Document:

Exhibit 10.7

 

STOCK
APPRECIATION RIGHTS AWARD

under the Fossil, Inc. 2008 Long-Term Incentive Plan

 

This STOCK
APPRECIATION RIGHTS AWARD (the “Award”), is entered into effect as of the date
of the grant (the “Effective Date”).

 

W I T N E S S E T H:

 

WHEREAS, Fossil, Inc.,
a Delaware corporation (the “Company”) has adopted the Fossil, Inc. 2008
Long-Term Incentive Plan (the “Long-Term Incentive Plan”) effective as of the
Effective Date (as defined in the Long-Term Incentive Plan) with the objective
of retaining key executives and other selected employees and of rewarding them
for making major contributions to the success of the Company and its
Subsidiaries; and

 

WHEREAS, the
Long-Term Incentive Plan provides that an employee of the Company or its
Subsidiaries may be granted a Stock Appreciation Right Award, which may consist
of the right to receive a payment, in cash or shares of common stock, par value
$.01 per share (“Common Stock”), of the Company, equal to the excess of the
Fair Market Value of a specified number of shares of Common Stock on the date
the Stock Appreciation Right (“SAR”) is exercised over a specified strike price
as set forth in the Award;

 

NOW, THEREFORE, the
Participant identified in the Notice of Grant is hereby awarded Stock
Appreciation Rights in accordance with the following terms:

 

1.             Grant of Award; Stock Appreciation Rights.  Subject to the terms and conditions set forth
in the Long-Term Incentive Plan, this Award and in the Notice of Grant, the
Company hereby grants to the Participant that number of SARs set forth in the
Notice of Grant, consisting of the right to receive, upon exercise of each SAR,
shares of Common Stock with a Fair Market Value equal to the excess of the Fair
Market Value of each share of Common Stock on the date of exercise minus the
Fair Market Value of each share of Common Stock on the date of this Award,
subject to any adjustments that may be made pursuant to the terms of the
Long-Term Incentive Plan (the “SAR Payment Value”).

 

2.             SAR Exercise Period and Vesting.  The SARs granted pursuant to this Award may
be exercised by the Participant at any time prior to the Expiration Date set
forth in the Notice of Grant (the “Exercise Period”), subject to the limitation
that such SARs shall vest and become exercisable only if the Participant
remains continuously employed by the Company or its Subsidiaries through each
Vesting Date set forth in the Notice of Grant (it being understood that the
right to exercise the SARs shall be cumulative, so that the Participant may exercise
on or after any Vesting Date and during the remainder of the Exercise Period
that number of SARs which the Participant was entitled to exercise but did not
exercise during any preceding period or periods).  Notwithstanding the vesting conditions set forth
herein, (i) the Committee may in its discretion at any time accelerate the
vesting of SARs; and (ii) all of the SARs shall vest upon a Change in
Control of the Company or upon the death of the Participant.

 

3.             Method of Exercise. 
The Participant (or his representative, guardian, devisee or heir, as
applicable) may exercise any portion of this SAR that has become exercisable in
accordance with the terms hereof as to all or any of the SARs by giving written notice of exercise to the
Company, in form satisfactory to the Board, specifying the number of SARs to be
exercised.  The SAR Payment Value shall
be paid to the Participant in shares of Common Stock This SAR may not be exercised for less than one (1) SAR
or the number of whole SARs remaining under this Award, whichever is smaller.
As promptly as practicable following the receipt of such written notification,
the Company shall electronically register the number of shares of Common Stock
having a Fair Market Value (as of the effective date of the 

 

 

Participant’s notice of
exercise) equal to the SAR Payment Value with respect to those SARs which have
been exercised.  No stock certificate or
certificates shall be issued with respect to such shares of Common Stock,
unless, the Participant requests delivery of the certificate or certificates by
submitting a written request to the General Counsel requesting deliver of the
certificates.  The Company shall deliver
the certificates requested by the Participant to the Participant as soon as
administratively practicable following the Company’s receipt of such request.
Upon registration (or issuance) of any shares hereunder,  the Participant may be required to enter into
such written representations, warranties and agreements as the Company may
reasonably request in order to comply with applicable securities laws, the
Long-Term Incentive Plan or with this Notice of Grant.

