securities subject to payment of the Purchase Price,
be duly and validly authorized and issued and fully paid and non-assessable.

 

(e)           The Company further
covenants and agrees that it will pay when due and payable any and all
governmental transfer taxes and charges which may be payable in respect of the
issuance or delivery of the Rights Certificates or of any Units (and, following
the occurrence of a Triggering Event, any other securities that may be
delivered upon exercise of Rights) upon the exercise of Rights.  The Company shall not, however, be required
to pay any transfer tax or charge 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 depositary receipts for Units 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
depositary receipts for Units (or other securities that may be delivered upon
the exercise of any Rights) until any such tax shall have been paid (any such
tax or charge being payable by the holder of such Rights Certificate at the
time of surrender) or until it has been established to the Company’s or the
Rights Agent’s reasonable satisfaction that no such tax or charge is due.

 

Section 10.             Preferred
Stock Record Date.  Each Person in
whose name any certificate for Units (or, following the occurrence of a
Triggering Event, other securities that may be delivered upon exercise of
Rights) is issued upon the exercise of Rights shall for all purposes be deemed
to have become the holder of record of the Units (or, following the occurrence
of a Triggering Event other securities that may be delivered upon the exercise
of the Rights) represented thereby on, and such certificate shall be dated, at
the Close of Business on the date upon which the Rights Certificate evidencing
such Rights was duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes or charges) was made; provided,
however, that if the date of such
surrender and payment is a date upon which the Preferred Stock (or,

 

12

 

following the occurrence of a Triggering Event, other securities that
may be delivered upon the exercise of the Rights) transfer books of the Company
are closed, such person shall be deemed to have become the record holder of
such shares at the Close of Business on, and such certificate shall be dated,
the next succeeding Business Day on which such transfer books are open; provided  further, however, that if delivery of Units (or following the
occurrence of a Triggering Event, other securities that may be delivered upon
the exercise of the Rights) is delayed pursuant to Section 9(c), such
Persons shall be deemed to have become the record holders of such Units (or
following the occurrence of a Triggering Event, other securities that may be
delivered upon the exercise of the Rights) only when such Units first become
deliverable.  Prior to the exercise of
the Rights evidenced thereby, the holder of a Rights Certificate shall not be
entitled to any rights of a stockholder of the Company with respect to
securities for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or
to exercise any preemptive rights, and shall not be entitled to receive any
notice of any proceedings of the Company, except as expressly provided in this
Agreement.

 

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

 

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

 

13

 

(ii)           Subject to Section 24, if:

 

(A)          any Person shall become an Acquiring
Person, unless the event causing the Person to become an Acquiring Person is a
transaction to which the provisions of Section 13(a) apply;

 

(B)           any Acquiring Person or any Associate
or Affiliate of any Acquiring Person, at any time after the date of this
Agreement, directly or indirectly, shall (1) merge into the Company or
otherwise combine with the Company and the Company shall be the continuing or
surviving corporation of such merger or combination and shares of Common Stock
of the Company shall remain outstanding and unchanged, (2) in one
transaction or a series of transactions, transfer any assets to the Company or
any of its Subsidiaries in exchange (in whole or in part) for shares of Common
Stock of the Company, for other equity securities of the Company or any of its
Subsidiaries, or for securities exercisable for or convertible into shares of
equity securities of the Company or any of its Subsidiaries (whether shares of
Common Stock of the Company or otherwise) or otherwise obtain from the Company
or any of its Subsidiaries, with or without consideration, any additional
shares of such equity securities or securities exercisable for or convertible
into such equity securities (other than pursuant to a pro rata distribution to
all holders of shares of  Common Stock of
the Company), (3) sell, purchase, lease, exchange, mortgage, pledge,
transfer or otherwise acquire or dispose of, in one transaction or a series of
transactions, to, from or with the Company or any of its Subsidiaries or any
employee benefit plan maintained by the Company or any of its Subsidiaries or
any trustee or fiduciary with respect to such plan acting in such capacity,
assets (including securities) on terms and conditions less favorable to the
Company or such Subsidiary, plan, trustee or fiduciary than those that could
have been obtained in arm’s-length negotiations with an unaffiliated third
party, other than pursuant to a transaction set forth in Section 13(a), (4) sell,
purchase, lease, exchange, mortgage, pledge, transfer or otherwise acquire or
dispose of, in one transaction or a series of transactions, to, from or with
the Company or any of its Subsidiaries or any employee benefit plan maintained
by the Company or any of its Subsidiaries or any trustee or fiduciary with
respect to such plan acting in such capacity (other than transactions, if any,
consistent with those engaged in, as of the date hereof, by the Company and
such Acquiring Person or such Associate or Affiliate thereof), assets
(including securities or intangible assets) having an aggregate fair market
value of more than $5,000,000, other than pursuant to a transaction set forth
in Section 13(a), (5) receive, or any designee, agent or
representative of such Acquiring Person or any Affiliate or Associate of such
Acquiring Person shall receive, any compensation from the Company or any of its
Subsidiaries other than compensation for full-time employment as a regular
employee at rates in accordance with the Company’s (or its Subsidiaries’) past
practices, or (6) receive the benefit, directly or indirectly (except
proportionately as a holder of shares of Common Stock of the Company or as
required by law or governmental regulation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or other
tax advantages provided by the Company or

 

14

 

any of its
Subsidiaries or any employee benefit plan maintained by the Company or any of
its Subsidiaries or any trustee or fiduciary with respect to such plan acting
in such capacity; or

 

(C)           during such time as there is an
Acquiring Person, there shall be any reclassification of securities (including
any reverse stock split), or recapitalization of the Company, or any merger or
consolidation of the Company with any of its Subsidiaries or any other
transaction or series of transactions involving the Company or any of its
Subsidiaries, other than a transaction or transactions to which the provisions
of Section 13(a) apply (whether or not with or into or otherwise
involving an Acquiring Person), which has the effect, directly or indirectly, of
increasing by more than one percent the proportionate share of the outstanding
shares of any class of equity securities of the Company or any of its
Subsidiaries that is directly or indirectly beneficially owned by any Acquiring
Person or any Person or any Associate or Affiliate of any Acquiring Person;

 

then promptly following
the occurrence of an event described in Section 11(a)(ii)(A), (B) or (C) (each
being a “Section 11(a)(ii) Event”), proper provision shall be made so
that each holder of a Right, except as otherwise provided in Section 7(e),
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
then-current Purchase Price, in lieu of the number of Units of Preferred Stock
for which a Right was exercisable immediately prior to the first occurrence of
a Section 11(a)(ii) Event, such number of Units of Preferred Stock as
shall equal the result obtained by multiplying the then-current Purchase Price
by the then number of Units of Preferred Stock 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, and
dividing that product by 50% of the Current Per Share Market Price for shares
of Common Stock on the date of occurrence of the most recent Triggering Event
(such number of Units of Preferred Stock being hereinafter referred to as the “Adjustment
Shares”).  Upon the occurrence of a Section 13
Event, any Rights that shall not have been previously exercised pursuant to
this Section 11(a)(ii) shall thereafter be exercisable only pursuant
to Section 13 and not pursuant to this Section 11(a)(ii).  The Company shall notify the Rights Agent
when this Section 11(a)(ii) applies and shall use all commercially
reasonable efforts to ensure that the provisions of this Section 11(a)(ii) are
complied with, but neither the Company nor the Rights Agent shall have any
liability to any holder of Rights Certificates or other Person as a result of
the Company’s failure to make any determinations with respect to any Acquiring
Person or its Affiliates, Associates or transferees hereunder.

