Document:

ex4-2.htm

     

    
      Exhibit
4.2

    

    

     

    

    
 

     

     

     

     

     

     

    ENTERTAINMENT
DISTRIBUTION COMPANY, INC.

     

    PREFERRED
SHARES RIGHTS AGREEMENT

     

    Dated
as of April 2, 2008

     

     

     

     

     

     

     

     

     

     

     

     

     

    
 

    
      
         

      

      
         

        
          

        

      

      
         

        
           

        

      

    

     

    TABLE OF CONTENTS

     

    Page

     

    
      
        	
                SECTION 1.

              	
                CERTAIN
      DEFINITIONS

              	
                1

              
	
                SECTION
      2.

              	
                APPOINTMENT
      OF RIGHTS AGENT

              	
                8

              
	
                SECTION
      3.

              	
                ISSUANCE
      OF RIGHTS CERTIFICATES

              	
                8

              
	
                SECTION
      4.

              	
                FORM
      OF RIGHTS CERTIFICATES

              	
                9

              
	
                SECTION
      5.

              	
                COUNTERSIGNATURE
      AND REGISTRATION

              	
                10

              
	
                SECTION
      6.

              	
                TRANSFER,
      SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS CERTIFICATES; MUTILATED,
      DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES

              	
                11

              
	
                SECTION
      7.

              	
                EXERCISE
      OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS

              	
                12

              
	
                SECTION
      8.

              	
                CANCELLATION
      AND DESTRUCTION OF RIGHTS CERTIFICATES

              	
                13

              
	
                SECTION
      9.

              	
                RESERVATION
      AND AVAILABILITY OF PREFERRED SHARES

              	
                14

              
	
                SECTION
      10.

              	
                PREFERRED
      SHARES RECORD DATE

              	
                15

              
	
                SECTION
      11.

              	
                ADJUSTMENT
      OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF RIGHTS

              	
                15

              
	
                SECTION
      12.

              	
                CERTIFICATE
      OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES

              	
                23

              
	
                SECTION
      13.

              	
                CONSOLIDATION,
      MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER

              	
                23

              
	
                SECTION
      14.

              	
                FRACTIONAL
      RIGHTS AND FRACTIONAL SHARES

              	
                26

              
	
                SECTION
      15.

              	
                RIGHTS
      OF ACTION

              	
                26

              
	
                SECTION
      16.

              	
                AGREEMENT
      OF RIGHTS HOLDERS

              	
                26

              
	
                SECTION
      17.

              	
                RIGHTS
      CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER

              	
                27

              
	
                SECTION
      18.

              	
                CONCERNING
      THE RIGHTS AGENT

              	
                27

              
	
                SECTION
      19.

              	
                MERGER
      OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT

              	
                28

              
	
                SECTION
      20.

              	
                DUTIES
      OF RIGHTS AGENT

              	
                28

              
	
                SECTION
      21.

              	
                CHANGE
      OF RIGHTS AGENT

              	
                30

              
	
                SECTION
      22.

              	
                ISSUANCE
      OF NEW RIGHTS CERTIFICATES

              	
                31

              
	
                SECTION
      23.

              	
                REDEMPTION

              	
                32

              
	
                SECTION
      24.      

              	EXCHANGE	32

      

       

       

      
        
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        TABLE OF CONTENTS

        (continued)

        Page

         

 

      
        	
                SECTION
      25.      

              	
                NOTICE
      OF CERTAIN EVENTS

              	
                34

              
	
                SECTION
      26.

              	
                NOTICES

              	
                34

              
	
                SECTION
      27.

              	
                SUPPLEMENTS
      AND AMENDMENTS

              	
                35

              
	
                SECTION
      28.

              	
                SUCCESSORS

              	
                36

              
	
                SECTION
      29.

              	
                DETERMINATIONS
      AND ACTIONS BY THE BOARD OF DIRECTORS, ETC

              	
                36

              
	
                SECTION
      30.

              	
                BENEFITS
      OF THIS AGREEMENT

              	
                36

              
	
                SECTION
      31.

              	
                SEVERABILITY

              	
                36

              
	
                SECTION
      32.

              	
                GOVERNING
      LAW

              	
                36

              
	
                SECTION
      33.

              	
                COUNTERPARTS

              	
                37

              
	
                SECTION
      34.

              	
                DESCRIPTIVE
      HEADINGS

              	
                37

              
	
                EXHIBIT
      A

              	
                CERTIFICATE
      OF DESIGNATION OF RIGHTS, PREFERENCES AND PRIVILEGES OF SERIES A JUNIOR
      PARTICIPATING PREFERRED STOCK

              	 
      
	
                EXHIBIT
      B

              	
                RIGHTS
      CERTIFICATE

              	 
      
	
                EXHIBIT
      C

              	
                SUMMARY
      OF RIGHTS

              	 
      

      

       

       

       

       

       

       

       

      
        
          -ii-

        

        
          
          

          
            

          

        

        
          
          

        

      

      

 

      PREFERRED
SHARES RIGHTS AGREEMENT

       

      This
PREFERRED SHARES RIGHTS AGREEMENT (the “AGREEMENT”) is dated as of April 2,
2008, by and between ENTERTAINMENT DISTRIBUTION COMPANY, INC., a Delaware
corporation (the “COMPANY”), and AMERICAN STOCK TRANSFER & TRUST COMPANY
(the “RIGHTS AGENT”).

       

      WHEREAS,
the Company has experienced substantial operating losses in previous years, and
under the Internal Revenue Code of 1986, as amended (the “CODE”), and rules
promulgated by the Internal Revenue Service, the Company may “carry forward” its
net operating losses (the “NOLs”) in certain circumstances to offset current and
future earnings, and thus reduce its federal income tax liability (subject to
certain requirements and restrictions);

       

      WHEREAS,
if the Company experiences an “Ownership Change,” as defined in Section 382 of
the Code, its ability to use its NOLs could be substantially limited or lost
altogether;

       

      WHEREAS,
the Company believes that its NOLs are a substantial asset of the Company and
that it is in the best interest of the Company and its stockholders that the
Company provide for the protection of the Company’s NOLs on the terms and
conditions set forth herein; and

       

      WHEREAS,
effective as of April 2, 2008 (the “RIGHTS DIVIDEND DECLARATION DATE”), the
Board of Directors of the Company authorized and declared a dividend of one
Preferred Share purchase right (a “RIGHT”) for each Common Share (as hereinafter
defined) of the Company outstanding as of the Close of Business (as hereinafter
defined) on April 14, 2008 (the “RECORD DATE”). Each Right represents the right
to purchase one one-hundredth (1/100) of a share of Series A Junior
Participating Preferred Stock (as such number may be adjusted pursuant to the
provisions of this Agreement), having the rights, preferences and privileges set
forth in the form of Certificate of Designation of Rights, Preferences and
Privileges of Series A Junior Participating Preferred Stock attached hereto as
Exhibit A, subject to the terms and subject to the conditions herein set forth.
The Board of Directors of the Company further authorized and directed the
issuance of one Right (as such number may be adjusted pursuant to the provisions
of this Agreement) with respect to each Common Share that shall become
outstanding between the Record Date and the earlier of the Distribution Date and
the Expiration Date (as such terms are hereinafter defined), and in certain
circumstances after the Distribution Date.

       

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

       

      SECTION
1. CERTAIN DEFINITIONS.  For purposes of this Agreement, the following
terms have the meanings indicated:

       

      (a)           “ADJUSTMENT
SHARES” shall have the meaning set forth in Section 11(a) hereof.

       

      (b)           “ACQUIRING
PERSON” shall mean any Person (other than the Company, any Related Person or any
Exempt Person) who, itself or together with all Affiliates and Associates of
such Person, shall be the Beneficial Owner of 4.9% or more of the
Common

       

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

      

      Shares
then outstanding; and provided, however, that (i) if, as of April 14, 2008, any
Person is the Beneficial Owner of 4.9% or more of the outstanding Common Shares,
such Person shall not be deemed to be an Acquiring Person unless and until such
time as (A) such Person or Affiliate or Associate of such Person thereafter
becomes the Beneficial Owner of additional Common Shares representing one-half
of 1% or more of the then outstanding Common Shares, other than as a result of a
stock dividend, stock split or similar transaction effected by the Company in
which all holders of Common Shares are treated substantially equally, or (B) any
other Person who is the Beneficial Owner of Common Shares thereafter becomes an
Affiliate or Associate of such Person; provided that the foregoing exclusion
shall cease to apply with respect to any Person at such time as such Person,
together with all Affiliates and Associates of such Person, ceases to
Beneficially Own 4.9% or more of the then outstanding Common Shares, and (ii) a
Person will not be deemed to have become an Acquiring Person solely as a result
of an acquisition of Common Shares by the Company which reduces the number of
Common Shares outstanding unless and until such time as (A) such Person or any
Affiliate or Associate of such Person thereafter becomes the Beneficial Owner of
additional Common Shares, other than as a result of a stock dividend, stock
split or similar transaction effected by the Company in which all holders of
Common Shares are treated substantially equally, or (B) any other Person who is
the Beneficial Owner of Common Shares thereafter becomes an Affiliate or
Associate of such Person. Notwithstanding the foregoing, if the Board determines
that a Person who would otherwise be an “Acquiring Person” as defined pursuant
to the foregoing provisions of this Section 1(a) (i) has become such
inadvertently (including, without limitation, because (A) such Person was
unaware that it Beneficially Owned a percentage of Common Shares that would
otherwise cause such Person to be an Acquiring Person or (B) such Person was
aware of the extent of its Beneficial Ownership of Common Shares but had no
actual knowledge of the consequences of such Beneficial Ownership under this
Agreement), and such Person divests as promptly as practicable (as determined by
the Board) a sufficient number of Common Shares so that such Person would no
longer be an “Acquiring Person” as defined pursuant to the foregoing provisions
of this Section 1(a), or (ii) but characterizing such Person as an “Acquiring
Person” would adversely impact the availability of the Company’s NOLs to a
greater extent than not characterizing such Person as an “Acquiring Person”,
then in each case, such Person shall not be deemed to be an “Acquiring Person”
for any purposes of this Agreement unless and until such Person shall again
become an Acquiring Person.

       

      (c)           “AFFILIATE”
and “ASSOCIATE” shall have the respective meanings ascribed to such terms in
Rule 12b-2 of the General Rules and Regulations under the Securities and
Exchange Act of 1934, as amended (the “EXCHANGE ACT”), as in effect on the date
of this Agreement, and to the extent not included within the foregoing clause of
this Section 1(b), shall also include, with respect to any Person, any other
Person (other than a Related Person or an Exempt Person) whose Common Shares
would be deemed constructively owned by such first Person pursuant to the
provisions of Section 382 of the Code, or any successor provision or replacement
provision, provided,
however, that a Person will not be deemed to be the Affiliate or
Associate of another Person solely because either or both Persons are or were
Directors of the Company.

       

      (d)           “AGREEMENT”
shall have the meaning set forth in the recitals at the beginning of this
Agreement.

       

      

      
        
          
             

          

          
            -2-

            
              

            

          

          
             

          

        

      

      

      (e)           A
Person shall be deemed the “BENEFICIAL OWNER” of and shall be deemed to
“BENEFICIALLY OWN” any securities:

       

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

       

      (ii)           which
such Person or any of such Person’s Affiliates or Associates has (A) the right
to acquire (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; provided, that a Person shall not be deemed
pursuant to this Section 1(c)(ii)(A) the Beneficial Owner of, or to beneficially
own, (1) securities tendered pursuant to a tender or exchange offer made by or
on behalf of such Person or any of such Person’s Affiliates or Associates until
such tendered securities are accepted for purchase or exchange, or
(2) securities which a Person or any of such Person’s Affiliates or
Associates may be deemed to have the right to acquire pursuant to any merger or
other acquisition agreement between the Company and such Person (or one or more
of its Affiliates or Associates) if such agreement has been approved by the
Board of Directors of the Company prior to there being an Acquiring Person; or
(B) the right to vote pursuant to any agreement, arrangement or understanding;
provided, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, any security under this Section 1(c)(ii)(B) if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations of the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor report);
or

       

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

       

      

      
        
          
             

          

          
            -3-

            
              

            

          

          
             

          

        

      

      

      shall be
deemed to “beneficially own” or have “beneficial ownership” of, securities which
such Person (i) would be deemed to constructively own pursuant to Section 382 of
the Code, or any successor or replacement provision; or (ii) would be deemed to
have a direct or indirect economic or pecuniary interest, including, without
limitation, interests or rights acquired through derivative, hedging or similar
transactions relating to such securities with a counterparty, as determined by
the Company’s Board of Directors in its sole and absolute
discretion.

       

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

       

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

       

      (h)           “CODE”
shall have the meaning set forth in the recitals at the beginning of this
Agreement.