 

4.             Termination in Event of Nonemployment.   In
the event that the Participant ceases to be employed by the Company or any of
its Subsidiaries during the Exercise Period for any reason other than death, at
a time which the SARs granted pursuant hereto are still in force and unexpired,
the SARs granted pursuant to this Award shall terminate, except to the extent
that they are vested on the date of termination of employment, and exercised on
or prior to the date that is three (3) months following termination of
employment (or, if earlier, on the expiration date of the SARs).

 

5.             Death.  In the event that the Participant ceases
to be employed by the Company or any of its Subsidiaries during the Exercise
Period by reason of death at a time when the SARs granted pursuant hereto are
still in force and unexpired, any unvested SARs shall be accelerated and 100%
vested.  Such acceleration shall be
effective as of the date of death of the Participant.  The Participant’s representatives, devises or
heirs, as applicable, shall have a period of one (1) year following the
date of death in which to exercise the SARs (or, if earlier, on the expiration
date of the SARs).

 

6.             Assignability.  The
SARs granted pursuant hereto shall not be assignable or transferable by the
Participant other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by Code or Title I
of the Employee Retirement Income Security Act of 1974, as amended.  Any attempt to do so contrary to the
provisions hereof shall be null and void. 
No assignment of the SARs herein granted shall be effective to bind the
Company unless the Company shall have been furnished with written notice
thereof and a copy of such documents and evidence as the Company may deem
necessary to establish the validity of the assignment and the acceptance by the
assignee or assignees of the terms and conditions hereof.

 

7.             No Stockholder Rights. 
The Participant shall have no rights as a stockholder of the Company
with respect to the SARs unless and until certificates evidencing shares of
Common Stock shall have been electronically registered in the Participant’s
name, or if applicable, issued by the Company to the Participant.  Until such time, the Participant shall not be
entitled to dividends or distributions in respect of any shares or to vote such
shares on any matter submitted to the stockholders of the Company.  In addition, except as to adjustments that
may from time to time be made by the Committee in accordance with the Long-Term
Incentive Plan, no adjustment shall be made or required to be made in respect
of dividends (ordinary or extraordinary, whether in cash, securities or any
other property) or distributions paid or made by the Company or any other
rights granted in respect of any shares for which the record date for such
payment, distribution or grant is prior to the date upon which certificates
evidencing such shares shall have been electronically registered by the Company
in the Participant’s name, or, if applicable, issued by the Company.

 

8.             Administration.  The
Committee shall have the power to interpret the Long-Term Incentive Plan, the
Notice of Grant and this Award, and to adopt such rules for the
administration, interpretation, and application of the Long-Term Incentive Plan
as are consistent therewith and to interpret or revoke any such rules.  All actions taken and all interpretations and
determinations made by 

 

2

 

the Committee shall be final
and binding upon the Participant, the Company, and all other interested
persons.  No member of the Committee
shall be personally liable for any action, determination, or interpretation
made in good faith with respect to the Long-Term Incentive Plan or this Award.

 

9.             Tax Withholding Obligations.  The Participant shall be required to deposit
with the Company an amount of cash equal to the amount determined by the Company
to be required with respect to any withholding taxes, FICA contributions, or
the like under any federal, state, or local statute, ordinance, rule, or
regulation in connection with the issuance of shares of Common Stock for the
SAR Payment Value.  Alternatively, the
Company may, at its sole election, (i) withhold the required amounts from
the Participant’s pay during the pay periods next following the date on which
any such applicable tax liability otherwise arises, or (ii) withhold a
number of shares of Common Stock otherwise deliverable having a Fair Market
Value sufficient to satisfy the statutory minimum of all or part of the
Participant’s estimated total federal, state, and local tax obligations
associated with payment of the SAR Payment Value.  The Company shall not deliver any of the
shares of Company Stock until and unless the Participant has made the deposit
required herein or proper provision for required withholding has been made.