 

(iii)          In the event that the number of shares
of Preferred Stock 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, in lieu of issuing
Units of Preferred Stock in accordance with Section 11(a)(ii) hereof:  (A) determine the excess of (1) the
value of the Units of Preferred Stock issuable upon the exercise of a Right
(the “Current Value”) over (2) the Purchase Price (such excess being
referred to as

 

15

 

the “Spread”) and (B) with
respect to each Right, make adequate provision to substitute for such Units of
Preferred Stock, upon exercise of the Rights, (1) cash, (2) a
reduction in the Purchase Price, (3) other equity securities of the
Company (including, without limitation, Common Stock of the Company or shares
or units of shares of any series of preferred stock which the board of
directors of the Company shall have conclusively deemed to have the same value
as the Units of Preferred Stock (such shares or units of preferred stock are
herein called “Preferred Stock Equivalents”)), except to the extent that the
Company has not obtained any necessary regulatory approval for such issuance, (4) debt
securities of the Company, except to the extent that the Company has not
obtained any necessary regulatory approval for such issuance, (5) other
assets, or (6) any combination of the foregoing, having an aggregate value
equal to the Current Value, as determined by the board of directors of the
Company based upon the advice of a nationally recognized investment banking
firm selected by the board of directors of the Company (which determination
shall be described in a statement filed with the Rights Agent and shall be
conclusive and binding on the Rights Agent, the holders of the Rights and all
other persons); provided, however,
if the Company shall not have made adequate provision to deliver value pursuant
to clause (B) above within thirty days following the later of
(x) occurrence of a Section 11(a)(ii) 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)(iii) Trigger
Date”), then the Company shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the Purchase Price, Units
of Preferred Stock (to the extent available), except to the extent that the
Company has not obtained any necessary regulatory approval for such issuance,
and then, if necessary, cash, having an aggregate value equal to the Spread.

 

(b)           If the Company shall
fix a record date for the issuance of rights, options or warrants to all
holders of Preferred Stock entitling them (for a period expiring within forty
five calendar days after such record date) to subscribe for or purchase
Preferred Stock (or shares having the same rights, privileges and preferences
as the Preferred Stock (“Equivalent Preferred Stock”)) or securities
convertible into Preferred Stock or Equivalent Preferred Stock at a price per
Unit of Preferred Stock or Equivalent Preferred Stock (or having a conversion
price per Unit, if a security convertible into Units of Preferred Stock or
Equivalent Preferred Stock) less than the then Current Per Share Market Price
(as determined pursuant to Section 11(d)) of a Unit of Preferred Stock on
such record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
sum of the number of Units outstanding on such record date plus the number of Units
which the aggregate offering price of the total number of Units and/or
Equivalent Preferred Stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such Current Per Share Market Price and the denominator of which shall be
the sum of the number of Units outstanding on such record date plus the number
of additional Units and/or Equivalent Preferred Stock to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible).  If
such subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be as
determined in good faith by the board of directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive and binding on the

 

16

 

Rights Agent and the holders of the Rights.  Units 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 if such rights,
options or warrants are not so issued, the Purchase Price shall be adjusted to
be the Purchase Price which would then be in effect if such record date had not
been fixed.

 

(c)           If the Company shall
fix a record date for a distribution to all holders of Units of Preferred Stock
(including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation) of
evidences of indebtedness, cash (other than a regular quarterly cash dividend),
assets (other than a dividend payable in Units or Equivalent Preferred Stock
but including any dividend payable in equity securities other than Preferred
Stock or Equivalent Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(d)), the Purchase Price to be
in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the then Current Per Share Market Price (as
determined pursuant to Section 11(d)) of the Preferred Stock on such
record date, less the fair market value (as determined in good faith by the
board of directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent and shall be conclusive and binding on
the Rights Agent and the holders of the Rights) of the cash, assets or
evidences of indebtedness to be distributed or of such subscription rights or
warrants distributable in respect of a share of Preferred Stock, and the
denominator of which shall be such Current Per Share Market Price of a share of
Preferred Stock.  Such adjustments shall
be made successively whenever such a record date is fixed; and in the event
that such distribution is not so made, the Purchase Price shall again be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.

 

(d)           (i) For the purpose of any
computation hereunder, 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 thirty consecutive Trading Days (as such term is
hereinafter defined) ending on and including the Trading Day 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 (A) a dividend or distribution on such security payable in
shares of such security or securities convertible into such security, or (B) any
subdivision, combination or reclassification of such security and prior to the
expiration of thirty Trading Days after and not including the ex-dividend date
for such dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the Current Per Share Market
Price shall be appropriately adjusted to reflect the current market price per
share equivalent of such security.  The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the 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 Nasdaq Stock Market (“NASDAQ”) or, if the security
is not listed or admitted to trading on the NASDAQ, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the security is
listed or admitted to trading or, if the security is not listed or admitted to
trading on any national securities exchange, the last quoted

 

17

 

price or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the 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 Current Per
Share Market Price of such security on such date shall mean the fair value per
share or other trading unit as determined in good faith by the board of
directors of the Company as provided for above (which determination shall be
described in a statement filed with the Rights Agent and shall be conclusive
and binding on the Rights Agent, the holders of the Rights and all other
Persons).  The term “Trading Day” shall
mean a day on which the principal national securities exchange on which the
security is listed or admitted to trading is open for the transaction of
business or, if the security is not listed or admitted to trading on any
national securities exchange, a Business Day.

 

(ii)           For the purpose of any computation
hereunder, the Current Per Share Market Price of the Preferred Stock shall be
determined in accordance with the method set forth in Section 11(d)(i).  If the Current Per Share Market Price of the
Preferred Stock cannot be determined in the manner provided above or if the
Preferred Stock is not publicly held or listed or traded in a manner described
in Section 11(d)(i), the Current Per Share Market Price of the Preferred
Stock shall be conclusively deemed to be an amount equal to the product of
$1,000 (as such amount may be appropriately adjusted for such events as stock
splits, stock dividends and recapitalizations with respect to shares of  Common Stock of the Company occurring after
the date of this Agreement) multiplied by the Current Per Share Market Price of
Common Stock of the Company.  If no
shares of the Common Stock of the Company or the Preferred Stock are publicly
held or so listed or traded, “Current Per Share Market Price” of the Preferred
Stock 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 and binding on
the Rights Agent and the holders of the Rights for all purposes.  For all purposes of this Agreement, the
Current Per Share Market Price of a Unit of Preferred Stock shall be equal to
the Current Per Share Market Price of one share of Preferred Stock divided by
1,000.

 

(e)           No adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent in the Purchase Price; provided, however, that
any adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment.  All calculations
under this Section 11 shall be made to the nearest cent or to the nearest
one-hundred-thousandth (1/100,000) of a share of Preferred Stock or
one-hundredth (1/100) of any other share or security as the case may be.  Notwithstanding the first sentence of this Section 11(e),
any adjustment required by this Section 11 shall be made no later than the
earlier of (i) three years from the date of the transaction which requires
such adjustment or (ii) the Expiration Date.