       

      (i)           “COMMON
SHARES” when used with reference to the Company shall mean the shares of Common
Stock of the Company, $0.02 par value. “Common Shares” when used with reference
to any Person other than the Company shall mean the capital stock (or equity
interest) with the greatest voting power of such other Person or, if such other
Person is a Subsidiary of another Person, the Person or Persons which ultimately
control such first-mentioned Person.

       

      (j)           “COMMON
STOCK EQUIVALENTS” shall have the meaning set forth in Section 11(a)
hereof.

       

      (k)           “COMPANY”
shall have the meaning set forth in the recitals at the beginning of this
Agreement.

       

      (l)           “CURRENT
PER SHARE MARKET PRICE” shall have the meaning set forth in Section 11(d)
hereof.

       

      (m)           “CURRENT
VALUE” shall have the meaning set forth in Section 11(a) hereof.

       

      (n)           “DISTRIBUTION
DATE” shall mean the earlier of (i) the Close of Business on the tenth day (or
such later date as may be determined by action of a majority of the members of
the Board of Directors then in office) after the Shares Acquisition Date (or, if
the tenth day after the Shares Acquisition Date occurs before the Record Date,
the Close of Business on the Record Date) or (ii) the Close of Business on the
tenth day (or such later date as may be determined by action of a majority of
the members of the Board of Directors then in office) after the date that a
tender or exchange offer by any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan) is first published or
sent or given within the meaning of

       

      

      
        
          
             

          

          
            -4-

            
              

            

          

          
             

          

        

      

      

      Rule
14d-2(a) of the General Rules and Regulations under the Exchange Act, if,
assuming the successful consummation thereof, such Person would be the
Beneficial Owner of 4.9% or more of the shares of Common Stock then
outstanding.

       

      (o)           “EQUIVALENT
SHARES” shall mean Preferred Shares and any other class or series of capital
stock of the Company that is entitled to participate in dividends and other
distributions, including distributions upon the liquidation, dissolution or
winding up of the Company, on a proportional basis with the Common Shares. In
calculating the number of any class or series of Equivalent Shares for purposes
of Section 11 of this Rights Agreement, the number of shares, or fractions of a
share, of such class or series of capital stock that is entitled to the same
dividend or distribution as a whole Common Share shall be deemed to be one
share.

       

      (p)           “EXCHANGE
ACT” shall have the meaning set forth in Section 1(b) hereof.

       

      (q)           “EXCHANGE
FRACTION” shall have the meaning set forth in Section 11(p) hereof.

       

      (r)           “EXCHANGE
RATIO” shall have the meaning set forth in Section 11(a) hereof.

       

      (s)           “EXEMPT
PERSON” means a Person whose Beneficial Ownership (together with all Affiliates
and Associates of such Person) of 4.9% or more of the then-outstanding Common
Shares will not, as determined by the Company’s Board of Directors in its sole
discretion, jeopardize or endanger the availability to the Company of its NOLs,
provided, however, that such a Person
will cease to be an “Exempt Person” if the Board of Directors makes a contrary
determination with respect to the effect of such Person’s Beneficial Ownership
(together with all Affiliates and Associates of such Person) upon the
availability to the Company of its NOLs.

       

      (t)           “EXPIRATION
DATE” shall mean the earliest of (i) the Close of Business on the Final
Expiration Date, (ii) the Redemption Date, (iii) the time at which the Board of
Directors orders the exchange of the Rights as provided in Section 24 hereof,
(iv) the consummation of a transaction contemplated by Section 13(d) hereof or
(v) the consummation of a reorganization transaction entered into by the Company
resulting in the imposition of stock transfer restrictions, that the Board of
Directors determines will provide protection for the Company’s NOLs similar to
that provided by this Agreement.

       

      (u)           “FINAL
EXPIRATION DATE” shall mean April 2, 2018; provided that (i) if this Agreement
shall not have been submitted for approval and approved by the requisite number
of the Company’s stockholders on or before April 2, 2009, the Final Expiration
Date shall be April 2, 2009 and (ii) if this Agreement is submitted for the
approval and not approved by the requisite number of the Company’s stockholders,
the Final Expiration Date shall be the date of such stockholder
determination.

       

      (v)           “NOLs”
shall have the meaning set forth in the recitals at the beginning of this
Agreement.

       

      

      
        
          
             

          

          
            -5-

            
              

            

          

          
             

          

        

      

      

      (w)           “OTC”
shall have the meaning set forth in Section 11(d) hereof.

       

      (x)           “PERMITTED
OFFER” shall mean a tender offer for all outstanding Common Shares made in the
manner prescribed by Section 14(d) of the Exchange Act and the rules and
regulations promulgated thereunder; provided, that a majority of the members of
the Board of Directors then in office has determined that the offer is both
adequate and otherwise in the best interests of the Company and its stockholders
(taking into account all factors that such members of the Board of Directors
deem relevant, including without limitation prices that could reasonably be
achieved if the Company or its assets were sold on an orderly basis designed to
realize maximum value).

       

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

       

      (z)           “POST
TRANSFEREE” shall have the meaning set forth in Section 7(e)
hereof.

       

      (aa)           “PREFERRED
SHARES” shall mean shares of Series A Junior Participating Preferred Stock of
the Company.

       

      (bb)           “PRINCIPAL
PARTY” shall have the meaning set forth in Section 13(b).

       

      (cc)           “PRIOR
TRANSFEREE” shall have the meaning set forth in Section 7(e)
hereof.

       

      (dd)           “PURCHASE
PRICE” shall have the meaning set forth in Section 4(a) hereof.

       

      (ee)           “RATIO
OF EXCHANGE” shall have the meaning set forth in Section 24(a).

       

      (ff)           “RECORD
DATE” shall have the meaning set forth in the recitals at the beginning of this
Agreement.

       

      (gg)           “REDEMPTION
DATE” shall mean the time at which the Board of Directors of the Company orders
redemption of the Rights as provided in Section 23 hereof.

       

      (hh)           “REDEMPTION
PRICE” shall have the meaning set forth in Section 23(a) hereof.

       

      (ii)           
 “RELATED PERSON” means (i) any Subsidiary of the Company or (ii) any
employee benefit or stock ownership plan of the Company or of any Subsidiary of
the Company or any entity holding Common Shares for or pursuant to the terms of
any such plan.

       

      (jj)            
“RIGHTS AGENT” shall have the meaning set forth in the recitals at the beginning
of this Agreement.

       

      

      
        
          
             

          

          
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      (kk)           “RIGHTS
CERTIFICATE” shall have the meaning set froth in Section 3(a)
hereof.

       

      (ll)           
 “RIGHTS DIVIDEND DECLARATION DATE” shall have the meaning set forth in the
recitals at the beginning of this Agreement.

       

      (mm)         “SECTION
11(a)(ii) TRIGGER DATE” shall have the meaning set forth in Section 11(A)
hereof.

       

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

       

      (oo)           “SECURITIES
ACT” shall have the meaning set forth in Section 9(c) hereof.

       

      (pp)           “SECURITY”
shall have the meaning set forth in Section 11(d) hereof.

       

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

       

      (rr)           
 “SPREAD” shall have the meaning set forth in Section 11(a)
hereof.

       

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

       

      (tt)          
  “SUBSTITUTION PERIOD” shall have the meaning set forth in Section
11(a) hereof.

       

      (uu)           “SUMMARY
OF RIGHTS” shall have the meaning set forth in Section 3(b) hereof.

       

      (vv)           “TOTAL
EXERCISE PRICE” shall have the meaning set forth in Section 4(a)
hereof.

       

      (ww)       
 “TRADING DAY” shall have the meaning set forth in Section 11(d)
hereof.

       

      (xx)           “TRIGGERING
EVENT” shall mean an event pursuant to which any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the Company or any
Subsidiary of the Company, or any entity holding Common Shares for
or

       

      

      
        
          
             

          

          
            -7-

            
              

            

          

          
             

          

        

      

      

      pursuant
to the terms of any such plan), together with all Affiliates and Associates of
such Person, becomes an Acquiring Person.

       

      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 hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable and shall notify promptly the Rights Agent in writing of
any such appointment. The Rights Agent shall have no duty to supervise, and
shall in no event be liable for the acts or omissions of any such co-Rights
Agent.

       

      SECTION
3. ISSUANCE OF RIGHTS CERTIFICATES.

       

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

       

      (b)           On
the Record Date or as soon as practicable thereafter, the Company will send a
copy of a Summary of Rights in substantially the form of Exhibit C hereto (the
“SUMMARY OF RIGHTS”), by first-class, postage-prepaid mail, to each record
holder of Common Shares as of the close of business on the Record Date, at the
address of such holder shown on the records of the Company.

       

      (c)           Unless
the Board of Directors by resolution adopted at or before the time of the
issuance (including pursuant to the exercise of rights under the Company’s
benefit plans) of any Common Shares specifies to the contrary, Rights shall be
issued in respect of all Common

       

      

      
        
          
             

          

          
            -8-

            
              

            

          

          
             

          

        

      

      

      Shares
that are issued after the Record Date but prior to the earlier of the
Distribution Date or the Expiration Date or, in certain circumstances provided
in Section 22 hereof, after the Distribution Date. Certificates representing
such Common Shares shall also be deemed to be certificates for Rights, and shall
bear the following legend:

       

      THIS
CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS AS
SET FORTH IN A PREFERRED SHARES RIGHTS AGREEMENT BETWEEN ENTERTAINMENT
DISTRIBUTION COMPANY, INC. AND AMERICAN STOCK TRANSFER & TRUST COMPANY AS
THE RIGHTS AGENT, DATED AS OF APRIL 2, 2008 (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 ENTERTAINMENT DISTRIBUTION COMPANY,
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. ENTERTAINMENT DISTRIBUTION COMPANY, 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
SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO
IS, WAS OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON
BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY BECOME NULL AND
VOID.

       

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

       

      SECTION
4. FORM OF RIGHTS CERTIFICATES.

       

      (a)           The
Rights Certificates (and the forms of election to purchase Common Shares and of
assignment to be printed on the reverse thereof) shall be substantially in the
form of Exhibit B hereto and may have such marks of identification or
designation and such legends, summaries or endorsements printed thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any applicable law or with
any rule or regulation made pursuant thereto or with any rule or regulation of
any stock exchange on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of Section 11 and Section 22 hereof,
the Rights Certificates, whenever distributed, shall be dated as of the Record
Date (or in the case of Rights issued with

       

      

      
        
          
             

          

          
            -9-

            
              

            

          

          
             

          

        

      

      

      respect
to Common Shares issued by the Company after the Record Date, as of the date of
issuance of such Common Shares), shall show the date of countersignature, and on
their face shall entitle the holders thereof to purchase such number of
one-hundredths of a Preferred Share as shall be set forth therein at the price
set forth therein (such exercise price per one one-hundredth of a Preferred
Share being hereinafter referred to as the “PURCHASE PRICE” and the aggregate
exercise price of all Preferred Shares issuable upon exercise of one Right being
hereinafter referred to as the “TOTAL EXERCISE PRICE”), but the number and type
of securities purchasable upon the exercise of each Right and the Purchase Price
shall be subject to adjustment as provided herein.

       

      (b)           Any
Rights Certificate issued pursuant to Section 3(a) or Section 22 hereof that
represents Rights beneficially owned by: (i) an Acquiring Person or any
Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring
Person (or 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) 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 such Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
that the Board of Directors of the Company has determined is part of a plan,
arrangement or understanding that has as a primary purpose or effect avoidance
of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6
or Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Rights Certificate referred to in this sentence, shall contain (to the
extent feasible) the following legend:

       

      THE
RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY
A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF
AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(E) OF THE
RIGHTS AGREEMENT.

       

      In the
event that the Rights become exercisable, the Rights Agent and the Company will
agree upon a procedure for determining which Rights will be so
legended.

       

      SECTION
5. COUNTERSIGNATURE AND REGISTRATION.

       

      (a)           The
Rights Certificates shall be executed on behalf of the Company by its Chairman
of the Board, its Chief Executive Officer, Chief Financial Officer, President or
any Vice President, either manually or by facsimile signature, and by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature, and shall have affixed thereto the Company’s seal (if any)
or a facsimile thereof. The Rights Certificates shall be manually countersigned
by an authorized signatory of 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,

       

      

      
        
          
             

          

          
            -10-

            
              

            

          

          
             

          

        

      

      

      nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Rights
Certificates had not ceased to be such officer of the Company; and any Rights
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an
officer.

       

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

       

      SECTION
6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS CERTIFICATES;
MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES.

       

      (a)           Subject
to the provisions of Sections 7(e), 14 and 24 hereof, at any time after the
Close of Business on the Distribution Date, and at or prior to the Close of
Business on the Expiration Date, any Rights Certificate or Rights Certificates
may be transferred, split up, combined or exchanged for another Rights
Certificate or Rights Certificates, entitling the registered holder to purchase
a like number of one-hundredths of a Preferred Share (or, following a Triggering
Event, other securities, cash or other assets, as the case may be) as the Rights
Certificate or Rights Certificates surrendered then entitled such holder to
purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Rights Certificate or Rights Certificates shall make such request
in writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Rights Certificates to be transferred, split up, combined or
exchanged at the office of the Rights Agent designated for such purpose. Neither
the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial owner (or former Beneficial owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the Rights
Agent shall, subject to Sections 7(e), 14 and 24 hereof, countersign and deliver
to the person entitled thereto a Rights Certificate or Rights Certificates, as
the case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Rights
certificates.