 

10.           Restrictions
and Related Representations. Upon the acquisition of any shares
of Common Stock pursuant to the exercise of the SARs granted pursuant hereto,
the Participant may be required to enter into such written representations,
warranties and agreements as the Company may reasonably request in order to
comply with applicable securities laws, the Long-Term Incentive Plan or with
this Award.  In addition, to the extent a
certificate or certificates are issued representing any shares, the certificate
or certificates will be stamped or otherwise imprinted with a legend in such
form as the Company may require with respect to any applicable restrictions on
sale or transfer, and the stock transfer records of the Company will reflect
stop-transfer instructions, as appropriate, with respect to such shares.

 

11.           Notices
and Electronic Delivery. 
Unless otherwise provided herein, any notice or other communication
hereunder shall be in writing and shall be given by registered or certified
mail unless the Company, in its sole discretion, decides to deliver any
documents relating to the Award or future awards that may be granted under the
Long-Term Incentive Plan by electronic means or to request the Participant’s
consent to participate in the Long-Term Incentive Plan by electronic
means.  The Participant hereby consents
to receive such documents by electronic delivery and, if requested, to agree to
participate in the Long-Term Incentive Plan through an on-line or electronic
system established and maintained by the Company or another third party
designated by the Company.  All notices
of the exercise by the Participant of the SARs granted pursuant hereto shall be
directed to Fossil, Inc., Attention: Secretary, at the Company’s then
current address unless the Company, in writing or electronically, directs the
Participant otherwise.  Any notice given
by the Company to the Participant directed to him at his address on file with
the Company and shall be effective to bind any other person who shall acquire
rights hereunder.  The Company shall be
under no obligation whatsoever to advise or notify the Participant of the
existence, maturity or termination of any rights hereunder and the Participant
shall be deemed to have familiarized himself with all matters contained herein
and in the Long-Term Incentive Plan which may affect any of the Participant’s
rights or privileges hereunder.

 

12.           Scope
of Certain Terms.  Whenever the term “Participant” is used
herein under circumstances applicable to any other person or persons to whom
this Award may be assigned in accordance with the provisions of Paragraph 6
(Assignability) of this Agreement, it shall be deemed to include such person or
persons.  The term “Long-Term Incentive
Plan” as used herein shall be deemed to include the Long-Term Incentive Plan
and any subsequent amendments thereto, together with any administrative
interpretations which have been adopted thereunder by the Committee pursuant to
Section 3.3 

 

3

 

of the Long-Term Incentive
Plan. Unless otherwise indicated, defined terms herein shall have the meaning
ascribed to them in the Long-Term Incentive Plan.

 

13.           General
Restrictions.  This Award
is subject to the requirement that, if at any time the Committee shall
determine that (a) the listing, registration or qualification of the
shares of Common Stock subject or related thereto upon any securities exchange
or under any state or federal law; (b) the consent or approval of any
government regulatory body; or (c) an agreement by the recipient of an
Award with respect to the disposition of shares of Common Stock, is necessary
or desirable (in connection with any requirement or interpretation of any
federal or state securities law, rule or regulation) as a condition of, or
in connection with, the granting of such Award or the issuance, purchase or delivery
of shares of Common Stock thereunder, such Award may not be consummated in
whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.

 

14.           Adjustments
for Changes in Capitalization. 
The number of SARs covered by this Award shall be subject to adjustment
in accordance with Articles 12-14 of the Long-Term Incentive Plan.

 

15.           No
Right of Employment. Neither the granting of this SAR, the
exercise of any part hereof, nor any provision of the Long-Term Incentive Plan
or this Award shall constitute or be evidence of any understanding, express or
implied, on the part of the Company or any Subsidiary to employ the Participant
for any specified period.

 

16.           Amendment.  This Award may be amended only by a writing
executed by the Company and the Participant which specifically states that it
is amending this Award.  Notwithstanding
the foregoing, this Award may be amended solely by the Committee by a writing
which specifically states that it is amending this Award, so long as a copy of
such amendment is delivered to the Participant, and provided that no such
amendment adversely affecting the rights of the Participant hereunder may be
made without the Participant’s written consent. 
Without limiting the foregoing, the Committee reserves the right to
change, by written notice to the Participant, the provisions of the SARs or
this Award in any way it may deem necessary or advisable to carry out the
purpose of the grant as a result of any change in applicable laws or
regulations or any future law, regulation, ruling, or judicial decision,
provided that any such change shall be applicable only to SARs which have not
been exercised as provided herein.