 

(f)            If as a result of
an adjustment made pursuant to Section 11(a)(ii), the holder of any Rights
thereafter exercised shall become entitled to receive any shares of capital
stock of the Company other than Units of Preferred Stock, thereafter the number
of such other shares so

 

18

 

receivable upon exercise of any Rights and the
Purchase 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 Stock contained in Sections 11(a), (b), (c), (d),
(e), (g), (h), (i), (j), (k), (l) and (m), and the provisions of
Sections 7, 9, 10, 13 and 14 with respect to the Preferred Stock shall
apply on like terms to any such other shares.

 

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

 

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

 

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

 

19

 

(j)            Irrespective of any
adjustment or change in the Purchase Price or the number of Units issuable upon
the exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per Unit and the number of
Units which were expressed in the initial Rights Certificates issued hereunder.

 

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

 

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

 

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

 

(n)           The Company shall
not, at any time after the Distribution Date, (i) consolidate with any
other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o)), (ii) merge with or into any other
Person (other than a Subsidiary of the Company in a transaction which complies
with Section 11(o)), or (iii) sell or transfer (or permit any
Subsidiary to sell or transfer), in one transaction, or a series of
transactions, assets or earning power aggregating more than 50% 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 and/or any of its Subsidiaries
in one or more transactions each of which complies with Section 11(o)), if
(x) at the time of or immediately after such consolidation, merger or sale
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 or (y) prior
to, simultaneously with or immediately after such consolidation, merger or
sale, the Person which constitutes, or would constitute, the Principal Party
(as defined in Section 13(b)) shall have distributed or otherwise
transferred to its stockholders or other persons holding an

 

20

 

equity interest in such Person, Rights previously
owned by such Person or any of its Affiliates and Associates; provided, however, this Section 11(n)
shall not affect the ability of any Subsidiary of the Company to consolidate
with, merge with or into, or sell or transfer assets or earning power to, any
other Subsidiary of the Company.

 

(o)           After the
Distribution Date, the Company shall not, except as permitted by Section 23
or Section 27, take (or permit any of its Subsidiaries to take) 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.

 

(p)           If, at any time
after the date of this Agreement and prior to the Distribution Date, the
Company shall (i) declare or pay any dividend on outstanding shares of
Common Stock of the Company payable in shares of Common Stock of the Company or
(ii) effect a subdivision, combination or consolidation of the Common Stock
of the Company (by reclassification or otherwise than by payment of dividends
in shares of Common Stock of the Company) into a greater or lesser number of
shares of Common Stock of the Company, then in any such case the number of
Units purchasable after such event upon proper exercise of each Right shall be
determined by multiplying the number of Units so purchasable immediately prior
to such event by a fraction, the numerator of which shall be the number of
shares of Common Stock of the Company outstanding immediately before such event
and the denominator of which shall be the number of shares of Common Stock of
the Company outstanding immediately after such event.  The adjustments provided for in this Section 11(p)
shall be made successively whenever such a dividend is declared or paid or such
a subdivision, combination or consolidation is effected.

 

Section 12.             Certificate
of Adjusted Purchase Price or Number of Shares.  Whenever an adjustment is made as provided in
Section 11 or 13, the Company shall promptly (a) prepare a
certificate setting forth such adjustment, and a brief statement of the
computations and facts accounting for such adjustment, (b) file with the
Rights Agent and with each transfer agent for the shares of Common Stock of the
Company or Units a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Rights Certificate in accordance with Section 25
hereof.  Notwithstanding the foregoing
sentence, the failure by the Company to make such certification or give such
notice shall not affect the validity of or the force or effect of the
requirement for such adjustment.  The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment or statement contained therein and shall have no duty or
liability with respect to, shall not be deemed to have knowledge of, and
adjustment or any such event 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 Share Acquisition Date, directly or indirectly, (x) the
Company shall consolidate with, or merge with and into, any other Person (other
than a Subsidiary of the Company in a transaction which complies with Section 11(o)),
and the Company shall not be the continuing or surviving corporation of such
consolidation or merger, (y) any Person (other than a Subsidiary of the
Company in a transaction which complies with Section 11(o)) 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,

 

21

 

in connection with such consolidation or merger, all
or part of the shares of Common Stock of the Company shall be changed into or
exchanged for stock or other securities of any other Person or cash or any
other property, or (z) the Company shall sell or otherwise transfer (or
one or more of its Subsidiaries shall sell or otherwise transfer) to any Person
or Persons (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o)), in one or more transactions, directly or
indirectly, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole), (any such
event being a “Section 13 Event”), then, and in each such case, proper
provision shall be made so that:  (i) each
holder of a Right, except as provided in Section 7(e), shall thereafter have
the right to receive, upon the exercise thereof at the then current Purchase
Price, such number of validly authorized and issued, fully paid and
non-assessable shares of Common Stock of the Principal Party, which shares
shall not be subject to any liens, encumbrances, rights of first refusal,
transfer restrictions or other adverse claims, as shall be equal to the product
obtained by (1) multiplying the then current Purchase Price by the number
of Units of Preferred Stock for which a Right is exercisable immediately prior
to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event
has occurred prior to the first occurrence of a Section 13 Event,
multiplying the number of such Units of Preferred Stock for which a Right would
be exercisable hereunder but for the occurrence of such Section 11(a)(ii) Event
by the Purchase Price which would be in effect hereunder but for such first
occurrence) and (2) dividing that product (which, following the first
occurrence of a Section 13 Event, shall be the “Purchase Price” for all
purposes of this Agreement) by 50% of the Current Per Share Market Price of the
shares of Common Stock of such Principal Party on the date of consummation of
such Section 13 Event; (ii) 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; (iii) the
term “Company” shall, for all purposes of this Agreement, thereafter be deemed
to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 shall apply only to such Principal Party
following the first occurrence of a Section 13 Event; (iv) such
Principal Party shall take such steps (including, but not limited to, the reservation
of a sufficient number of shares of its Common Stock) in connection with the
consummation of any such transaction as may be necessary to ensure that the
provisions of this Agreement shall thereafter be applicable to its shares of
Common Stock thereafter deliverable upon the exercise of the Rights; and (v) the
provisions of Section 11(a)(ii) shall be of no further effect
following the first occurrence of any Section 13 Event.

 

(b)           “Principal Party”
shall mean:

 

(i)            in the case of any transaction described
in clause (x) or (y) of the first sentence of Section 13(a), (A) the
Person that is the issuer of any securities into which shares of Common Stock
of the Company are converted in such merger or consolidation, or, if there is
more than one such issuer, the issuer whose outstanding shares of Common Stock
have the greatest aggregate Current Per Share Market Price and (B) if no
securities are so issued, the Person that is the other party to such merger or
consolidation, or, if there is more than one such Person, the Person whose
outstanding shares of Common Stock have the greatest aggregate Current Per
Share Market Price; and

 

(ii)           in the case of any transaction
described in clause (z) of the first sentence of Section 13(a), the
Person that is the party receiving the largest portion of the assets or

 