       

      (b)           Upon
receipt by the Company and the Rights Agent of evidence reasonably satisfactory
to them of the loss, theft, destruction or mutilation of a Rights Certificate,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and, at the Company’s or the Rights Agent’s request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Rights Certificate if mutilated, the Company will make and
deliver

       

      

      
        
          
             

          

          
            -11-

            
              

            

          

          
             

          

        

      

      

      a new
Rights Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Rights Certificate so lost, stolen, destroyed
or mutilated.

       

      SECTION
7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.

       

      (a)           Subject
to Section 7(e) hereof, the registered holder of any Rights Certificate may
exercise the Rights evidenced thereby (except as otherwise provided herein) in
whole or in part at any time after the Distribution Date upon surrender of the
Rights Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the Rights Agent at the office of the Rights Agent
designated for such purpose, together with payment of the Purchase Price for
each one-hundredth of a Preferred Share as to which the Rights are exercised and
an amount equal to any applicable transfer tax required to be paid by the holder
of such Rights Certificate in accordance with Section 9 hereof, at or prior to
the Expiration Date.

       

      (b)           The
Purchase Price for each one-hundredth of a Preferred Share issuable pursuant to
the exercise of a Right shall initially be $3.50 and shall be subject to
adjustment from time to time as provided in Sections 11 and 13 hereof and shall
be payable in lawful money of the United States of America in accordance with
paragraph (c) below.

       

      (c)           Upon
receipt of a Rights Certificate representing exercisable Rights, together with
the form of election to purchase duly executed, accompanied by payment of the
Purchase Price for the number of one-hundredths of a Preferred Share (or other
securities or property, as the case may be) to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such Rights
Certificate in accordance with Section 9 hereof in cash, or by certified check
or cashier’s check payable to the order of the Company, the Rights Agent shall,
subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any
transfer agent of the Preferred Shares (or make available, if the Rights Agent
is the transfer agent for the Preferred Shares) a certificate or certificates
for the number of one-hundredths of a Preferred Share to be purchased and the
Company hereby irrevocably authorizes its transfer agent to comply with all such
requests or (B) if the Company shall have elected to deposit the total number of
one-hundredths of a Preferred Share issuable upon exercise of the Rights
hereunder with a depository agent, requisition from the depository agent of
depository receipts representing such number of one-hundredths of a Preferred
Share as are to be purchased (in which case certificates for the Preferred
Shares represented by such receipts shall be deposited by the transfer agent
with the depository agent) and the Company hereby directs the depository agent
to comply with such request, (ii) when appropriate, requisition from the Company
the amount of cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depository receipts, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder and (iv) when appropriate, after receipt
thereof, deliver such cash to or upon the order of the registered holder of such
Rights Certificate. The payment of the Purchase Price (as such amount may be
reduced (including to zero) pursuant to Section 11(a)(iv) hereof) may be made in
cash or by certified check or cashier’s check payable to the order of the
Company. In the event that the Company is obligated to issue other securities of
the Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the

       

      

      
        
          
             

          

          
            -12-

            
              

            

          

          
             

          

        

      

      

      Company
will make all arrangements necessary so that such other securities, cash and/or
other property are available for distribution by the Rights Agent, if and when
appropriate.

       

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

       

      (e)           Notwithstanding
anything in this Agreement to the contrary, from and after the first occurrence
of a Triggering Event or a Section 13 Event, any Rights beneficially owned by
(i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person,
(ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate)
who becomes a transferee after the Acquiring Person becomes such (a “POST
TRANSFEREE”), (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
the Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the 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) (a
“PRIOR TRANSFEREE”) or (iv) any subsequent transferee receiving transferred
Rights from a Post Transferee or a Prior Transferee, either directly or through
one or more intermediate transferees, shall become null and void without any
further action and no holder of such Rights shall have any rights whatsoever
with respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company shall use all reasonable efforts to insure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied with, but
shall have no liability to any holder of Rights Certificates or to any other
Person as a result of its failure to make any determinations with respect to an
Acquiring Person or any of such Acquiring Person’s Affiliates, Associates or
transferees hereunder.

       

      (f)           Notwithstanding
anything in this Agreement to the contrary, neither the Rights Agent nor the
Company shall be obligated to undertake any action with respect to a registered
holder upon the occurrence of any purported exercise as set forth in this
Section 7 unless such registered holder shall have (i) completed and signed the
certificate contained in the form of election to purchase set forth on the
reverse side of the Rights Certificate surrendered for such exercise and (ii)
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.

       

      SECTION
8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES.  All Rights
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other

       

      

      
        
          
             

          

          
            -13-

            
              

            

          

          
             

          

        

      

      

      Rights
Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof. The Rights Agent shall deliver all canceled Rights
Certificates to the Company, or shall, at the written request of the Company and
consistent with the internal policies of the Rights Agent, destroy such canceled
Rights Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.

       

      SECTION
9. RESERVATION AND AVAILABILITY OF PREFERRED SHARES.

       

      (a)           The
Company covenants and agrees that it will use its best efforts to cause to be
reserved and kept available out of and to the extent of its authorized and
unissued Preferred Shares not reserved for another purpose (and, following the
occurrence of a Triggering Event, out of its authorized and unissued shares of
Common Stock and/or other securities), the number of Preferred Shares (and,
following the occurrence of the Triggering Event, Common Stock and/or other
securities) that will be sufficient to permit the exercise in full of all
outstanding Rights in accordance with Section 7.

       

      (b)           If
the Company shall hereafter list any of its Preferred Shares on a national
securities exchange, then so long as the Preferred Shares (and, following the
occurrence of a Triggering Event, Common Shares and/or other securities)
issuable and deliverable upon exercise of the Rights may be listed on a national
securities exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable (but only to the extent that it
is reasonably likely that the Rights will be exercised), all shares reserved for
such issuance to be listed on such exchange upon official notice of issuance
upon such exercise.

       

      (c)           If
the Company determines that registration under the Securities Act of 1933, as
amended (the “SECURITIES ACT”) is required, then the Company shall use its best
efforts to (i) file, as soon as practicable following the first occurrence of a
Triggering 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)(iv)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Securities Act with respect to
the securities purchasable upon exercise of the Rights on an appropriate form,
(ii) cause such registration statement to become effective as soon as
practicable after such filing and (iii) cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the earlier of (A) the date as of which the Rights are no
longer exercisable for such securities and (B) the date of expiration of the
Rights. The Company may temporarily suspend, for a period not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating, and notify
the Rights Agent, that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement and notification to the Rights Agent
at such time as the suspension is no longer in effect. The Company will also
take such action as may be appropriate under, or to ensure compliance with, the
securities or “blue sky” laws of the various states in connection with the
exercisability of the Rights. Notwithstanding any provision of this Agreement to
the contrary, the Rights shall not be exercisable in any jurisdiction, unless
the requisite qualification in such jurisdiction shall have been obtained, or an
exemption therefrom shall be available, and until a registration statement has
been declared effective. The Company will notify the Rights Agent
in

       

      

      
        
          
             

          

          
            -14-

            
              

            

          

          
             

          

        

      

      

      writing
of the jurisdictions in which Rights shall not be exercisable pursuant to the
preceding sentence.

       

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

       

      (e)           The
Company further covenants and agrees that it will pay when due and payable any
and all federal and state transfer taxes and charges which may be payable in
respect of the original issuance or delivery of the Rights Certificates or of
any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Rights Certificates to a person other than, or the
issuance or delivery of certificates or depository receipts for the Preferred
Shares in a name other than that of, the registered holder of the Rights
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depository receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Rights Certificate at the time of surrender) or
until it has been established to the Company’s satisfaction that no such tax is
due.

       

      SECTION
10. PREFERRED SHARES RECORD DATE.  Each person in whose name any
certificate for a number of one-hundredths of a Preferred Share is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of Preferred Shares represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
multiplied by the number of one-hundredths of a Preferred Share with respect to
which the Rights have been exercised (and any applicable transfer taxes) was
made; provided, that if the date of such surrender and payment is a date upon
which the Preferred Shares transfer books of the Company are closed, such person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares transfer books of the Company are open. Prior to the exercise
of the Rights evidenced thereby, the holder of a Rights Certificate shall not be
entitled to any rights of a holder of Preferred Shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.

       

      SECTION
11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF
RIGHTS.  The Purchase Price, the number and kind of shares or other
property covered by each Right and the number of Rights outstanding are subject
to adjustment from time to time as provided in this Section 11.

       

      (a)          (i)  In
the event the Company shall at any time after the Record Date but prior to the
Distribution Date (A) declare a dividend on the Common Shares payable in
Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the
outstanding Common Shares (by reverse stock split or otherwise) into a smaller
number of Common Shares, or (D) issue any shares of its capital stock in a
reclassification of the

       

      

      
        
          
             

          

          
            -15-

            
              

            

          

          
             

          

        

      

      

      Common
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
then, in each such event, except as otherwise provided in this Section 11(a) and
Section 7(e) hereof: (1) each of the Rights outstanding at the time of the
record date for such dividend or the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted to that number
of Rights (calculated to the nearest one ten-thousandth (1/10,000) of a Right)
equal to a fraction (the “EXCHANGE RATIO”), the numerator of which shall be the
total number of Common Shares or shares of capital stock issued in such
reclassification of the Common Shares outstanding immediately following such
time and the denominator of which shall be the total number of Common Shares
outstanding immediately prior to such time, and the number of Rights that shall
thereafter be issued with respect to each Common Share or share of such other
capital stock that shall become outstanding thereafter prior to the Distribution
Date shall be equal to the total number of outstanding Rights immediately after
such event (as adjusted pursuant to this clause (1)) divided by the total number
of outstanding Common Shares or shares of such other capital stock immediately
after such event (subject to further adjustment pursuant to the provisions of
this Agreement); (2) 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 shall be adjusted so that the Purchase Price thereafter shall
equal the result obtained by dividing the Purchase Price in effect immediately
prior to such time by the Exchange Ratio; provided, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of such Right; and (3) the number of Preferred Shares or shares of such
other capital stock issuable upon the exercise of each Right shall remain
unchanged immediately after such event, but, in the event of a reclassification,
the kind of shares issuable upon the exercise of each Right immediately after
such reclassification shall be adjusted to be the kind of shares of such other
capital stock issued in such reclassification, rather than Preferred Shares. If
an event occurs which would require an adjustment under both this Section
11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this
Section 11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.

       

      (ii)           Subject
to Section 24 hereof, in the event a Triggering Event shall have occurred, then
promptly following such Triggering Event, proper provision shall be made so that
each holder of a Right, except as provided in Section 7(e) hereof, shall
thereafter have the right to receive for each Right, upon exercise thereof in
accordance with the terms of this Agreement and payment of the then-current
Total Exercise Price, in lieu of a number of one-hundredths of a Preferred
Share, such number of Common Shares of the Company as shall equal the result
obtained by multiplying the then-current Purchase Price by the then number of
one-hundredths of a Preferred Share for which a Right was exercisable (or would
have been exercisable if the Distribution Date had occurred) immediately prior
to the first occurrence of a Triggering Event, and dividing that product by 50%
of the Current Per Share Market Price (as defined and determined pursuant to
Section 11(d) hereof) for Common Shares on the date of occurrence of the
Triggering Event (such number of shares being hereinafter referred to as the
“ADJUSTMENT SHARES”).

       

      

      
        
          
             

          

          
            -16-

            
              

            

          

          
             

          

        

      

      

      (iii)           The
right to buy Common Shares of the Company pursuant to Section 11(a)(ii) hereof
shall not arise as a result of any Person becoming an Acquiring Person through
an acquisition of Common Shares pursuant to a Permitted Offer.