 

17.           Precondition
of Legality. 
Notwithstanding anything to the contrary contained herein, the
Participant agrees that he will not exercise the SARs granted pursuant hereto,
and that the Company will not be obligated to issue any shares pursuant to this
Award, if the exercise of the SARs or the issuance of such shares would
constitute a violation by the Participant or by the Company of any provision of
any law or regulation of any governmental authority or any national securities
exchange or transaction quotation system.

 

18.           Governing Law.  This Award grant and the provisions of
this Agreement are governed by, and subject to, the laws of the State of
Delaware, as provided in the Long-Term Incentive Plan.

 

19.           Incorporation
of the Long-Term Incentive Plan. This Award is subject to the Long-Term
Incentive Plan, a copy of which has been furnished to the Participant and for
which the Participant acknowledges receipt. 
The terms and provisions of the Long-Term Incentive Plan are
incorporated by reference herein.  In the
event of a conflict between any term or provision contained here in and a term
or provision of the Long-Term Incentive Plan, the applicable terms and
provisions of the Long-Term Incentive Plan shall govern and prevail.

 

4

 

20.           Severability.  If one or more of the provisions of this
Award shall be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby and the invalid, illegal or
unenforceable provisions shall be deemed null and void; however, to the extent
permissible by law, any provisions which could be deemed null and void shall
first be construed, interpreted or revised retroactively to permit this Award
to be construed so as to first the intent of this Award and the Long-Term
Incentive Plan.

 

21.           Construction.  The SAR is being issued pursuant to Section 6.5
of the Long-Term Incentive Plan and are subject to the terms of the Long-Term
Incentive Plan.  A copy of the Long-Term
Incentive Plan has been given to the Participant, and additional copies of the
Long-Term Incentive Plan are available upon request during normal business hours
at the principal executive offices of the Company.  To the extent that any provision of this
Award violates or is inconsistent with an express provision of the Long-Term
Incentive Plan, the Long-Term Incentive Plan provision shall govern and any
inconsistent provision in this Award shall be of no force or effect.

 

5Exhibit 4.1

 

Execution version

 

SONUS NETWORKS, INC.

 

and

 

American Stock Transfer & Trust Company, LLC, as Rights Agent

 

RIGHTS AGREEMENT

 

Dated as of June 26, 2008

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 1.

  	
  Certain Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 2.

  	
  Appointment of Rights Agent

  	
  6

  
	
   

  	
   

  	
   

  
	
  Section 3.

  	
  Issue of Right Certificates

  	
  6

  
	
   

  	
   

  	
   

  
	
  Section 4.

  	
  Form of Right Certificates

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 5.

  	
  Countersignature and Registration

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 6.

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

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 7.

  	
  Exercise of Rights, Purchase Price; Expiration Date
  of Rights

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 8.

  	
  Cancellation and Destruction of Right Certificates

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 9.

  	
  Availability of Shares of Preferred Stock

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 10.

  	
  Preferred Stock Record Date

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 11.

  	
  Adjustment of Purchase Price, Number and Kind of
  Shares and Number of Rights

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 12.

  	
  Certificate of Adjusted Purchase Price or Number of
  Shares

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 13.

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

  	
  21

  
	
   

  	
   

  	
   

  
	
  Section 14.

  	
  Fractional Rights and Fractional Shares

  	
  24

  
	
   

  	
   

  	
   

  
	
  Section 15.

  	
  Rights of Action

  	
  25

  
	
   

  	
   

  	
   

  
	
  Section 16.

  	
  Agreement of Right Holders

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 17.

  	
  Right Certificate Holder Not Deemed a Stockholder

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 18.

  	
  Concerning the Rights Agent

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 19.

  	
  Merger or Consolidation or Change of Name of Rights
  Agent

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 20.

  	
  Duties of Rights Agent

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 21.

  	
  Change of Rights Agent

  	
  30

  
	
   

  	
   

  	
   

  
	
  Section 22.

  	
  Issuance of New Right Certificates

  	
  31

  

 

i

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 23.