22

 

earning power
transferred pursuant to such transaction or transactions, or, if each Person
that is a party to such transaction or transactions receives the same portion
of the assets or earning power transferred pursuant to such transaction or
transactions or if the Person receiving the largest portion of the assets or
earning power cannot be determined, whichever Person whose outstanding shares
of Common Stock have the greatest aggregate Current Per Share Market Price; provided, however, that
in any such case, (1) if the Common Stock of such Person is not at such
time and has not been continuously over the preceding twelve-month period
registered under Section 12 of the Exchange Act (“Registered Common Stock”),
or such Person is not a corporation, and such Person is a direct or indirect
Subsidiary of another Person that has Registered Common Stock outstanding, “Principal
Party” shall refer to such other Person; (2) if the Common Stock of such
Person is not Registered Common Stock or such Person is not a corporation, and
such Person is a direct or indirect Subsidiary of another Person but is not a
direct or indirect Subsidiary of another Person which has Registered Common
Stock outstanding, “Principal Party” shall refer to the ultimate parent entity
of such first-mentioned Person; (3) if the Common Stock of such Person is
not Registered Common Stock or such Person is not a corporation, and such
Person is directly or indirectly controlled by more than one Person, and one or
more of such other Persons has Registered Common Stock outstanding, “Principal
Party” shall refer to whichever of such other Persons is the issuer of the
Registered Common Stock having the highest aggregate Current Per Share Market
Price; and (4) if the Common Stock of such Person is not Registered Common
Stock or such Person is not a corporation, and such Person is directly or
indirectly controlled by more than one Person, and none of such other Persons
has Registered Common Stock outstanding, “Principal Party” shall refer to
whichever ultimate parent entity is the corporation having the greatest
stockholders’ equity or, if no such ultimate parent entity is a corporation,
shall refer to whichever ultimate parent entity is the entity having the
greatest net assets.

 

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

 

(i)            (A) file on an appropriate
form, as soon as practicable following the execution of such agreement, a registration
statement under the Securities Act with respect to the shares of Common Stock
of such Principal Party that may be acquired upon exercise of the Rights, (B) cause
such registration statement to remain effective (and to include a prospectus
complying with the requirements of the Securities Act) until the Expiration
Date, and (C) as soon as practicable following the execution of such
agreement take such action as may be required to ensure that any acquisition of
such shares of Common Stock of such Principal Party upon the exercise of the
Rights complies with any applicable state securities or “blue sky” laws; and

 

23

 

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

 

(d)           In case the Principal
Party which is to be a party to a transaction referred to in this Section 13
has a provision in any of its authorized securities or in its certificate of
incorporation, bylaws or other instrument governing its corporate affairs,
which provision would have the effect of (i) causing such Principal Party
to issue, in connection with, or as a consequence of, the consummation of a
transaction referred to in this Section 13, shares of Common Stock of such
Principal Party at less than in the Current Per Share Market Price or
securities exercisable for, or convertible into, shares of Common Stock of such
Principal Party at less than in the Current Per Share Market Price (other than
to holders of Rights pursuant to this Section 13) or (ii) providing
for any special payment, tax or similar provisions in connection with the
issuance of the shares of Common Stock of such Principal Party pursuant to the
provisions of this Section 13, then, in such event, the Company 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 cancelled, 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 provisions of this Section 13
shall similarly apply to successive mergers or consolidations or sales or other
transfers.  In the event that a Section 13
Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event,
the Rights that have not theretofore been exercised shall thereafter be exercisable
in any manner provided in Section 13(a).

 

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 Per Share Market Price of a whole Right.  For purposes of this Section 14(a), the
Current Per Share Market Price of a whole Right shall be the closing price per
share of a whole Right on the Trading Day immediately prior to the date on
which such fractional Rights would have been otherwise issuable.

 

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

 

24

 

owners of the Preferred Stock represented by such
depositary receipts.  In lieu of
fractional shares of Preferred Stock that are not integral multiples of one
one-thousandth of a share of Preferred Stock, 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
Per Share Market Price of one share of Preferred Stock.

 

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

 

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

 

Section 15.             Rights
of Action.  All rights of action in
respect of this Agreement, excepting the rights of action given to the Rights
Agent under Section 18, are vested in the respective registered holders of
the Rights Certificates (and, prior to the Distribution Date, the registered
holders of certificates representing shares of Common Stock of the Company);
and any registered holder of any Rights Certificate (or, prior to the
Distribution Date, a certificate representing shares of Common Stock of the
Company), without the consent of the Rights Agent or of the holder of any other
Rights Certificate (or, prior to the Distribution Date, of a certificate
representing shares of Common Stock of the Company), may, in such holder’s own
behalf and for such holder’s own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, such holder’s right to exercise the Rights
evidenced by such Rights Certificate or, prior to the Distribution Date, 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
hereunder, 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 shares of Common Stock of the Company;

 

25

 

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

 

(c)           subject to
Sections 6(a) and 7(f), 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 Stock certificate) is registered as
the absolute owner thereof and of the Rights evidenced thereby (notwithstanding
any notations of ownership or writing on the Rights Certificates or the
associated Common Stock certificate made by anyone other than the Company or the
Rights Agent) for all purposes whatsoever, and neither the Company nor the
Rights Agent shall be affected by any notice to the contrary;

 

(d)           such holder expressly
waives any right to receive any fractional Rights and any fractional securities
upon exercise or exchange of a Right, except as otherwise provided in Section 14;
and

 

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

 

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 the
holder of the Units of Preferred Stock or any other securities of the Company
which may at any time be issuable upon the exercise of the Rights represented
thereby, nor shall anything contained in this Agreement 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
provided in Section 25), 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 this Agreement.

 

Section 18.             Concerning
the Rights Agent.  The Company agrees
to pay to the Rights Agent reasonable compensation for all services rendered by
it under this Agreement and, from time to time, on demand of the Rights Agent,
its reasonable expenses and counsel fees and other disbursements incurred in
the preparation, negotiation, execution, delivery, amendment and administration
of this Agreement and the exercise and performance of its duties
hereunder.  The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
damage, judgment, fine, penalty, claim, demand, settlement, cost, liability or
expense (including, without limitation, the reasonable fees and disbursements
of counsel), incurred

 

26

 

without gross negligence or willful misconduct on the part of the
Rights Agent, for any action taken, suffered or omitted by the Rights Agent in
connection with the execution, acceptance and administration of this Agreement
and the exercise and performance of its duties, including, without limitation,
the costs and expenses of defending against and appealing any claim of liability
arising therefrom, directly or indirectly. 
This indemnity shall survive the termination of this Agreement and the
expiration of the Rights.  The costs and
expenses incurred in enforcing this right of indemnification shall be paid by
the Company.

 

In the absence of gross negligence or willful
misconduct, the Rights Agent is authorized and 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 and the exercise
and performance of its duties hereunder, in reliance upon any Rights
Certificate or certificate for Units or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper person or persons, or
otherwise upon the advice of counsel as set forth in Section 20.

 

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 shareholder services, stock
transfer or 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, that
such corporation must be eligible for appointment as a successor Rights Agent
under the provisions of Section 21. 
In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement any of the 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.

 

27

 

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

 

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

 

(b)           Whenever in the
administration, exercise and performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking, suffering or omitting to
take any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by any officer of
the Company and delivered to the Rights Agent; and such certificate shall be
full and complete authorization and protection to the Rights Agent for or in
respect of any action taken, suffered or omitted 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 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 or have any liability in respect of the
legality, validity or enforceability of this Agreement or the execution and
delivery hereof (except the due execution by the Rights Agent) or in respect of
the legality, validity or enforceability or the execution of any Rights
Certificate (except its countersignature); nor shall it be liable or
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 (including the
Rights becoming void pursuant to Section 11(a)(ii)) or any change or
adjustment in the terms of the Rights (including the manner, method or amount
thereof) provided for in Section 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 of the certificate described in Section 12, upon which the
Rights Agent may rely); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any Units
of Preferred Stock or other securities to be issued upon the exercise of any
Rights or as to whether any such security will, when issued, be validly
authorized and issued, fully paid and nonassessable.