       

      (iv)           In
lieu of issuing Common Shares in accordance with Section 11(a)(ii) hereof, the
Company may, if the Board of Directors determines that such action is necessary
or appropriate and not contrary to the interest of holders of Rights (and, in
the event that the number of Common Shares which are authorized by the Company’s
Certificate of Incorporation but not outstanding or reserved for issuance for
purposes other than upon exercise of the Rights are not sufficient to permit the
exercise in full of the Rights, or if any necessary regulatory approval for such
issuance has not been obtained by the Company, the Company shall): (A) determine
the excess of (1) the value of the Common Shares issuable upon the exercise of a
Right (the “CURRENT VALUE”) over (2) the Purchase Price (such excess, the
“SPREAD”) and (B) with respect to each Right, make adequate provision to
substitute for such Common Shares, upon exercise of the Rights, (1) cash, (2) a
reduction in the Purchase Price, (3) other equity securities of the Company
(including, without limitation, shares or units of shares of any series of
Preferred Stock which the Board of Directors of the Company has deemed to have
the same value as Common Shares (such shares or units of shares of Preferred
Stock are herein called “COMMON STOCK EQUIVALENTS”)), except to the extent that
the Company has not obtained any necessary stockholder or regulatory approval
for such issuance, (4) debt securities of the Company, except to the extent that
the Company has not obtained any necessary stockholder or regulatory approval
for such issuance, (5) other assets or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board of Directors of the Company
based upon the advice of a nationally recognized investment banking firm
selected by the Board of Directors of the Company; provided, that if the Company
shall not have made adequate provision to deliver value pursuant to clause (B)
above within thirty (30) days following the later of (x) the first occurrence of
a Triggering Event and (y) the date on which the Company’s right of redemption
pursuant to Section 23(a) hereof expires (the later of (x) and (y) being
referred to herein as the “SECTION 11(A)(ii) TRIGGER DATE”), then the Company
shall be obligated to deliver, upon the surrender for exercise of a Right and
without requiring payment of the Purchase Price, Common Shares (to the extent
available), except to the extent that the Company has not obtained any necessary
stockholder or regulatory approval for such issuance, and then, if necessary,
cash, which shares and/or cash have an aggregate value equal to the Spread. If
the Board of Directors of the Company shall determine in good faith that it is
likely that sufficient additional Common Shares could be authorized for issuance
upon exercise in full of the Rights or that any necessary regulatory approval
for such issuance will be obtained, the thirty (30) day period set forth above
may be extended to the extent necessary, but not more than ninety (90) days
after the Section 11(a)(ii) Trigger Date, in order that the Company may seek
stockholder approval for the authorization of such additional shares or take
action to obtain such regulatory approval (such period, as it may be extended,
the “SUBSTITUTION PERIOD”). To the extent that the Company determines that some
action need be taken pursuant to the first and/or second sentences of this
Section 11(a)(iv), the Company (x) shall provide, subject to Section 7(e)
hereof, that such action shall apply uniformly to all outstanding Rights
and

       

      

      
        
          
             

          

          
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      (y) may
suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares, to
take any action to obtain any required regulatory approval and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence and
to determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating, and shall notify the Rights Agent,
that the exercisability of the Rights has been temporarily suspended, as well as
a public announcement, and notification to the Rights Agent, at such time as the
suspension is no longer in effect. For purposes of this Section 11(a)(iv), the
value of the Common Shares shall be the Current Per Share Market Price (as
defined and determined pursuant to Section 11(d) hereof) of the Common Shares on
the Section 11(a)(ii) Trigger Date and the value of any Common Stock Equivalent
shall be deemed to have the same value as the Common Shares on such
date.

       

      (b)           In
case the Company shall, at any time after the date of this Agreement, fix a
record date for the issuance of rights, options or warrants to all holders of
Common Shares or of any class or series of Equivalent Shares entitling such
holders (for a period expiring within forty-five (45) calendar days after such
record date) to subscribe for or purchase Common Shares or Equivalent Shares or
securities convertible into Common Shares or Equivalent Shares at a price per
share (or having a conversion price per share, if a security convertible into
Common Shares or Equivalent Shares) less than the then Current Per Share Market
Price (as defined in Section 11(d) hereof)of the Common Shares or Equivalent
Shares on such record date, then, in each such case, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of Common Shares and Equivalent Shares
(if any) Outstanding on such record date, plus the number of Common Shares or
Equivalent Shares, as the case may be, which the aggregate offering price of the
total number of Common Shares or Equivalent Shares, as the case may be, so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price, and
the denominator of which shall be the number of Common Shares and Equivalent
Shares (if any) outstanding on such record date, plus the number of additional
Common Shares or Equivalent Shares, as the case may be, to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible). In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent and the
holders of the Rights.

       

      Common
Shares and Equivalent Shares owned by or held for the account of the Company
shall not be deemed outstanding for the purposes of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed, and
in the event that such rights, options or warrants are not so issued, the
Purchase Price shall be adjusted to the Purchase Price which would then be in
effect if such record date had not been fixed.

       

      (c)           In
case the Company shall, at any time after the date of this Agreement, fix a
record date for the making of a distribution to all holders of the Common Shares
or of any class or series of Equivalent Shares (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation) of

       

      

      
        
          
             

          

          
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      evidences
of indebtedness or assets (other than a regular quarterly cash dividend, if any,
or a dividend payable in Common Shares) or subscription rights, options or
warrants (excluding those referred to in Section 11(b) hereof), then, in each
such case, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the current market
price (as determined pursuant to Section 11(d) hereof) of a Common Share or an
Equivalent Share on such record date, less the fair market value (as determined
in good faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent) of the portion of
the cash, assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to a Common Share or Equivalent
Share, as the case may be, and the denominator of which shall be such current
market price (as determined pursuant to Section 11(d) hereof) of a Common Share
or Equivalent Share on such record date. Such adjustments shall be made
successively whenever such a record date is fixed, and in the event that such
distribution is not so made, the Purchase Price shall be adjusted to be the
Purchase Price which would have been in effect if such record date had not been
fixed.

       

      (d)           For
the purpose of any computation hereunder, other than computations made pursuant
to Section 11(a)(iv) hereof, the “CURRENT PER SHARE MARKET PRICE” of any
security (a “SECURITY” for the purpose of this Section 11(d)) on any date shall
be deemed to be the average of the daily closing prices per share of such
Security for the thirty (30) consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date, and for purposes of
computations made pursuant to Section 11(a)(iv) hereof, the Current Per Share
Market Price of any Security on any date shall be deemed to be the average of
the daily closing prices per share of such Security for the ten (10) consecutive
Trading Days immediately prior to such date; provided, that in the event that
the Current Per Share Market Price of the Security is determined during a period
following the announcement by the issuer of such Security of (i) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares or (ii) any subdivision, combination or
reclassification of such Security, and prior to the expiration of the requisite
thirty (30) Trading Day or ten (10) Trading Day period, after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the Current Per
Share Market Price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the Nasdaq
Global Market or, if the Security is not listed or admitted to trading on the
Nasdaq Global Market, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last sale price or, if such last sale price is not reported, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers Automated Quotation
(the “OTC”) system 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 Common Shares, the fair value of
such shares on such date as determined

       

      

      
        
          
             

          

          
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      in good
faith by the Board of Directors of the Company shall be used. The term “TRADING
DAY” shall mean a day on which the principal national securities exchange on
which the Security is listed or admitted to trading is open for the transaction
of business or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day. If the Common Shares are not
publicly held or so listed or traded, “Current Per Share Market Price” shall
mean the fair value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all
purposes.

       

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

       

      (f)           If
as a result of an adjustment made pursuant to Section 11(a) or 13(a) hereof, the
holder of any Right thereafter exercised shall become entitled to receive any
shares of capital stock other than Preferred Shares, thereafter the number of
such other shares so receivable upon exercise of any Right and if required, the
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 Common Shares contained in Sections 11(a), (b), (c), (e), (h),
(i), (j), (k), (l) and (m) hereof, and the provisions of Sections 7, 9, 10, 13
and 14 hereof with respect to the Preferred Shares 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 hereunder shall evidence the right to purchase, at the adjusted
Purchase Price, the number of one-hundredths of a Preferred Share purchasable
from time to time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.

       

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

       

      (i)           The
Company may elect on or after the date of any adjustment of the Purchase Price
as a result of the calculations made pursuant to Section 11(b) hereof to adjust
the number of Rights, in substitution for any adjustment in the number of
Preferred Shares purchasable upon the exercise of a Right. Each of the Rights
outstanding after such adjustment of

       

      

      
        
          
             

          

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

       

      (j)           Irrespective
of any adjustment or change in the Purchase Price or the number of Preferred
Shares issuable upon the exercise of the Rights, the Rights Certificates
theretofore and thereafter issued may continue to express the Purchase Price per
one one-hundredth of a Preferred Share and the number of one-hundredths of a
Preferred Share 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 par or stated value, if any, of the number of one-hundredths of a
Preferred Share issuable upon exercise of the Rights, the Company shall take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue as fully paid and nonassessable
shares such number of one-hundredths of a Preferred Share 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 Right exercised after such record date of the number of
one-hundredths of a Preferred Share and other capital stock or securities of the
Company, if any, issuable upon such exercise over and above the number of
one-hundredths of a Preferred Share 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, 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.

       

      

      
        
          
             

          

          
            -21-

            
              

            

          

          
             

          

        

      

      

      (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 or Common Shares, (ii) issuance wholly for cash
of any Preferred or Common Shares at less than the current market price, (iii)
issuance wholly for cash of Preferred or Common Shares or securities which by
their terms are convertible into or exchangeable for Preferred or Common Shares,
(iv) stock dividends or (v) issuance of rights, options or warrants referred to
in this Section 11, hereafter made by the Company to holders of its Preferred or
Common Shares shall not be taxable to such stockholders.

       

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

       

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

       

      (p)           Anything
in this Agreement to the contrary notwithstanding, in the event the Company
shall at any time after the Record Date (A) declare a dividend on the Preferred
Shares payable in Preferred Shares, (B) subdivide the outstanding Preferred
Shares, (C) combine the outstanding Preferred Shares (by reverse stock
split or otherwise) into a smaller number of Preferred Shares, or (D) issue any
shares of its capital stock in a reclassification of the Preferred Shares
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), then,
in each such event, except as otherwise provided in this Section 11 and Section
7(e) hereof: (1) each of the Rights outstanding at the time of the record date
for such dividend or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted to that number of Rights
(calculated to the nearest one ten-thousandth (1/10,000) of a Right) equal to a
fraction (the “EXCHANGE FRACTION”), the numerator of which shall be the total
number of Preferred Shares or shares of capital stock issued in such
reclassification of the Preferred Shares outstanding immediately following such
time and the denominator of which shall be the total number of Preferred Shares
outstanding immediately prior to such time, and the number of Rights that shall
thereafter be issued with respect to each Common Share or share of other capital
stock that shall be issued in a reclassification of the Common Shares prior to
the Distribution Date shall be equal to the total number of outstanding Rights
immediately after such event (as adjusted pursuant to this clause (1)) divided
by the total number of outstanding Common Shares or shares of such other capital
stock immediately after such event (subject to further adjustment pursuant to
the provisions of this Agreement); (2) the Purchase Price in effect at the time
of the

       

      

      
        
          
             

          

          
            -22-

            
              

            

          

          
             

          

        

      

      

      record
date for such dividend or of the effective date of such subdivision, combination
or reclassification shall be adjusted so that the Purchase Price thereafter
shall equal the result obtained by dividing the Purchase Price in effect
immediately prior to such time by the Exchange Fraction; provided, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of such Right; and (3) the number of one-hundredths of a
Preferred Share or share of such other capital stock issuable upon the exercise
of each Right shall remain unchanged immediately after such event, but, in the
event of a reclassification, the kind of shares issuable upon the exercise of
each Right immediately after such reclassification shall be adjusted to be the
kind of shares of such other capital stock issued in such reclassification,
rather than Preferred Shares.

       

      SECTION
12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF
SHARES.  Whenever an adjustment is made as provided in Sections 11 and
13 hereof, the Company shall promptly (a) prepare a certificate setting forth
such adjustment and a brief statement of the facts accounting for such
adjustment, (b) file with the Rights Agent and with each transfer agent for the
Preferred Shares a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Rights Certificate in accordance with Section 26 hereof.
Notwithstanding the foregoing sentence, the failure of the Company to make such
certification or give such notice shall not affect the validity of such
adjustment or the force or effect of the requirement for such adjustment. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment contained therein and shall not be deemed to have knowledge of
such adjustment unless and until it shall have received such
certificate.

       

      SECTION
13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER.