  	
  Redemption

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 24.

  	
  Exchange

  	
  32

  
	
   

  	
   

  	
   

  
	
  Section 25.

  	
  Notice of Certain Events

  	
  33

  
	
   

  	
   

  	
   

  
	
  Section 26.

  	
  Notices

  	
  33

  
	
   

  	
   

  	
   

  
	
  Section 27.

  	
  Supplements and Amendments

  	
  34

  
	
   

  	
   

  	
   

  
	
  Section 28.

  	
  Successors

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 29.

  	
  Benefits of this Agreement

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 30.

  	
  Determinations and Actions by the Board of Directors

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 31.

  	
  Severability

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 32.

  	
  Governing Law

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 33.

  	
  Counterparts

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 34.

  	
  Descriptive Headings

  	
  36

  

 

ii

 

RIGHTS AGREEMENT

 

Rights Agreement, dated as of June 26,
2008 (the “Agreement”), between Sonus Networks, Inc., a Delaware
corporation (the “Company”), and American Stock Transfer &
Trust Company, LLC, a New York limited liability trust company, as Rights Agent
(the “Rights Agent”).

 

This Agreement supersedes any prior contract,
agreement or understanding, whether oral or written, relating to the subject
matter of this Agreement.

 

The Board of Directors of the Company has
authorized and declared a dividend of one preferred share purchase right (a “Right”)
for each share of Common Stock (as hereinafter defined) of the Company
outstanding as of the Close of Business (as defined below) on July 7, 2008
(the “Record Date”), each Right representing the right to purchase one
one-thousandth (subject to adjustment) of a share of Preferred Stock (as
hereinafter defined), upon the terms and subject to the conditions herein set
forth, and has further authorized and directed the issuance of one Right
(subject to adjustment as provided herein) with respect to each share of Common
Stock 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); provided, however, that Rights may be issued with
respect to shares of Common Stock that shall become outstanding after the
Distribution Date and prior to the Expiration Date in accordance with Section 22.

 

Accordingly, in consideration of the premises
and the mutual agreements herein set forth, the parties hereby agree as
follows:

 

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

 

(a)                                  “Acquiring Person”
shall mean any Person (as such term is hereinafter defined) who or which together with all
Affiliates and Associates (as such terms are hereinafter defined) of such
Person, shall be the Beneficial Owner (as such term is hereinafter defined) of
15% or more of the shares of Common Stock then outstanding, but shall not
include an Exempt Person (as such term is hereinafter defined); provided,
however, that (i) if the Board of Directors of the Company determines
in good faith that a Person who would otherwise be an “Acquiring Person”
became the Beneficial Owner of a number of shares of Common Stock such that the
Person would otherwise qualify as an “Acquiring Person” inadvertently
(including, without limitation, because (A) such Person was unaware that
it beneficially owned a percentage of Common Stock 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 Stock but had no
actual knowledge of the consequences of such Beneficial Ownership under this
Agreement) and without any intention of changing or influencing control of the
Company, then such Person shall not be deemed to be or to have become an “Acquiring
Person” for any purposes of this 

 

1

 