 

28

 

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

 

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

 

(i)            The Rights Agent may
execute and exercise any of the rights or powers vested in it or perform any
duty under this Agreement either itself (through its directors, officers and
employees) or by or through its attorneys or agents, and the Rights Agent shall
not be answerable or accountable for any act, omission, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Company
resulting from any such act, omission, default, neglect or misconduct, provided
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 the Rights Agent in good faith
believes that repayment of such funds or adequate indemnification against such
risk or liability is not reasonably assured to it.

 

29

 

(k)           If, with respect to any
Rights Certificate surrendered to the Rights Agent for exercise, transfer,
split up, combination or exchange, the certification on the form of assignment
or form of election to purchase, as the case may be, that has been completed to
certify the holder is an Acquiring Person (or an Affiliate or Associate
thereof) has either not been completed or in any manner indicates any other
response thereto, the Rights Agent shall not take any further action with
respect to such requested exercise, transfer, split up, combination or
exchange, 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 days’ notice in writing mailed to the Company and to
each transfer agent of the Common Stock of the Company or Preferred Stock (as
to which the Rights Agent has received prior written notice) by registered or
certified mail, and the Company shall mail notice thereof 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 days’ notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common
Stock or Preferred Stock (as to which the Rights Agent has received prior
written notice) 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 days after giving notice of such removal
or after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a Rights
Certificate (who shall, with such notice, submit such holder’s Rights
Certificate for inspection by the Company), then the registered holder of any
Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent.  Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the
United States or of any state of the United States, in good standing,
authorized under such laws to exercise corporate trust or stock transfer
powers, and subject to supervision or examination by federal or state authority
and which has at the time of its appointment as Rights Agent a combined capital
and surplus of at least $50 million. 
After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at the
time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose.  Not later than the effective date of any such
appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock or
Preferred Stock, and mail a notice thereof in writing to the registered holders
of the Rights Certificates.  Failure to
give any notice provided for in this Section 21, however, or any defect
therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.

 

Section 22.             Issuance
of New Rights Certificates.  Notwithstanding
any of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by its board of directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Rights
Certificates made in

 

30

 

accordance with the provisions of this Agreement.  In addition, in connection with the issuance
or sale of shares of Common Stock of the Company following the Distribution
Date and prior to the Expiration Date, the Company (a) shall, with respect
to shares of Common Stock of the Company so issued or sold pursuant to the
exercise of stock options or under any employee benefit plan or arrangement or
upon the exercise, conversion or exchange of securities of the Company
currently outstanding or issued at any time in the future 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
and Termination.

 

(a)           The Company may, at its
option, upon approval by the board of directors, at any time on or prior to the
Close of Business (or such later date as may be determined by its board of
directors) on the earlier of (i) the Distribution Date or (ii) the
Final Expiration Date redeem all but not less than all of the then outstanding
Rights at a redemption price of $0.01 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date of this Agreement (such redemption price being hereinafter referred to
as the “Redemption Price”), and the Company may, at its option, pay the
Redemption Price either in cash, shares of Common Stock of the Company (based
on the Current Per Share Market Price thereof at the time of redemption), or
any other form of consideration deemed appropriate by its board of
directors.  The redemption of the Rights
by the board of directors of the Company may be made effective at such time on
such basis and with such conditions as the board of directors of the Company in
its sole discretion may establish.  Any
such redemption will be effective immediately upon the action of the board of
directors of the Company ordering the same, unless such action of the board of
directors of the Company expressly provides that such redemption will be
effective at a subsequent time or upon the occurrence or nonoccurrence of one
or more specified events (in which case such redemption will be effective in
accordance with the provisions of such action of the board of directors of the
Company).

 

(b)           Immediately upon the
effectiveness of the redemption of the Rights pursuant to Section 23(a),
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 (with a copy to the Rights Agent); provided,
however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such
redemption.  Within 10 days after the
effectiveness of the redemption of the Rights, the Company shall give notice of
such redemption to the Rights Agent and shall mail a notice of redemption to
all the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the

 

31

 

Common Stock. 
Any notice which is mailed in such manner shall be deemed given, whether
or not the holder receives the notice. 
Each 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 or
other than in connection with the purchase of shares of Common Stock prior to
the Distribution Date.

 

(c)           Notwithstanding
anything contained in this Agreement to the contrary, the Rights shall not be
exercisable pursuant to Section 7(a) at any time when the Rights are
redeemable hereunder.

 

Section 24.             Exchange.

 

(a)           The Company, at its
option, upon approval by its board of directors, at any time after any Person
becomes an Acquiring Person, may exchange all or part of the then outstanding
and exercisable Rights (which shall not include Rights that have become
unexerciseable pursuant to the provisions of Section 7(e) hereof) for
Units of Preferred Stock at an exchange ratio equal to, subject to adjustment
to reflect stock splits, stock dividends and similar transactions occurring
after the date hereof, that number obtained by dividing the Purchase Price by
the then Current Per Share Market Price per Unit of Preferred Stock on the
earlier of (i) the date on which any Person becomes an Acquiring Person
and (ii) the date on which a tender or exchange offer by any Person (other
than the Company, any Subsidiary of the Company, any employee benefit plan
maintained by the Company or any of its Subsidiaries or any trustee or
fiduciary with respect to such plan acting in such capacity) is commenced
within the meaning of Rule 14d-2(a) of the Exchange Act Regulations
or any successor rule, if upon consummation thereof such Person would be the
Beneficial Owner of 30% or more of the shares of Common Stock of the Company
then outstanding (such exchange ratio being hereinafter referred to as the “Section 24(a) Exchange
Ratio”).  Notwithstanding the foregoing,
the Company may not effect such exchange at any time after any Person (other
than the Company, any Subsidiary of the Company, any employee benefit plan
maintained by the Company or any of its Subsidiaries, or any trustee or
fiduciary with respect to such plan acting in such capacity), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50%
or more of the shares of Common Stock of the Company then outstanding.

 

(b)           Immediately upon the
action of the board of directors of the Company ordering the exchange of any
Rights pursuant to subsection (a) of this Section 24 and without
any further action and without any notice, the right to exercise such Rights
shall terminate and the only right thereafter of a holder of such Rights shall
be to receive that number of Units of Preferred Stock equal to the number of
such Rights held by such holder multiplied by the Section 24(a) Exchange
Ratio.  The Company shall promptly give
public notice of any such exchange (with a copy provided to the Rights Agent); provided, however, that
the failure to give, or any defect in, such notice shall not affect the
validity of such exchange.  The Company
promptly shall mail a notice of any such exchange to all of the holders of such
Rights at their last addresses as they appear upon the registry books of the
Rights Agent.  Any notice which is mailed
in the manner provided in this Agreement 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 Units of
Preferred Stock for Rights will be effected and, in the event of any partial
exchange, the number of Rights which

 

32

 

will be exchanged. 
Any partial exchange shall be effected pro rata based on the number of
Rights (other than Rights which have become unexerciseable pursuant to the
provisions of Section 7(e)) held by each holder of Rights.