       

      (a)           In
the event that, following the Shares Acquisition Date, directly or indirectly:
(i) the Company shall consolidate with, or merge with and into, any other Person
(other than a Subsidiary of the Company in a transaction the principal purpose
of which is to change the state of incorporation of the Company or that complies
with Section 11(o) hereof); (ii) any Person (other than a Subsidiary of the
Company in a transaction that complies with Section 11(o) hereof) 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; or (iii) the Company shall sell or otherwise transfer (or one or more of
its Subsidiaries shall sell or otherwise transfer), in one or more transactions,
assets or earning power aggregating 50% or more of the assets or earning power
of the Company and its Subsidiaries (taken as a whole) to any other Person or
Persons (other than the Company or one or more of its wholly owned Subsidiaries
in one or more transactions, each of which complies with Section 11(o) hereof),
then, and in each such case, proper provision shall be made so that (A) each
holder of a Right (except as otherwise provided herein) shall thereafter have
the right to receive, upon the exercise thereof in accordance with the terms of
this Agreement, such number of validly authorized and issued, fully paid and
nonassessable Common Shares of the Principal Party (as hereinafter defined),
free of any liens, encumbrances, rights of first refusal or other adverse
claims, as shall be equal to the result obtained by (1) multiplying the then
current Purchase Price by the number of one-hundredths of a Preferred Share for
which a Right was exercisable immediately prior to the first occurrence of a
Section 13 Event (or, if a Triggering Event has

       

      

      
        
          
             

          

          
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      occurred
prior to the first occurrence of a Section 13 Event, multiplying the number of
such one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to the first occurrence of a Triggering Event by the Purchase
Price in effect immediately prior to such first occurrence) and (2) dividing
that product (which, following the first occurrence of a Section 13 Event, shall
be referred to as the “Total Exercise Price” for each Right and for all purposes
of this Agreement) by 50% of the Current Per Share Market Price, as determined
pursuant to Section 11(d) hereof, of the Common Shares of such Principal Party
on the date of consummation of such Section 13 Event; (B) such Principal Party
shall thereafter be liable for, and shall assume, by virtue of such Section 13
Event, all the obligations and duties of the Company pursuant to this Agreement;
(C) the term “Company” shall thereafter be deemed to refer to such Principal
Party, it being specifically intended that the provisions of Section 11 hereof
shall apply only to such Principal Party following the first occurrence of a
Section 13 Event; and (D) such Principal Party shall take such steps (including,
but not limited to, the reservation of a sufficient number of its Common Shares)
in connection with the consummation of any such transaction as may be necessary
to assure that the provisions hereof shall thereafter be applicable, as nearly
as reasonably may be, in relation to its Common Shares thereafter deliverable
upon the exercise of the Rights.

       

      (b)           “PRINCIPAL
PARTY” shall mean, in the case of any transaction described in clause (i), (ii)
or (iii) of Section 13(a) hereof, the Person referred to therein or such
Person’s successor (including, if applicable, the Company, if it is the
surviving corporation); provided, that in any such case, (i) if such Person is a
direct or indirect Subsidiary of another Person, “Principal Party” shall refer
to such other Person and (ii) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, “Principal Party” shall refer to whichever
of such Persons is the issuer of the Common Shares having the greatest aggregate
value, and provided, further, that for purposes of transactions described in
clause (iii) hereof, “Principal Party” shall refer to that Person receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions.

       

      (c)           If,
for any reason, the Rights cannot be exercised for Common Shares of such
Principal Party as provided in Section 13(a) hereof, then each holder of Rights
shall have the right to exchange its Rights for cash from such Principal Party
in an amount equal to the number of Common Shares that it would otherwise be
entitled to purchase times 50% of the Current Per Share Market Price, as
determined pursuant to Section 11(d) hereof, of such Common Shares of such
Principal Party. If, for any reason, the foregoing formulation cannot be applied
to determine the cash amount into which the Rights are exchangeable, then the
Board of Directors, based upon the advice of one or more nationally recognized
investment banking firms, and based upon the total value of the Company, shall
determine such amount reasonably and with good faith to the holders of Rights.
Any such determination shall be final and binding on the Rights
Agent.

       

      (d)           Notwithstanding
anything in this Agreement to the contrary, Section 13 shall not be applicable
to a transaction described in clauses (i) and (ii) of Section 13(a) hereof if:
(i) such transaction is consummated with a Person or Persons who acquired Common
Shares pursuant to a Permitted Offer (or a wholly-owned Subsidiary of any such
Person or Persons); (ii) the price per share of Common Shares offered in
such transaction is not less than the price per share of Common Shares paid to
all holders of Common Shares whose shares were

       

      

      
        
          
             

          

          
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      purchased
pursuant to such Permitted Offer; and (iii) the form of consideration being
offered to the remaining holders of Common Shares pursuant to such transaction
is the same form as the form of consideration paid pursuant to such Permitted
Offer. Upon consummation of any such transaction contemplated by this Section
13(d), all Rights hereunder shall expire.

       

      (e)           The
Company shall not consummate any Section 13 Event unless the Principal Party
shall have a sufficient number of authorized Common Shares that have not been
issued or reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and such
issuer shall have executed and delivered to the Rights Agent a supplemental
agreement confirming that such Principal Party shall, upon consummation of such
Section 13 Event, assume this Agreement in accordance with Sections 13(a) and
(b) hereof, that all rights of first refusal or preemptive rights in respect of
the issuance of Common Shares of such Principal Party upon exercise of
outstanding Rights have been waived, that there are no rights, warrants,
instruments or securities outstanding or any agreements or arrangements which,
as a result of the consummation of such transaction, would eliminate or
substantially diminish the benefits intended to be afforded by the Rights and
that such transaction shall not result in a default by such Principal Party
under this Agreement, and further providing that, as soon as practicable after
the date of such Section 13 Event, such Principal Party will:

       

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

       

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

       

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

       

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

       

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

       

      

      
        
          
             

          

          
            -25-

            
              

            

          

          
             

          

        

      

       

      SECTION
14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.

       

      (a)           The
Company shall not be required to issue fractions of Rights or to distribute
Rights Certificates that evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Rights Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable, as determined pursuant to the second sentence of Section
11(d) hereof.

       

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

       

      (c)           The
holder of a Right by the acceptance of the Right expressly waives his or her
right to receive any fractional Rights or any fractional shares upon exercise of
a Right.

       

      SECTION
15. RIGHTS OF ACTION.  All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Rights Certificate in
the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of, the obligations of any Person subject to this
Agreement.

       

      SECTION
16. AGREEMENT OF RIGHTS HOLDERS.  Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:

       

      

      
        
          
             

          

          
            -26-

            
              

            

          

          
             

          

        

      

      

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

       

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

       

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

       

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

       

      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 Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Rights Certificate be construed to confer upon the holder of any Rights
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.

       

      SECTION
18. CONCERNING THE RIGHTS AGENT.

       

      (a)           The
Company agrees to pay to the Rights Agent such compensation as shall be agreed
to in writing between the Company and the Rights Agent for all services rendered
by it hereunder and, from time to time, on demand of the Rights Agent, its
reasonable expenses and counsel fees and expenses and other disbursements
incurred in the administration and execution of this Agreement and the exercise
and performance of its duties hereunder. The Company also agrees to indemnify
the Rights Agent for, and to hold it harmless against, any loss, liability or
expense, incurred without negligence, bad faith or willful misconduct on the
part of the Rights Agent, for anything done or omitted by the Rights Agent in
connection with the

       

      

      
        
          
             

          

          
            -27-

            
              

            

          

          
             

          

        

      

      

      acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises. The provisions of this
Section 18(a) shall survive the termination of this Agreement.

       

      (b)           The
Rights Agent shall be protected and shall incur no liability for, or in respect
of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Rights Certificate or
certificate for the Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement or other paper or
document believed by it to be genuine and to be signed and executed by the
proper Person or Persons and, where necessary, verified or acknowledged, or
otherwise upon the advice of counsel as set forth in Section 20
hereof.

       

      SECTION
19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.

       

      (a)           Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the shareholder
services 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 would be eligible for appointment as a successor
Rights Agent under the provisions of Section 21 hereof. If 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)           If
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 if at that time any of the Rights
Certificates shall not have been countersigned, the Rights Agent may countersign
such Rights Certificates either in its prior name or in its changed name; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.

       

      SECTION
20. DUTIES OF RIGHTS AGENT.  The Rights Agent hereby undertakes the
duties and obligations expressly imposed by this Agreement upon the following
terms and conditions, and the Company and the holders of Rights Certificates, by
their acceptance thereof, shall be bound:

       

      

      
        
          
             

          

          
            -28-

            
              

            

          

          
             

          

        

      

      

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

       

      (b)           Whenever
in the performance of its duties under this Agreement the Rights Agent shall
deem it necessary or desirable that any fact or matter (including, without
limitation, the identity of any Acquiring Person and the determination of
Current Per Share Market Price) be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed to
be conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer,
the President, any Vice President, the Secretary or any Assistant Secretary of
the Company and delivered to the Rights Agent; and such certificate shall be
full authorization to the Rights Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate.

       

      (c)           The
Rights Agent shall be liable hereunder to the Company and any other Person only
for its own negligence, bad faith or willful misconduct.

       

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

       

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

       

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

       

      (g)           The
Rights Agent is hereby authorized and directed to accept instructions with
respect to the performance of its duties hereunder from any one of the Chairman
of the

       

      

      
        
          
             

          

          
            -29-

            
              

            

          

          
             

          

        

      

      

      Board,
the Chief Executive Officer, the Chief Financial Officer, the President, any
Vice President, the Secretary or any Assistant Secretary of the Company, and to
apply to such officers for advice or instructions in connection with its duties,
and it shall not be liable for any action taken or suffered by it in good faith
in accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights Agent,
set forth in writing any action proposed to be taken or omitted by the Rights
Agent under this Rights Agreement and the date on and/or after which such action
shall be taken or such omission shall be effective. The Rights Agent shall not
be liable for any action taken by, or omission of, the Rights Agent in
accordance with a proposal included in any such application on or after the date
specified in such application (which date shall not be less than five (5)
Business Days after the date any officer of the Company actually receives such
application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking any such action (or the effective date in
the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken
or omitted.

       

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

       

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

       

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

       

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

       

      SECTION
21. CHANGE OF RIGHTS AGENT.  The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon
thirty (30) days’ notice in writing mailed to the Company and to each transfer
agent of the Preferred Shares and the Common Shares by registered or certified
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days’ notice in writing, mailed to such

       

      

      
        
          
             

          

          
            -30-

            
              

            

          

          
             

          

        

      

      

      Rights
Agent or such successor Rights Agent, as the case may be, and to each transfer
agent of the Preferred Shares and the Common Shares by registered or certified
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of thirty
(30) days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Rights Certificate (who shall, with such
notice, submit his or her Rights Certificate for inspection by the Company),
then the Rights Agent or 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, which is
authorized under such laws to exercise corporate trust or stockholder services
powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $10 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Preferred Shares and the Common Shares, and mail
a notice thereof in writing to the registered holders of the Rights
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.

       

      SECTION
22. ISSUANCE OF NEW RIGHTS CERTIFICATES.  Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Rights Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities
or property purchasable under the Rights Certificates made in accordance with
the provisions of this Agreement. In addition, in connection with the issuance
or sale of Common Shares following the Distribution Date and prior to the
redemption or expiration of the Rights, the Company (a) shall, with respect to
Common Shares so issued or sold pursuant to the exercise of stock options or
under any employee plan or arrangement or upon the exercise, conversion or
exchange of the convertible subordinated debentures of the Company outstanding
at the date hereof or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, 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

       

      

      
        
          
             

          

          
            -31-

            
              

            

          

          
             

          

        

      

      

      and (ii)
no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.

       

      SECTION
23. REDEMPTION.

       

      (a)           The
Company may, at its option and with the approval of the Board of Directors, at
any time prior to the Close of Business on the earlier of (i) the tenth day
following the Shares Acquisition Date or such later date as may be determined by
action of a majority of the members of the Board of Directors then in office and
publicly announced by the Company or (ii) the Final Expiration Date, redeem all
but not less than all the then outstanding Rights at a redemption price of
$0.0001 per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such redemption
price being herein referred to as the “Redemption Price”) and the Company may,
at its option, pay the Redemption Price either in Common Shares (based on the
Current Per Share Market Price thereof, as determined pursuant to Section 11(d)
hereof, at the time of redemption) or cash; provided, that if the Board of
Directors of the Company authorizes redemption of the Rights on or after the
time a Person becomes an Acquiring Person, then such authorization shall require
the concurrence of a majority of the members of the Board of Directors then in
office.

       

      (b)           Immediately
upon the action of the Board of Directors of the Company ordering the redemption
of the Rights, evidence of which shall have been filed with the Rights Agent,
and without any further action and without any notice, the right to exercise the
Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. Within ten (10) days after the action
of the Board of Directors ordering the redemption of the Rights, the Company
shall give notice of such redemption to the Rights Agent and the holders of the
then outstanding Rights by mailing such notice to all such holders at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made. Neither the Company nor any of its Affiliates or Associates may
redeem, acquire or purchase for value any Rights at any time in any manner other
than that specifically set forth in this Section 23 or in Section 24 hereof, and
other than in connection with the purchase of Common Shares prior to the
Distribution Date.

       

      SECTION
24. EXCHANGE.

       

      (a)           Subject
to applicable laws, rules and regulations, and subject to subsection (c) below,
the Company may, at its option, by majority vote of the members of the Board of
Directors then in office, at any time after the occurrence of a Triggering
Event, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the provisions
of Section 7(e) hereof) for Common Shares at an exchange ratio of one Common
Share per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to as the “RATIO OF EXCHANGE”). Notwithstanding
the foregoing, the Board of Directors shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Related
Person or any Exempt Person), who or which together

       

      

      
        
          
             

          

          
            -32-

            
              

            

          

          
             

          

        

      

      

      with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or
more of the Common Shares then outstanding.