Agreement unless and until such Person shall
have failed to divest itself, as soon as practicable (as determined, in good
faith, by the Board of Directors of the Company), of Beneficial Ownership of a
sufficient number of shares of Common Stock (or, in the case solely of
Derivative Common Shares (as such term is hereinafter defined), such Person
terminates the subject derivative transaction or transactions or disposes of
the subject derivative security or securities, or establishes to the
satisfaction of the Board of Directors that such Derivative Common Shares are
not held with any intention of changing or influencing control of the Company)
so that such Person would no longer otherwise qualify as an “Acquiring
Person”; (ii) if, as of the date hereof or prior to the first public
announcement of the adoption of this Agreement, any Person is or becomes the
Beneficial Owner of 15% or more of the shares of Common Stock outstanding, such
Person shall not be deemed to be or to become an “Acquiring Person”
unless and until such time as such Person shall, after the first public
announcement of the adoption of this Agreement, become the Beneficial Owner of
additional shares of Common Stock (other than pursuant to (x) a dividend
or distribution paid or made by the Company on the outstanding Common Stock, or
(y) a split or subdivision of the outstanding Common Stock, unless, upon
becoming the Beneficial Owner of such additional shares of Common Stock, such
Person is not then the Beneficial Owner of 15% or more of the shares of Common
Stock then outstanding; and (iii) no Person shall become an “Acquiring
Person” as the result of an acquisition of shares of Common Stock by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares of Common Stock beneficially owned by such
Person to 15% or more of the shares of Common Stock then outstanding, provided,
however, that if a Person shall become the Beneficial Owner of 15% or
more of the shares of Common Stock then outstanding by reason of such share
acquisitions by the Company and shall thereafter become the Beneficial Owner of
any additional shares of Common Stock (other than pursuant to a dividend or distribution
paid or made by the Company on the outstanding Common Stock or pursuant to a
split or subdivision of the outstanding Common Stock), then such Person shall
be deemed to be an “Acquiring Person” unless upon becoming the
Beneficial Owner of such additional shares of Common Stock such Person does not
beneficially own 15% or more of the shares of Common Stock then
outstanding.  For all purposes of this
Agreement, any calculation of the number of shares of Common Stock outstanding
at any particular time, including for purposes of determining the particular
percentage of such outstanding shares of Common Stock 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 Securities Exchange Act of
1934, as amended (the “Exchange Act”), as in effect on the date hereof.

 

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

 

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

 

2

 

(i)                                     which such Person
or any of such Person’s Affiliates or Associates is deemed to beneficially own,
directly or indirectly, within the meaning of Rule l3d-3 of the General Rules and
Regulations under the Exchange Act as in effect on the date hereof;

 

(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, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed
the Beneficial Owner of, or to beneficially own, (x) 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, (y) securities which such Person has a right to
acquire upon the exercise of Rights at any time prior to the time that any
Person becomes an Acquiring Person or (z) securities issuable upon the
exercise of Rights from and after the time that any Person becomes an Acquiring
Person if such Rights were acquired by such Person or any of such Person’s
Affiliates or Associates prior to the Distribution Date or pursuant to Section 3(a) or
Section 22 hereof (“Original Rights”) or pursuant to Section 11(i) or
Section 11(n) with respect to an adjustment to Original
Rights; or (B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to beneficially own, any security by reason
of such agreement, arrangement or understanding 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 promulgated under the Exchange Act and (2) is not also then
reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report);

 

(iii)                               which are beneficially
owned, directly or indirectly, by any other Person and with respect to which
such Person or any of such Person’s Affiliates or Associates has any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities) for the purpose of acquiring, holding, voting (except
to the extent contemplated by the proviso to Section 1(c)(ii)(B))
or disposing of such securities of the Company; or

 

(iv)                              that are the subject of a
derivative transaction entered into by such Person, or derivative security
acquired by such Person, which gives such Person the economic equivalent of
ownership of an amount of such securities due to the fact that the value of the
derivative is explicitly determined by reference to the price or value of such
securities, without regard to whether (a) such derivative conveys any
voting rights in such securities to such Person, (b) the derivative is
required to be, or capable of being, settled 

 

3

 

through delivery of such securities, or (c) such
Person may have entered into other transactions that hedge the economic effect
of such derivative.  In determining the
number of Common Stock deemed Beneficially Owned by virtue of the operation of
this Section 1c(iv), the subject Person shall be deemed to
Beneficially Own (without duplication) the number of shares of Common Stock
that are synthetically owned pursuant to such derivative transactions or such
derivative securities.  Such shares of
Common Stock that are deemed so Beneficially Owned pursuant to the operation of
this Section 1c(iv) shall be referred to herein as “Derivative Common Stock”;

 

provided, however,
that no Person who is an officer, director or employee of an Exempt Person
shall be deemed, solely by reason of such Person’s status or authority as such,
to be the “Beneficial Owner” of, to have “Beneficial Ownership”
of or to “beneficially own” any securities that are “beneficially
owned” (as defined in this Section l(c)), including, without
limitation, in a fiduciary capacity, by an Exempt Person or by any other such
officer, director or employee of an Exempt Person.