 

(c)           In the event that the
number of shares of Preferred Stock authorized by the Company’s certificate of
incorporation but not outstanding or reserved for issuance for purposes other
than upon exercise of the Rights is not sufficient to permit any exchange of
Rights as contemplated in accordance with this Section 24, the Company
shall take all such action as may be necessary to authorize additional shares
of Preferred Stock for issuance upon exchange of the Rights or make adequate
provision to substitute (1) cash, (2) Common Stock of the Company or
other equity securities of the Company, (3) debt securities of the
Company, (4) other assets, or (5) any combination of the foregoing,
having an aggregate value equal to the aggregate Current Per Share Market Price
of the Units of Preferred Stock that would otherwise be issuable in such
exchange, all as determined by the board of directors of the Company (which
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive and binding on the Rights Agent, the holders of the Rights
and all other Persons).  To the extent
that the Company determines that some action need be taken pursuant to Section 24(a),
the board of directors of the Company may temporarily suspend the
exercisability of the Rights for a period of up to sixty days following the
date on which the event described in Section 24(a) shall have
occurred, in order to seek any authorization of additional shares of Preferred
Stock and/or to decide the appropriate form of distribution to be made pursuant
to the above provision and to determine the value thereof.  Upon any such suspension, the Company shall
notify the Rights Agent thereof and 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 supervision is no longer in effect (a
copy of which shall be provided to the Rights Agent).

 

Section 25.             Notice
of Certain Events.

 

(a)           In case the Company
shall propose (i) to pay any dividend payable in stock of any class to the
holders of its Preferred Stock or to make any other distribution to the holders
of its Preferred Stock (other than a regular quarterly cash dividend), (ii) to
offer to the holders of its Preferred Stock rights or warrants to subscribe for
or to purchase any additional Units of Preferred Stock or shares of stock of
any class or any other securities, rights or options, (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification
involving only the subdivision of outstanding Preferred Stock), (iv) to
effect any consolidation or merger into or with any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)),
or to effect any sale or other transfer (or to permit one or more of its
Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect
the liquidation, dissolution or winding up of the Company or (vi) to
declare or pay any dividend on the Common Stock of the Company payable in
shares of Common Stock of the Company or to effect a subdivision, combination
or consolidation of the shares of Common Stock of the Company (by
reclassification or otherwise than by payment of dividends in shares of Common
Stock), then, in each such case, the Company shall give to the Rights Agent and
each holder of a Rights Certificate, in accordance with Section 26, a
notice of such proposed action, which shall specify the record date for the
purposes of such stock dividend, or distribution of rights or warrants, or the
date on which such reclassification, consolidation,

 

33

 

merger, sale, transfer, liquidation, dissolution, or
winding up is to take place and the date of participation therein by the holders
of the shares of Common Stock of the Company and/or shares of Preferred Stock,
if any such date is to be fixed, and such notice shall be so given in the case
of any action covered by clause (i) or (ii) above at least ten
days prior to the record date for determining holders of the shares of
Preferred Stock for purposes of such action, and in the case of any such other
action, at least ten days prior to the date of the taking of such proposed
action or the date of participation therein by the holders of the shares of
Common Stock of the Company and/or shares of Preferred Stock, whichever shall
be the earlier.

 

(b)           In case any of the
events set forth in Section 11(a)(ii) shall occur, then the Company
shall as soon as practicable thereafter give to each holder of a Rights
Certificate, in accordance with Section 26, a notice of the occurrence of
such event, which notice shall describe such event and the consequences of such
event to holders of Rights under Section 11(a)(ii).  In the event any Person becomes an Acquiring
Person, the Company will promptly notify the Rights Agent thereof.

 

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 or by telecopier, addressed (until
another address is filed in writing by the Company with the Rights Agent) as
follows:

 

Image Entertainment, Inc.

20525 Nordhoff Street, Suite 200

Chatsworth, California 91311

Attention:  Dennis Hohn Cho, Esq.,
Corporate Secretary

 

Subject to the provisions
of Section 21, any notice or demand authorized by this Agreement to be
given or made by the Company or by the holder of any Rights Certificate to or
on the Rights Agent shall be sent by registered or certified mail and shall be
deemed given upon receipt and addressed (until another address is filed in
writing by the Rights Agent with the Company) as follows:

 

Computershare Trust Company, Inc.

350 Indiana Street, Suite 800

Golden, CO 80401

Attention:  Corporate Actions

 

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
Distribution Date, the Company may supplement or amend this Agreement in any
respect, without the approval of any holders of Rights, by action of its board
of directors.  From and after the
Distribution Date, the Company may from time to time supplement or amend this
Agreement without the approval of

 

34

 

any holders of Rights, by action of its board of directors in order (i) to
cure any ambiguity, (ii) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder, or (iv) to
change or supplement the provisions hereunder in any manner which the Company
may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Rights Certificates (other than an Acquiring Person
or an Affiliate or Associate of an Acquiring Person), including, without
limitation, to change the Purchase Price, the Redemption Price, any time
periods herein specified, and any other term hereof, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however,
that from and after such time as any Person becomes an Acquiring Person, this
Agreement shall not be amended in any manner which would adversely affect the
interests of the holders of Rights.  Upon
receipt of a certificate from an appropriate officer of the Company that the
proposed supplement or amendment is consistent with this Section 27 and,
after such time as any Person has become an Acquiring Person, that the proposed
supplement or amendment does not adversely affect the interests of the holders
of Rights, the Rights Agent shall execute such supplement or amendment.

 

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. 
For all purposes of this Agreement, any calculation of the number of
shares of Common Stock of the Company outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding shares of Common Stock of the Company of which any Person is the
Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of
the Exchange Act Regulations.  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 of directors, or the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations or calculations 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 of directors of the Company in good faith, shall (x) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights Certificates and all other Persons and (y) not subject the board of
directors of the Company to any liability to the holders of the Rights.  The Rights Agent shall be entitled to assume
that the Board of Directors acted in good faith and shall be fully protected
and incur no liability in reliance thereon.

 

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, shares of Common Stock of the Company) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the

 

35

 

registered holders of the Rights Certificates (and, prior to the
Distribution Date, shares of Common Stock of the Company).

 

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
and the right of redemption set forth in Section 23 shall have expired,
such right shall be reinstated and shall not expire until the tenth Business
Day following the date of such determination by the board of directors of the
Company.

 

Section 32.             Governing
Law.  This Agreement 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 internal laws of the State of Delaware applicable
to contracts to be made and performed entirely within such state, without
regard to the choice-of-law or conflict-of-laws principles of any jurisdiction.

 

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 one and
the same instrument.

 

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

 

36

 

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

 

	
   

  	
  IMAGE ENTERTAINMENT, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Ira S.
  Epstein

  	
   

  
	
   

  	
  Name:

  	
    Ira S.
  Epstein

  	
   

  
	
   

  	
  Title:

  	
  Chairman of the Special
  Committee

  	
   

  
	
   

  	
   

  	
  of the Board of Directors

  	
   

  
						

 

 

	
   

  	
  COMPUTERSHARE

  TRUST COMPANY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Kellie Gwinn

  	
   

  
	
   

  	
  Name:

  	
  Kellie Gwinn

  	
   

  
	
   

  	
  Title:

  	
   

  	
  Vice President

  	
   

  
							

 

37

 

EXHIBIT A

 

FORM

 

of

 

CERTIFICATE OF DESIGNATION

 

of

 

SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

 

of

 

IMAGE ENTERTAINMENT, INC.,

 

(Pursuant to Section 151 of the

Delaware General Corporation Law)

 

Image
Entertainment, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the “Corporation”),
hereby certifies that the following resolution was adopted by the board of
directors of the Corporation as required by Section 151 of the General
Corporation Law on October 31, 2005;

 

RESOLVED, that pursuant to the
authority granted to and vested in the board of directors of the Corporation
(hereinafter the “Board”) in accordance with the provisions of the certificate
of incorporation of the Corporation, as currently in effect, the Board hereby
creates a series of Preferred Stock, par value $0.0001 per share (the “Preferred
Stock”), of the Corporation and hereby states the designation and number of
shares, and fixes the relative rights, preferences, and limitations thereof as
follows:

 

Series A
Junior Participating Preferred Stock:

 

Section 1.               Designation
and Amount  The shares of such series
shall be designated as “Series A Junior Participating Preferred Stock”
(the “Series A Preferred Stock”) and the number of shares constituting the
Series A Preferred Stock shall be five million shares (5,000,000).  Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided,
that no decrease shall reduce the number of shares of Series A Preferred
Stock to a number less than the number of shares then outstanding plus the
number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding
securities issued by the Corporation convertible into Series A Preferred
Stock.