       

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

       

      (c)           In
the event that there shall not be sufficient Common Shares issued but not
outstanding or authorized but unissued to permit any exchange of Rights as
contemplated in accordance with Section 24(a) hereof, the Company shall either
take such action as may be necessary to authorize additional Common Shares for
issuance upon exchange of the Rights or alternatively, at the option of a
majority of the Board of Directors, with respect to each Right (i) pay cash
in an amount equal to the Current Value (as hereinafter defined), in lieu of
issuing Common Shares in exchange therefor, or (ii) issue debt or equity
securities or a combination thereof, having a value equal to the Current Value,
in lieu of issuing Common Shares in exchange for each such Right, where the
value of such securities shall be determined by a nationally recognized
investment banking firm selected by the Board of Directors by majority vote of
the Board of Directors, or (iii) deliver any combination of cash, property,
Common shares and/or other securities having a value equal to the Current Value
in exchange for each Right. For purposes of this Section 24(c) only, the
“Current Value” shall mean the product of the Current Per Share Market Price of
Common Shares (determined pursuant to Section 11(d) hereof on the date of the
occurrence of the event described above in subparagraph (a)) multiplied by the
number of Common Shares for which the Right otherwise would be exchangeable if
there were sufficient shares available. To the extent that the Company
determines that action need be taken pursuant to clauses (i), (ii) or (iii) of
this Section 24(c), the Board of Directors may temporarily suspend the
exercisability of the Rights for a period of up to sixty (60) days following the
date on which the event described in Section 24(a) hereof shall have occurred,
in order to seek any authorization of additional Common Shares and/or to decide
the appropriate form of distribution to be made pursuant to the above provision
and to determine the value thereof. In the event of any such suspension, the
Company shall issue a public announcement, and shall send a written notice to
the Rights Agent, stating that the exercisability of the Rights has been
temporarily suspended.

       

      (d)           The
Company shall not be required to issue fractions of Common Shares or to
distribute certificates that evidence fractional Common Shares. In lieu of such
fractional

       

      

      
        
          
             

          

          
            -33-

            
              

            

          

          
             

          

        

      

      

      Common
Shares, there shall be paid to the registered holders of the Rights Certificates
with regard to which such fractional Common Shares would otherwise be issuable,
an amount in cash equal to the same fraction of the current per share market
value of a whole Common Share (as determined pursuant to the second sentence of
Section 11(d) hereof).

       

      (e)           The
Company may, at its option, by majority vote of the Board of Directors, at any
time before any Person has become an Acquiring Person, exchange all or part of
the then outstanding Rights for rights of substantially equivalent value, as
determined reasonably and with good faith by the Board of Directors, based upon
the advice of one or more nationally recognized investment banking
firms.

       

      (f)           Immediately
upon the action of the Board of Directors ordering the exchange of any Rights
pursuant to subsection (e) of this Section 24 and without any further action and
without any notice, the right to exercise such Rights shall terminate and the
only right thereafter of a holder of such Rights shall be to receive that number
of rights in exchange therefor as has been determined by the Board of Directors
in accordance with subsection (e) above. The Company shall give public notice,
and written notice to the Rights Agent, of any such exchange; provided, that the
failure to give, or any defect in, such notice shall not affect the validity of
such exchange. The Company shall mail a notice of any such exchange to all of
the holders of such Rights at their last addresses as they appear upon the
registry books of the transfer agent for the Common Shares of the Company. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the Rights will be
effected.

       

      SECTION
25. NOTICE OF CERTAIN EVENTS.

       

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

       

      (b)           In
case any Triggering Event or Section 13 Event shall occur, then, in any such
case, the Company shall as soon as practicable thereafter give to each holder of
a Rights Certificate, and to the Rights Agent, in accordance with Section 26
hereof, a notice of the occurrence of such event, which shall specify the event
and the consequences of the event to holders of Rights under Sections 11(a)(ii)
and 13 hereof.

       

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

       

      

      
        
          
             

          

          
            -34-

            
              

            

          

          
             

          

        

      

      

       

      Entertainment
Distribution Company, Inc.

      825 8th
Avenue, 23rd Floor

      New York,
New York 10019

      Attention:
Secretary

      

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

       

      American
Stock Transfer & Trust Company

      59 Maiden
Lane

      New York,
New York 10038

      Attention:
General Counsel

      

      Notices
or demands authorized by this Agreement to be given or made by the Company or
the Rights Agent to or on 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 and the Rights Agent shall, if the Company so
directs, execute such supplement or amendment. From and after the Distribution
Date, the Company and the Rights Agent may from time to time supplement or amend
this Agreement without the approval of any holders of Rights in order to (i)
cure any ambiguity, (ii) correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein,
(iii) shorten or lengthen any time period hereunder (which lengthening or
shortening, following the first occurrence of an event set forth in clauses (i)
and (ii) of the proviso to Section 23(a) hereof, shall require the concurrence
of a majority of the members of the Board of Directors then in office) or (iv)
to change or supplement the provisions hereunder in any manner that the Company
may deem necessary or desirable and that shall not adversely affect the
interests of the holders of Rights (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person); provided, that this Agreement
may not be supplemented or amended to lengthen, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed at such
time as the Rights are not then redeemable or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company that states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Shares. Notwithstanding
any other provision hereof, the Rights Agent’s consent must be obtained
regarding any amendment or supplement pursuant to this Section 27 which alters
the Rights Agent’s rights or duties, which consent shall not be unreasonably
withheld.

       

      

      
        
          
             

          

          
            -35-

            
              

            

          

          
             

          

        

      

      

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

       

      SECTION
29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.  For
all purposes of this Agreement, any calculation of the number of Common Shares
outstanding at any particular time, including for purposes of determining the
particular percentage of such outstanding Common Shares of which any Person is
the Beneficial Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The
Board of Directors of the Company (and, where specifically provided for herein,
a majority of the members of the Board of Directors then in office) shall have
the exclusive power and authority to administer this Agreement and to exercise
all rights and powers specifically granted to the Board, or the Company (or,
where specifically provided for herein, a majority of the members of the Board
of Directors then in office), or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including 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 (or, where
specifically provided for herein, by a majority of the members of the Board of
Directors then in office) in good faith, shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights Certificates
and all other parties and (y) not subject the members of the Board of Directors
to any liability to the holders of the Rights.

       

      SECTION
30. BENEFITS OF THIS AGREEMENT.  Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, the Common Shares) any legal or equitable right, remedy or claim under
this Agreement; this Agreement shall be for the sole and exclusive benefit of
the Company, the Rights Agent and the registered holders of the Rights
Certificates (and, prior to the Distribution Date, the Common
Shares).

       

      SECTION
31. SEVERABILITY.  If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; provided, that
notwithstanding anything in this Agreement to the contrary, if any such term,
provision, covenant or restriction is held by such court or authority to be
invalid, void or unenforceable and the Board of Directors of the Company
determines in its good faith judgment that severing the invalid language from
this Agreement would adversely affect the purpose or effect of this Agreement,
the right of redemption set forth in Section 23 hereof shall be reinstated and
shall not expire until the close of business on the tenth day following the date
of such determination by the Board of Directors.

       

      SECTION
32. GOVERNING LAW.  This Agreement and each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of

       

      

      
        
          
             

          

          
            -36-

            
              

            

          

          
             

          

        

      

      

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

       

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

       

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

       

    

     

     

     

     

     

     

     

     

     

     

     

    
      

      
        
          
             

          

          
            -37-

            
              

            

          

          
             

          

        

      

      

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

       

       

       

       

      
        
          	 
      	ENTERTAINMENT
      DISTRIBUTION COMPANY, INC. 	 
      
	 
      	 
      	 
      
	 
      	
                  By:

                	 /s/ Jordan M. Copland	 
      
	 
      	
                  Name:   
      

                	Jordan
      M. Copland  	 
      
	 
      	
                  Title:

                	Interim
      Chief Executive Officer, Chief Financial Officer, Treasurer and
      Secretary  	 
      

        

      

       

      
        	
              	AMERICAN
      STOCK TRANSFER & TRUST COMPANY, as Rights Agent 	 
      
	 
      	 
      	 
      
	 
      	
                By:

              	  /s/ Paula Caroppoli	 
      
	 
      	
                Name:   
      

              	Paula
      Caroppoli	 
      
	 
      	
                Title:

              	Vice
      President	 
      

      

       

       

       

      

      
        
          
            
              [Preferred
Shares Rights Agreement Signature Page]  

            

          

          
             

            
              

            

          

          
             

          

        

      

      

      

       

      EXHIBIT
A

       

      CERTIFICATE
OF DESIGNATION

      OF
RIGHTS, PREFERENCES AND PRIVILEGES

      OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

      OF

       

      ENTERTAINMENT
DISTRIBUTION COMPANY, INC.

       

      Pursuant
to Section 151 and Section 103 of the General Corporation Law of the State of
Delaware, the undersigned, Jordan M. Copland, the Interim Chief Executive
Officer, Chief Financial Officer, Treasurer and Secretary of Entertainment
Distribution Company, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware DOES HEREBY
CERTIFY:

       

      That
pursuant to the authority conferred upon the Board of Directors by the Amended
and Restated Certificate of Incorporation, as amended, of the said Corporation,
the said Board of Directors, on April 2, 2008, and effective as of that date,
adopted the following resolution creating a series of shares of Preferred Stock
designated as Series A Junior Participating Preferred Stock:

       

      “RESOLVED,
that pursuant to the authority vested in the Board of Directors of the
corporation by the Amended and Restated Certificate of Incorporation, the Board
of Directors does hereby provide for the issue of a series of Preferred Stock,
$0.01 par value, of the Corporation, to be designated “SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK”, initially consisting of Two Million (2,000,000)
shares and to the extent that the designations, powers, preferences and relative
and other special rights and the qualifications, limitations and restrictions of
the Series A Junior Participating Preferred Stock are not stated and expressed
in the Amended and Restated Certificate of Incorporation, does hereby fix and
herein state and express such designations, powers, preferences and relative and
other special rights and the qualifications, limitations and restrictions
thereof, as follows (all terms used herein which are defined in the Amended and
Restated Certificate of Incorporation shall be deemed to have the meanings
provided therein):

       

      SECTION
1. Designation and
Amount. The shares of such series shall be designated as “Series A Junior
Participating Preferred Stock,” par value $0.01 per share, and the number of
shares constituting such series shall be Two Million (2,000,000).

       

      SECTION
2. Dividends and
Distributions.

       

      (a)           Subject
to the prior and superior right of the holders of any shares of any series of
Preferred Stock ranking prior and superior to the shares of Series A Junior
Participating Preferred Stock with respect to dividends, the holders of shares
of Series A Junior Participating Preferred Stock shall be entitled to receive
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the last day
of March, June, September and December in each year (each such date being
referred to herein as a “QUARTERLY DIVIDEND PAYMENT DATE”), commencing on the
first Quarterly Dividend

       

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

      

      Payment
Date after the first issuance of a share or fraction of a share of Series A
Junior Participating Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to, subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock of the Corporation (the “COMMON
STOCK”) since the immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Junior Participating
Preferred Stock. In the event the Corporation shall at any time after April 14,
2008 (the “RIGHTS DECLARATION DATE”) (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount to which holders of shares of Series A
Junior Participating 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 Series A Junior
Participating Preferred Stock as provided in paragraph (A) above immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock).

       

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

       

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

       

      (a)           Subject
to the provision for adjustment hereinafter set forth, each share of Series A
Junior Participating Preferred Stock shall entitle the holder thereof to 100
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 (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the Outstanding Common Stock
into a smaller number of shares, then in each such case the number of votes per
share to which holders of shares of Series A Junior Participating Preferred
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such 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 or by law, the holders of shares of Series A Junior
Participating Preferred Stock and the holders of shares of Common Stock shall
vote together as one class on all matters submitted to a vote of stockholders of
the Corporation.

       

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

       

      SECTION
4. Certain
Restrictions.

       

      (a)           The
Corporation shall not declare any dividend on, make any distribution on, or
redeem or purchase or otherwise acquire for consideration any shares of Common
Stock after the first issuance of a share or fraction of a share of Series A
Junior Participating Preferred Stock unless concurrently therewith it shall
declare a dividend on such Preferred Stock as required by Section 2
hereof.

       

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

       

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

       

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

       

      (iii)           redeem
or purchase or otherwise acquire for consideration shares of any stock ranking
on a parity (either as to dividends or upon liquidation, dissolution or winding
up) with the Series A Junior Participating Preferred Stock, provided that
the

       

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

      

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

       

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

       

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

       

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

       

      SECTION
6. Liquidation, Dissolution or
Winding Up.