 

A-1

 

Section 2.               Dividends
and Distributions.

 

(a)           Subject to the rights
of the holders of any shares of any series of Preferred Stock (or any similar
stock) ranking prior and superior to the Series A Preferred Stock with
respect to dividends, each holder of a share of Series A Preferred Stock,
in preference to the holders of shares of common stock, par value $0.0001 per
share (the “Common Stock”), of the Corporation, and of any other junior stock,
shall be entitled to receive, when declared by the Board out of funds legally
available for the purpose, dividends in an amount per share (rounded to the
nearest cent) equal to, subject to the provision for adjustment hereinafter set
forth, 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.  In the event the Corporation shall, at any
time after October 31, 2005 (the “Rights Declaration Date”), declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock (and an equivalent dividend is not declared on the Series A
Preferred Stock or the Series A Preferred Stock is not similarly
subdivided or combined), then in each such case the amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such
event under the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.

 

(b)           The Corporation shall
declare a dividend or distribution on the shares of Series A Preferred
Stock as provided in Section 2(a) immediately after it declares a
dividend or distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided, however, that, in no event shall a dividend or distribution
be declared by the Board on the Common Stock for which it does not declare and
pay the dividend required to be declared on the Preferred Stock pursuant to Section 2(a).

 

(c)           Accrued but unpaid
dividends shall not bear interest. 
Dividends paid on the shares of Series A 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 may fix a record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be not more
than sixty days prior to the date fixed for the payment thereof.

 

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

 

(a)           Subject to the
provision for adjustment hereinafter set forth, each share of Series A
Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters
submitted to a vote of the stockholders of the Corporation.  In the event the Corporation shall, at any
time after the Rights Declaration Date, declare or pay any dividend on the
Common Stock payable in

 

A-2

 

shares
of Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock (and an equivalent dividend is not declared on
the Series A Preferred Stock or the Series A Preferred Stock is not
similarly subdivided or combined), then in each such case the number of votes
per share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

 

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

 

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

 

Section 4.               Certain
Restrictions.

 

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

 

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

 

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

 

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

 

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

 

A-3

 

Stock,
except in accordance with a purchase offer made in writing or by publication
(as determined by the Board) to all holders of such shares upon such terms as
the Board, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment among
the respective series or classes.

 

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

 

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

 

Section 6.               Liquidation,
Dissolution or Winding Up.

 

(a)           Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (i) to
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock
unless, prior thereto, the holders of shares of Series A Preferred Stock
shall have received the greater of (x) $1,000 per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon to the date of
such payment (the “Series A Liquidation Preference”) and (y) an
aggregate amount per share, subject to the provision for adjustment hereinafter
set forth, equal to the product of 1,000 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (ii) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all
such parity stock in proportion to the total amounts to which the holders of
all such shares are entitled upon such liquidation, dissolution or winding
up.  In the event the Corporation shall,
at any time after the Rights Declaration Date declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock (and an equivalent dividend
is not declared on the Series A Preferred Stock or the Series A
Preferred Stock is not similarly subdivided or combined), then in each such
case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(i) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.

 

A-4

 

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

 

Section 7.               Consolidation,
Merger, etc.  In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or converted or changed into
other stock or securities, cash and/or any other property (or into the right to
receive any of the foregoing), then in any such case each share of Series A
Preferred Stock shall at the same time be similarly exchanged, converted or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is converted, changed or
exchanged.  In the event the Corporation
shall, at any time after the Rights Declaration Date declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock (and
an equivalent dividend is not declared on the Series A Preferred Stock or the
Series A Preferred Stock is not similarly subdivided or combined), then in
each such case the amount set forth in the preceding sentence with respect to
the conversion, exchange or change of shares of Series A Preferred Stock
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.

 

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

 

Section 9.               Rank.  The Series A Preferred Stock shall rank,
with respect to the payment of dividends and the distribution of assets, junior
to all series of any other class of the Corporation’s Preferred Stock.

 

Section 10.             Amendment.  The certificate of incorporation of the
Corporation shall not be amended, including any amendment through
consolidation, merger, combination or other transaction, in any manner which
would materially alter or change the powers, preferences or special rights of
the Series A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least a majority of the outstanding
shares of Series A Preferred Stock, voting together as a single class.

 

A-5

 

IN WITNESS WHEREOF, this
Certificate of Designation is executed on behalf of the Corporation as of October 31,
2005.

 

	
   

  	
  IMAGE
  ENTERTAINMENT, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Martin W. Greenwald

  	
   

  
	
   

  	
  Name:

  	
  Martin W. Greenwald

  	
   

  
	
   

  	
  Title:

  	
    President
  and Chief Executive Officer

  	
   

  
						

 

A-6

 

EXHIBIT B

 

Form of Rights Certificate

 

Certificate No. R-            
Rights

 

NOT EXERCISABLE AFTER TEN YEAR
ANNIVERSARY OF RECORD DATE OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS.  THE RIGHTS ARE SUBJECT TO REDEMPTION AT THE
OPTION OF THE COMPANY AT $0.01 PER RIGHT AND TO EXCHANGE 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.

 

Rights Certificate

 

IMAGE ENTERTAINMENT, INC.

 

This certifies that                         ,
or registered assigns, is the registered owner of the number of Rights set
forth above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement, dated as of October 31,
2005 (the “Rights Agreement”), between Image Entertainment, Inc., a
Delaware corporation (the “Company”), and Computershare Trust Company, Inc.,
as Rights Agent (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., Pacific Time, on October 31, 2015 at the office of
the Rights Agent designated for such purpose, or at the office of its successor
as Rights Agent, one one-thousandth (a “Unit”) of a fully paid non-assessable
share of Series A Junior Participating Preferred Stock, par value $0.0001
per share (the “Series A Preferred Stock”) of the Company, at a purchase
price of $12.42 per Unit of Series A Preferred Stock (the “Purchase Price”),
upon presentation and surrender of this Rights Certificate with the Form of
Election to Purchase and certification duly executed.  The number of Rights evidenced by this Rights
Certificate (and the number of Units of Series A Preferred Stock which may
be purchased upon exercise hereof) set forth above, and the Purchase Price set
forth above, are the number and Purchase Price as of October 31, 2005 based on
the Series A Preferred Stock as constituted at such date.  As provided in the Rights Agreement, the
Purchase Price and the number of Units of Series A Preferred Stock 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

 

B-1

 

of the Rights Agent, the Company and the holders of
the Rights Certificates.  Copies of the
Rights Agreement are on file at the principal executive offices of 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 number of Units of Series A
Preferred Stock as the Rights evidenced by the Rights Certificate or Rights
Certificates surrendered shall have entitled such holder to purchase.  If this Rights Certificate shall be exercised
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.

 

Subject to the provisions
of the Rights Agreement, the Rights evidenced by this Certificate may be
redeemed by the Company at a redemption price of $0.01 per Right.

 

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

 

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

 

B-2

 

WITNESS the signature of the
proper officers of the Company and its corporate seal.  Dated as of October 31, 2005.

 

	
   

  	
  IMAGE ENTERTAINMENT, INC.,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Countersigned:

  	
   

  
	
   

  	
   

  
	
  COMPUTERSHARE TRUST COMPANY,
  INC.,

  as Rights Agent

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
										

 

B-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 a participant in an “eligible guarantor institution” as defined
in Rule 17Ad-5 promulgated under the Securities Exchange Act of 1934, as
amended.

 

B-4

 

CERTIFICATE

 

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

 

 

	
   

  	
   

  
	
   

  	
  Signature

  

 

 

NOTICE

 

The signature in the
foregoing Form of Assignment 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.

 

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

 

B-5

 

FORM OF ELECTION TO PURCHASE

 

(To be executed if holder
desires to exercise the Rights Certificate.)

 

To Image Entertainment, Inc.

 

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

 

	
  Please insert social security

  
	
  or other identifying number

  
	
  (Please print name and
  address)

  

 

If such number of Rights
shall not be all the Rights evidenced by this 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 a participant in an “eligible guarantor institution” as defined
in Rule 17Ad-S promulgated under the Securities Exchange Act of 1934, as
amended.

 

B-6

 

CERTIFICATE

 

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

 

	
   

  	
   

  
	
   

  	
  Signature

  

 

 

NOTICE

 

The signature in the
foregoing Form of Election to Purchase 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.

 

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

 

B-7

 

Exhibit C

 

SUMMARY OF RIGHTS TO PURCHASE

PREFERRED STOCK

 

On October 31, 2005,
the board of directors of Image Entertainment, Inc. (the “Company”)
declared a dividend distribution of one right (a “Right”) for each outstanding
share of our common stock to stockholders of record at the close of business on
October 31, 2005.  Each Right
entitles the registered holder to purchase from the Company one one-thousandth
of a share of our Series A Junior Participating preferred stock, par value
$0.0001 per share (the “Preferred Stock”), at a purchase price of $12.42,
subject to adjustment.  The description
and terms of the Rights are set forth in a Rights Agreement (the “Rights
Agreement”) between the Company and Computershare Trust Company, Inc., as
Rights Agent.

 

Initially, the Rights
will be attached to all common stock certificates representing shares then
outstanding, and no separate Rights certificates will be distributed (the “Distribution
Date”).  The Distribution Date will occur
on the earlier of (i) ten days following a public announcement that a
person or group of affiliated or associated persons (an “Acquiring Person”) has
(subject to certain exceptions) acquired, or obtained the right to acquire,
beneficial ownership of 30% or more of the outstanding shares of our common
stock (the “Share Acquisition Date”), other than as a result of repurchases of
stock by the Company, or (ii) ten days (or a later date that the board
shall determine) following the commencement of, or public announcement of an
intention to make, a tender offer or exchange offer that would result in a
person or group beneficially owning 30% or more of the outstanding shares of
our common stock.

 

Until the Distribution
Date, (i) the Rights will be evidenced by the common stock certificates
and will be transferred with and only with our common stock certificates, (ii) new
common stock certificates issued after the record date will contain a notation
incorporating the Rights Agreement by reference and (iii) the surrender
for transfer of any certificates for common stock outstanding will also
constitute the transfer of the Rights associated with the common stock
represented by such certificate. 
Pursuant to the Rights Agreement, the company reserves the right to
require prior to the occurrence of a Triggering Event (as defined below) that,
upon any exercise of Rights, a number of Rights be exercised so that only whole
shares of preferred stock will be issued.

 

The Rights can not be
exercised until the Distribution Date and will expire at the close of business
on October 31, 2015, unless earlier redeemed by the Company as described below.

 

Shortly after the Distribution
Date, Rights certificates would be mailed to record holders of our common stock
as of the close of business on the Distribution Date and, thereafter, the
separate Rights certificates alone will represent the Rights.  Unless our board of directors decides
differently, only shares of our common stock issued before the Distribution
Date will be issued with Rights.

 

C-1

 

If an Acquiring Person
becomes (subject to certain exceptions) the beneficial owner of 30% or more of
the then outstanding shares of common stock (other than pursuant to an offer
for all the outstanding shares of common stock that our board of directors
determines to be fair to and otherwise in the best interests of the Company and
its stockholders), each holder of a Right will thereafter have the right to
receive, upon exercise, preferred stock (or, in certain circumstances, cash,
property or other securities of the company) having a value equal to two times
the exercise price of the Right.  If, at
any time after the Stock Acquisition Date, (i) we are acquired in a merger
or other business combination transaction in which we are not the surviving
corporation, other than a merger that results from an offer for all the
outstanding shares of common stock that our board decides is fair and in the
best interests of the Company and its stockholders, or (ii) 50% or more of
our assets, cash flow or earning power is sold or transferred, each holder of a
Right, except Rights which previously have been voided, will have the right to
receive, after exercise of the Right, common stock of the company that acquires
us having a value equal to two times the exercise price of the Right.  The events described in this paragraph are “Triggering
Events.”

 

All Rights that are, or
(under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person will not be exercisable.  At any time after a person becomes an
Acquiring Person and prior to the acquisition by such person or group of 50% or
more of the outstanding common stock, the board may exchange the Rights (other
than Rights owned by the person or group which will not be exercisable), in
whole or in part, at an exchange ratio of one share of common stock, or one one-thousandth
of a share of preferred stock (or of a share of a class or series of our
preferred stock having equivalent rights, preferences and privileges), per
Right.

 

At any time until 10 days
following the Share Acquisition Date, the board may redeem the Rights in whole,
but not in part, at a price of $0.01 per Right (payable in cash, common stock
or other consideration deemed appropriate by the board).  Immediately upon the action of the board
ordering redemption of the Rights, the Rights will terminate and the only right
of the holders of Rights will be to receive the $0.01 redemption price.

 

Until a Right is
exercised, the holder of a Right will have no rights by virtue of ownership as
a stockholder of the company, such as the right to vote or to receive
dividends.  While the distribution of the
Rights will not be taxable to stockholders or to the company, stockholders may,
depending upon the circumstances, recognize taxable income in the event that
the Rights become exercisable for preferred stock (or other consideration) of
the company or for common stock of the acquiring company.

 

Any of the provisions of
the Rights Agreement may be amended by the board prior to the Distribution
Date.  After the Distribution Date, the
provisions of the Rights Agreement may be amended by the board in order to cure
any ambiguity, to make changes which do not adversely affect the interests of
holders of Rights, or to shorten or lengthen any time period under the Rights
Agreement, but no amendment may be made at such time as the Rights are not
redeemable.

 

A copy of the Rights
Agreement has been filed with the Securities and Exchange Commission on November
1, 2005 as an exhibit to a Current Report on Form 8-K.  A copy of

 

C-2

 

the Rights Agreement is available free of charge from
the company.  This summary description of
the Rights does not purport to be complete and is qualified in its entirety by
reference to the Rights Agreement, which is incorporated herein by reference.

 

C-3

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