       

      (a)           Upon
any liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of the Series A Junior Participating Preferred
Stock shall have received an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment,
plus an amount equal to the greater of (1) $100 per share, provided that in the
event the Corporation does not have sufficient assets, after payment of its
liabilities and distribution to holders of Preferred Stock ranking prior to the
Series A Junior Participating Preferred Stock, available to permit payment in
full of the $100 per share amount, the amount required to be paid under this
Section 6(A)(1) shall, subject to Section 6(B) hereof, equal the value of the
amount of available assets divided by the number of Outstanding shares of the
Series A Junior Participating Preferred Stock or (2) subject to the provisions
for adjustment hereinafter set forth, 100 times the aggregate per share amount
to be distributed to the holders of Common Stock (the greater of (1) or (2), the
“Series A Liquidation Preference”). In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately

       

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

      

      prior to
such event under clause (2) 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 that were 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)           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 Junior Participating Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences.

       

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

       

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

       

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

       

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

       

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

       

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

      

      IN
WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the
Company by its Interim Chief Executive Officer, Chief Financial Officer,
Treasurer and Secretary this 2nd day of April, 2008.

       

       

      
        
          	 
      	
                  ENTERTAINMENT
      DISTRIBUTION COMPANY, INC.  

                	 
      
	 
      	 
      	 
      
	 
      	
                  By:

                	 	 
      
	 
      	
                  Name:   
      

                	Jordan
      M. Copland  	 
      
	 
      	
                  Title:

                	Interim
      Chief Executive Officer, Chief Financial Officer, Treasurer and
      Secretary  	 
      

        

      

       

       

       

       

       

       

       

       

       

       

       

       

       

      

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

      

      

       

      EXHIBIT
B

       

      FORM
OF RIGHTS CERTIFICATE

       

      
      

       

      
        	Certificate No.
      R- 	
                Rights 

              

      

       

       

      NOT
EXERCISABLE AFTER APRIL 2, 2018, OR EARLIER IF TERMINATED BY THE COMPANY. THE
RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.0001 PER
RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE
OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID.
[THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY
OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED
HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e)
OF SUCH RIGHTS AGREEMENT.]1

       

      RIGHTS
CERTIFICATE

       

      This
certifies that ____________________________ or 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 Preferred Shares Rights
Agreement, dated as of April 2, 2008 (the “RIGHTS AGREEMENT”), between
Entertainment Distribution Company, Inc., a Delaware corporation (the
“COMPANY”), and American Stock Transfer & Trust Company (the “RIGHTS
AGENT”), to purchase from the Company at any time after the Distribution Date
(as such term is defined in the Rights Agreement) and prior to 5:00 P.M., New
York, New York time, on the Expiration Date (as such term is defined in the
Rights Agreement), at the office of the Rights Agent designated for such
purpose, or at the office of its successor as Rights Agent, one one-hundredth
(1/100) of a fully paid non-assessable share of Series A Junior Participating
Preferred Stock (the “PREFERRED SHARES”), of the Company, at a purchase price of
$3.50 per one-hundredth of a Preferred Share (the “PURCHASE PRICE”), upon
presentation and surrender of this Rights Certificate with the Form of Election
to Purchase and related Certificate duly executed. The number of Rights
evidenced by this Rights Certificate (and the number of one-hundredths of a
Preferred Share which may be purchased upon exercise hereof) set forth above,
are the number and Purchase Price as of April 14, 2008, based on the Preferred
Shares as constituted at such date. As provided in the Rights Agreement, the
Purchase Price and the number and kind of Preferred Shares or other securities
which may be purchased upon the exercise of the Rights

       

      

        

      

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

         

      

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

      

      evidenced
by this Rights Certificate are subject to modification and adjustment upon the
happening of certain events.

       

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

       

      Subject
to the provisions of the Rights Agreement, the Rights evidenced by this Rights
Certificate (i) may be redeemed by the Company, at its option, at a redemption
price of $0.0001 per Right or (ii) may be exchanged by the Company in whole or
in part for Common Shares, substantially equivalent rights or other
consideration as determined by the Company.

       

      This
Rights Certificate, with or without other Rights Certificates, upon surrender at
the office of the Rights Agent designated for such purpose, may be exchanged for
another Rights Certificate or Rights Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate amount of
securities as the Rights evidenced by the Rights Certificate or Rights
Certificates surrendered shall have entitled such holder to purchase. If this
Rights Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Rights Certificate or Rights Certificates
for the number of whole Rights not exercised.

       

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

       

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

       

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

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

      

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

       

       

      
        	 	
                ENTERTAINMENT
      DISTRIBUTION COMPANY, INC.  

              	 
      
	 
      	 
      	 
      
	 
      	
                By:

              	 	 
      
	 
      	
                Name:   
      

              	Jordan
      M. Copland  	 
      
	 
      	
                Title:

              	Interim
      Chief Executive Officer, Chief Financial Officer, Treasurer and
      Secretary  	 
      

      
        Countersigned:

      

       

      
        American
Stock Trust & Trust

          Company,
as Rights Agent

      

       

      
        By:_________________________

        Authorized Signatory

      

       

      
        Date of
countersignature:

      

       

       

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

      

      [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 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 member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or any other member of a medallion signature guarantee program approved
by the Securities Transfer Association.

       

      [FORM OF
REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED]

CERTIFICATE

       

      The
undersigned hereby certifies that:

       

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

       

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

       

      Dated:

       

      Signature

       

      Signature
Guaranteed:

       

      Signatures
must be guaranteed by a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or any other member of a medallion signature guarantee program approved
by the Securities Transfer Association.

       

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

      

      [FORM OF
REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED]

       

      FORM OF
ELECTION TO PURCHASE

       

      [To be
executed if holder desires to

      exercise
the Rights Certificate]

       

      To:

       

      The undersigned hereby irrevocably
elects to exercise ______________ Rights represented by this Rights Certificate
to purchase the number of ______________________ one-hundredths of a Preferred
Share issuable upon the exercise of such Rights and requests that certificates
for such number of one-hundredths of a Preferred Share 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 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
member firm of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or any other
member of a medallion signature guarantee program approved by the Securities
Transfer Association.

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

      

      

       

      [FORM OF
REVERSE OF RIGHTS CERTIFICATE -- CONTINUED]

CERTIFICATE

       

      The undersigned hereby certifies
that:

       

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

       

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

      

      Dated:

       

      Signature

       

      Signature
Guaranteed:

       

      Signatures must be guaranteed by a
member firm of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or any other
member of a medallion signature guarantee program approved by the Securities
Transfer Association.

       

      [FORM OF
REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED]

       

      NOTICE

       

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

       

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

      

      

       

      EXHIBIT
C

       

      ENTERTAINMENT
DISTRIBUTION COMPANY, INC.

       

      STOCKHOLDER
RIGHTS PLAN

       

      SUMMARY
OF RIGHTS

       

      On April 2, 2008, the Board of
Directors (the “BOARD”) of Entertainment Distribution Company, Inc., a Delaware
corporation (the “COMPANY”), adopted a rights plan and declared a dividend of
one Right for each outstanding share of common stock. The dividend is payable to
the Company’s stockholders as of the record date of April 14, 2008. The terms of
the rights and the rights plan are set forth in a Rights Agreement, by and
between the Company and American Stock Transfer & Trust Company, a New York
corporation, as Rights Agent, dated as of April 2, 2008.

       

      This summary of rights provides only a
general description of the rights plan, and thus, should be read together with
the entire rights plan, which is incorporated in this summary by reference. Upon
written request, the Company will provide a copy of the rights plan free of
charge to any of its stockholder.

       

      By adopting the rights plan, the Board
protects stockholder value because the rights plan protects the Company’s
ability to carry forward its net operating losses (the “NOLs”). In prior years,
the Company has experienced substantial operating losses, and under the Internal
Revenue Code and rules promulgated by the Internal Revenue Service, the Company
may “carry forward” these losses in certain circumstances to offset current and
future earnings and thus, reduce the Company’s federal income tax liability,
subject to certain requirements and restrictions. However, if the Company
experiences an “Ownership Change,” as defined in Section 382 of the Internal
Revenue Code, the Company’s ability to use its NOLs could be substantially
limited or lost altogether.

       

      The Company’s rights plan imposes a
significant penalty upon any person or group that acquires 4.9% or more of its
outstanding common stock without the prior approval of the Board. Stockholders
who owned 4.9% or more of the Company’s outstanding common stock as of the close
of business on April 14, 2008 may not acquire additional common stock
representing one-half of 1% or more of the Company’s then outstanding common
stock without the prior approval of the Board. A person or group that acquires
shares of the Company’s common stock in excess of the above-mentioned applicable
threshold is called an “ACQUIRING PERSON.” Any rights held by an Acquiring
Person are void and may not be exercised.

       

      DISTRIBUTION
AND TRANSFER OF RIGHTS; RIGHTS CERTIFICATE

       

      As
described above, the Board has declared a dividend of one Right for each share
of Common Stock of the Company outstanding. Prior to the Distribution Date
referred to below, the Rights will be evidenced by and trade with the
certificates for the Common Stock. After the

       

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

      

      Distribution
Date, the Company will mail Rights certificates to the Company’s stockholders
and the Rights will become transferable apart from the Common
Stock.

       

      DISTRIBUTION
DATE

       

      Rights will separate from the Common
Stock and become exercisable following the tenth day (or such later date as may
be determined by a majority of the Company’s Directors) after a person or group
(a) acquires beneficial ownership of 4.9% or more of the Company’s Common Stock
(subject to the exception described above regarding existing holders of Common
Stock) or (b) announces a tender or exchange offer, the consummation of which
would result in ownership by a person or group of 4.9% or more of the Company’s
Common Stock (the “DISTRIBUTION DATE”).

       

      PREFERRED
STOCK PURCHASABLE UPON EXERCISE OF RIGHTS

       

      After the
Distribution Date, each Right will entitle the holder to purchase, for $3.50, a
fraction (initially, one-hundredth) of a share of the Company’s Series A Junior
Participating Preferred Stock with economic terms similar to that of one share
of the Company’s Common Stock.

       

      FLIP-IN

       

      If an
Acquiring Person obtains 4.9% or more of the Company’s Common Stock (other than
pursuant to a tender offer deemed fair by the Board (a “PERMITTED OFFER”)), then
each Right (other than Rights owned by an Acquiring Person or its affiliates)
will entitle the holder thereof to purchase, for the exercise price, a number of
shares of the Company’s Common Stock having a then current market value of twice
the exercise price.

       

      FLIP-OVER

       

      If, after
the Shares Acquisition Date (defined below), (a) the Company merges into another
entity, (b) an acquiring entity merges into the Company or (c) the Company sells
more than 50% of the Company’s assets or earning power, then each Right (other
than Rights owned by an Acquiring Person or its affiliates) will entitle the
holder thereof to purchase, for the exercise price, a number of shares of Common
Stock of the person engaging in the transaction having a then current market
value of twice the exercise price (unless the transaction satisfies certain
conditions and is consummated with a person who acquired shares pursuant to a
Permitted Offer, in which case the Rights will expire).

       

      EXCHANGE
PROVISION

       

      At any
time after an Acquiring Person obtains 4.9% or more of the Company’s Common
Stock (other than pursuant to a Permitted Offer) and prior to the acquisition by
the Acquiring Person of 50% or more of the outstanding Common Stock, the Board
of the Company may exchange the Rights (other than Rights owned by the Acquiring
Person or its affiliates), in whole or in part, at an exchange ratio of one
Common Share per Right (subject to adjustment).

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      REDEMPTION
OF THE RIGHTS

       

      Rights
will be redeemable at the Company’s option for $0.0001 per Right at any time on
or prior to the tenth day (or such later date as may be determined by a majority
of the Directors) after public announcement that a person has acquired
beneficial ownership of 4.9% or more of the Company’s Common Stock (the “SHARES
ACQUISITION DATE”).

       

      EXPIRATION
OF THE RIGHTS

       

      The
Rights expire on the earliest of (a) the Final Expiration Date (defined below),
(b) exchange or redemption of the Rights as described above, (c)
consummation of a merger or consolidation or sale of assets resulting in
expiration of the Rights as described above or (d) the consummation of a
reorganization transaction entered into by the Company that the Board determines
will help prevent the Company from experiencing an “Ownership Change,” as
defined in Section 382 of the Code and protect the Company’s NOLs.

       

      The Final
Expiration Date is April 2, 2018; provided that (i) if this Agreement shall not
have been submitted for approval and approved by the requisite number of the
Company’s stockholders on or before April 2, 2009, the Final Expiration Date
shall be April 2, 2009 and (ii) if this Agreement is submitted for the
approval and not approved by the requisite number of the Company’s stockholders,
the Final Expiration Date shall be the date of such stockholder
determination.

       

      AMENDMENT
OF TERMS OF RIGHTS

       

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

       

      VOTING
RIGHTS

       

      Rights
will not have any voting rights.

       

      ANTI-DILUTION
PROVISIONS

       

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

       

       

      TAXES

       

      The
Rights distribution should not be taxable for federal income tax purposes.
However, following an event which renders the Rights exercisable or upon
redemption of the Rights, stockholders may recognize taxable
income.ex10_1.htm

    
      

    

    KELYNIAM
GLOBAL, INC.

    2008
EMPLOYEE STOCK COMPENSATION PLAN

    

    1.           PURPOSE. The purpose of this
Compensation Plan for Employees, Officers, Directors and Consultants (the
“Plan”) is to assist Kelyniam Global, Inc. (the “Company”) in attracting,
motivating, retaining and rewarding high-quality executives and other employees,
officers, and directors to acquire or increase a proprietary interest in the
Company in order to strengthen the mutuality of interests between such persons
and the Company's stockholders, and providing such persons with performance
incentives to expend their maximum efforts in the creation of shareholder
value.

    

    2.           ELIGIBLE PERSONS. The only
persons eligible to receive stock awards under this Plan and to become
participants under this Plan (“Eligible Persons”) shall be officers, directors
and employees of the Company and/or one or more of its
subsidiaries.

    

    3.           ADMINISTRATION. This Plan shall not become
effective until it is approved by the Company’s Board of Directors.  Once
the Plan has been approved by the Company’s Board of Directors, the Plan shall
be administered by a compensation committee (“Committee”) consisting of at least
one person to be appointed by the Board of Directors, or in the absence of such
a Committee, the Plan shall be administered by the Board of Directors.
 References herein to “Committee” shall be deemed to refer to the Company’s
Board of Directors at any time there is no Committee appointed.  The
Committee shall have full and final authority, in each case subject to and
consistent with the provisions of the Plan, to select Eligible Persons to become
participants under the Plan, grant stock awards to those participants, determine
the terms and conditions of, and all other matters relating to awards of Company
stock under the Plan, and rules and regulations for the administration of the
Plan, construe and interpret the Plan and correct defects, supply omissions or
reconcile inconsistencies therein, and to make all other decisions and
determinations as the Committee may deem necessary or advisable for the
administration of the Plan.  The Committee shall be entitled to, in good
faith, rely or act upon any report or other information furnished to him or her
by any other officer or employee of the Company or a subsidiary, the Company’s
independent auditors, consultants or any other agents assisting in the
administration of the Plan.  The Committee and members of the Board of
Directors, and any officer or employee of the Company or a subsidiary acting at
the direction or on behalf of the Committee shall not be personally liable for
any action or determination taken or made in good faith with respect to the
Plan, and shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to such action or
determination.

    

    4.           STOCK SUBJECT TO PLAN; OVERALL NUMBER
OF SHARES SUBJECT TO AWARDS. Subject to adjustment as provided herein,
the total number of shares of Company common stock that may be subject to the
granting of stock awards under the Plan at any point in time during the term of
the Plan shall be equal to 260,000 shares. Any shares of common stock delivered
under the Plan may consist, in whole or in part, of authorized and unissued
shares or treasury shares.  The number of shares authorized under this Plan
shall be subject to adjustment in the event that any dividend or other
distribution (whether in the form of cash, stock or other property),
recapitalization, forward or reverse stock split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution or other similar corporate transaction or event that affects the
Company’s common stock such that an adjustment is determined by the Board of
Directors of the Company to be appropriate in order to prevent dilution or
enlargement of the rights of participants under the Plan.  In its
discretion, the Board shall, in such manner as it may deem equitable, adjust any
or all of:  (a) the number of shares of stock which may be delivered in
connection with stock awards granted thereafter; (b) the exercise price, grant
price or purchase price relating to any stock award and/or make provision for
payment of cash or other property in respect of any outstanding stock
award.

    

    5.           ELIGIBILITY; PER-PERSON AWARD
LIMITATIONS.  Stock awards may be granted under the Plan only to
Eligible Persons. There shall be no limitation on the number of shares of the
Company’s common stock that an Eligible Person may receive as a stock award
under the Plan during any particular fiscal year of the Company, except that the
total number of shares of the Company’s common stock that may be issued pursuant
to the Plan shall not exceed 260,000.  

    

    6.           SPECIFIC TERMS OF
AWARDS.

    

    (a) GENERAL.  Awards
may be granted on the terms and conditions set forth in this Section 6. In
addition, the Committee may impose on any Award or the exercise thereof, at the
date of grant or thereafter (subject to Section 9(b)), such additional terms and
conditions, not inconsistent with the provisions of the Plan, as the Committee
shall determine, including terms requiring forfeiture of awards in the event of
termination of employment by the participant and terms permitting a participant
to make elections relating to his or her award. The Committee shall retain full
power and discretion to accelerate, waive or modify, at any time, any term or
condition of an award that is not mandatory under the Plan. Except in cases in
which the Committee is authorized to require other forms of consideration under
the Plan, or to the extent other forms of consideration must be paid to satisfy
the requirements of Nevada law, no consideration other than services may be
required for the grant of any award.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b) BONUS STOCK AND AWARDS IN LIEU OF
OBLIGATIONS.  The Committee is authorized to grant stock as a bonus,
or to grant stock or other awards in lieu of Company obligations to pay cash or
deliver other property under the Plan or under other plans or compensatory
arrangements, provided that, in the case of participants subject to Section 16
of the Exchange Act, the amount of such grants remains within the discretion of
the Committee to the extent necessary to ensure that acquisitions of stock or
other awards are exempt from liability under Section 16(b) of the Exchange Act.
Stock or awards granted hereunder shall be subject to such other terms as shall
be determined by the Committee.

    

    7.
            CERTAIN PROVISIONS APPLICABLE TO
AWARDS.

    

    (a) STAND-ALONE, ADDITIONAL,
TANDEM, AND SUBSTITUTE AWARDS.  awards granted under the Plan may,
in the discretion of the Committee, be granted either alone or in addition to,
in tandem with, or in substitution or exchange for, any other award or any award
granted under another plan of the Company, any subsidiary, or any business
entity to be acquired by the Company or a subsidiary, or any other right of a
participant to receive payment from the Company or any subsidiary. Such
additional, tandem, and substitute or exchange awards may be granted at any
time. If an award is granted in substitution or exchange for another award, the
Committee shall require the surrender of such other award in consideration for
the grant of the new award. In addition, awards may be granted in lieu of cash
compensation, including in lieu of cash amounts payable under other plans of the
Company or any subsidiary, in which the value of stock subject to the award is
equivalent in value to the cash compensation (for example, restricted stock), or
in which the exercise price, grant price or purchase price of the award in the
nature of a right that may be exercised is equal to the fair market value of the
underlying stock minus the value of the cash compensation
surrendered.

    

    (b) TERM OF AWARDS.
 The term of each award shall be for such period as may be determined by
the Committee.

    

    (c) FORM AND TIMING OF PAYMENT
UNDER AWARDS; DEFERRALS. Subject to the terms of the Plan and any
applicable award agreement, payments to be made by the Company or a subsidiary
for award or settlement of an award may be made in such forms as the Committee
shall determine, including, without limitation, cash, stock, other awards or
other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. The settlement of any award may be
accelerated, and cash paid in lieu of stock in connection with such settlement,
in the discretion of the Committee or upon occurrence of one or more specified
events.  Installment or deferred payments may be required by the Committee
(subject to Section 9(b) of the Plan) or permitted at the election of the
participant on terms and conditions established by the Committee. Payments may
include, without limitation, provisions for the payment or crediting of a
reasonable interest rate on installment or deferred payments or the grant or
crediting of dividend equivalents or other amounts in respect of installment or
deferred payments denominated in stock.

    

    8.           PERFORMANCE
AWARDS.

    

    (a) PERFORMANCE
CONDITIONS.  The right of a participant to exercise or receive a
grant or settlement of any award, and the timing thereof, may be subject to such
performance conditions as may be specified by the Committee. The Committee may
use such business criteria and other measures of performance as it may deem
appropriate in establishing any performance conditions, and may exercise its
discretion to reduce the amounts payable under any award subject to performance
conditions, except as limited under Section 8(b) hereof in the case of a
performance award.

    

    (b) PERFORMANCE AWARDS GRANTED
TO DESIGNATED COVERED EMPLOYEES.  If and to the extent that the
Committee determines that a performance award to be granted to an Eligible
Person who is designated by the Committee as likely to be a covered employee
should qualify as "performance-based compensation" for purposes of Code Section
162(m), the grant, exercise and/or settlement of such performance award shall be
contingent upon achievement of pre-established performance goals and other terms
set forth in this Section 8(b).

    

    (i) PERFORMANCE GOALS
GENERALLY.  The performance goals for such performance awards shall
consist of one or more business criteria and a targeted level or levels of
performance with respect to each of such criteria, as specified by the Committee
consistent with this Section 8(b). Performance goals shall be objective and
shall otherwise meet the requirements of Code Section 162(m) and regulations
thereunder including the requirement that the level or levels of performance
targeted by the Committee result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that such performance
awards shall be granted, exercised and/or settled upon achievement of any one
performance goal or that two or more of the performance goals must be achieved
as a condition to grant, exercise and/or settlement of such performance awards.
 Performance goals may differ for performance awards granted to any one
participant or to different participants.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (ii)
BUSINESS
CRITERIA.  One or more of the following business criteria for the
Company, on a consolidated basis, and/or specified subsidiaries or business
units of the Company (except with respect to the total stockholder return and
earnings per share criteria), shall be used exclusively by the Committee in
establishing performance goals for such performance awards:  (1) total
stockholder return; (2) such total stockholder return as compared to total
return (on a comparable basis) of a publicly available index such as, but not
limited to, the Standard & Poor's 500 Stock Index or the S&P Specialty
Retailer Index; (3) net income; (4) pretax earnings; (5) earnings before
interest expense, taxes, depreciation and amortization; (6) pretax operating
earnings after interest expense and before bonuses, service fees, and
extraordinary or special items; (7) operating margin; (8) earnings per share;
(9) growth in earnings per share; (10) return on equity; (11) return on capital;
(12) return on investment; (13) operating earnings; (14) working capital or
inventory; and (15) ratio of debt to stockholders' equity.

    

    (iii)
PERFORMANCE PERIOD;
TIMING FOR ESTABLISHING PERFORMANCE GOALS. Achievement of performance
goals in respect of such performance awards shall be measured over a performance
period of up to ten years, as specified by the Committee.  Performance
goals shall be established not later than 90 days after the beginning of any
performance period applicable to such performance awards, or at such other date
as may be required or permitted for "performance-based compensation" under Code
Section 162(m).

    

    9.           GENERAL
PROVISIONS.

    

    (a) COMPLIANCE WITH LEGAL AND
OTHER REQUIREMENTS.  The Company may, to the extent deemed necessary
or advisable by the Committee, postpone the issuance or delivery of a stock
award or payment of other benefits under any stock award until completion of
such registration or qualification of such stock or other required action under
any federal or state law, rule or regulation, listing or other required action
with respect to any stock exchange or automated quotation system upon which the
stock or other Company securities are listed or quoted, or compliance with any
other obligation of the Company, as the Committee may consider appropriate, and
may require any participant to make such representations, furnish such
information and comply with or be subject to such other conditions as he or she
may consider appropriate in connection with the issuance or delivery of stock or
payment of other benefits in compliance with applicable laws, rules, and
regulations, listing requirements, or other obligations.

    

    (b) CHANGES TO THE PLAN AND
AWARDS.  The Board of Directors may amend, alter, suspend,
discontinue or terminate the Plan or waive any conditions or rights under, or
amend, alter, suspend, discontinue or terminate any stock award theretofore
granted and any stock award agreement relating thereto; provided that, without
the consent of an affected participant, no such Board action may materially and
adversely affect the rights of such participant under any previously granted and
outstanding stock award.

    

    (c) UNFUNDED STATUS OF AWARDS;
CREATION OF TRUSTS.  The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a participant or obligation to deliver stock pursuant
to a stock award, nothing contained in the Plan or any award shall give any such
participant any rights that are greater than those of a general creditor of the
Company, provided that the Board may authorize the creation of trusts and
deposit therein cash, stock, or other property, or make other arrangements to
meet the Company's obligations under the Plan. Such trusts or other arrangements
shall be consistent with the "unfunded" status of the Plan unless the Board of
Directors otherwise determines with the consent of each affected
participant.

    

    (d) NONEXCLUSIVITY OF THE
PLAN.  The adoption of the Plan by the Board of Directors shall not
be construed as creating any limitations on the power of the Board of Directors
or a committee or subcommittee thereof to adopt such other incentive
arrangements as it may deem desirable.

    

    (e) FRACTIONAL SHARES.
 No fractional shares of stock shall be issued or delivered pursuant to the
Plan or any stock award. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (f) GOVERNING LAW.
 The validity, construction and effect of the Plan, any rules and
regulations under the Plan, and any award agreement shall be determined in
accordance with the laws of the State of without giving effect to principles of
conflicts of laws, and applicable federal law.

    

    (g) PLAN EFFECTIVE DATE.
 The Plan which has been approved by the Board of Directors, and became
effective on the Effective Date, April 1, 2008.

    

    10.           REGISTRATION OF STOCK.
 The shares of Company securities issuable under this Plan may, in the
discretion of the Board of Directors, be registered on a Form S-8 registration
statement filed with the U.S. Securities and Exchange Commission.

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