 

(d)                                 “Business Day”
shall mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York or the city in which the principal office
of the Rights Agent is located are authorized or obligated by law or executive
order to close.

 

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

 

(f)                                    “Common Stock”
when used with reference to the Company shall mean the Common Stock, presently
par value $0.001 per share, of the Company. 
“Common Stock” when used with reference to any Person other than
the Company shall mean the common stock (or, in the case of an unincorporated
entity, the equivalent 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.

 

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

 

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

 

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

 

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

 

4

 

(k)                                  “Exempt Person”
shall mean the Company or any Subsidiary (as such term is hereinafter defined)
of the Company, in each case including, without limitation, in its fiduciary
capacity, or any employee benefit plan of the Company or of any Subsidiary of
the Company, or any entity or trustee holding Common Stock for or pursuant to
the terms of any such plan or for the purpose of funding any such plan or
funding other employee benefits for employees of the Company or of any
Subsidiary of the Company.

 

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

 

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

 

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

 

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

 

(p)                                 “NASDAQ GSM”
shall mean The Nasdaq Global Select Market.

 

(q)                                 “New York Stock
Exchange” shall mean the New York Stock Exchange.

 

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

 

(s)                                  “Preferred Stock”
shall mean the Series A Junior Participating Preferred Stock, par value
$0.01 per share, of the Company having the rights and preferences set forth in
the Form of Certificate of Designation attached to this Agreement as Exhibit A.

 

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

 

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

 

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

 

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

 

(x)                                   “Right
Certificate” shall have the meaning set forth in Section 3
hereof.

 

5

 

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

 

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

 

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

 

(bb)                          “Stock Acquisition Date”
shall mean the first date of public announcement (which, for purposes of this
definition, shall include, without limitation, a report filed pursuant to Section 13(d) of
the Exchange Act) by the Company or an Acquiring Person that an Acquiring
Person has become such, or such earlier date as a majority of the Board of
Directors of the Company shall become aware of the existence of an Acquiring
Person.

 

(cc)                            “Subsidiary” of any
Person shall mean any corporation or other entity of which securities or other
ownership interests having ordinary voting power sufficient to elect a majority
of the board of directors or other persons performing similar functions are
beneficially owned, directly or indirectly, by such Person, and any corporation
or other entity that is otherwise controlled by such Person.

 

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

 

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

 

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

 

Section 2.  Appointment of Rights Agent.  The Company hereby appoints the Rights Agent
to act as agent for the Company and the holders of the Rights (who, in
accordance with Section 3 hereof, shall prior to the Distribution
Date be the holders of Common Stock) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment.  The Company may from time to time appoint
such co-Rights Agents as it may deem necessary or desirable.

 

Section 3.  Issue of Right Certificates.

 

(a)                                  Until the Close of
Business on the earlier of (i) the tenth day after the Stock Acquisition
Date or (ii) the tenth Business Day (or such later date as may be
determined by action of the Board of Directors of the Company prior to such
time as any Person becomes an Acquiring Person) after the date of the
commencement by any Person (other than an Exempt Person) of, or of the first
public announcement of the intention of such Person (other than an Exempt
Person) to commence, a tender or exchange offer the 

 

6

 

consummation of which would result in any
Person (other than an Exempt Person) becoming an Acquiring Person (the earlier
of such dates being herein referred to as the “Distribution Date”, provided,
however, that if either of such dates occurs after the date of this
Agreement and on or prior to the Record Date, then the Distribution Date shall
be the Record Date), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for
Common Stock registered in the names of the holders thereof and not by separate
Right Certificates, and (y) the Rights will be transferable only in
connection with the transfer of Common Stock. 
As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common Stock
as of the close of business on the Distribution Date (other than any Acquiring
Person or any Associate or Affiliate of an Acquiring Person), at the address of
such holder shown on the records of the Company, a Right Certificate, in
substantially the form of Exhibit B hereto (a “Right Certificate”),
evidencing one Right (subject to adjustment as provided herein) for each share
of Common Stock so held.  As of the
Distribution Date, the Rights will be evidenced solely by such Right
Certificates.

 

(b)                                 On the Record Date, or
as soon as practicable thereafter, the Company will send a copy of a Summary of
Rights to Purchase Shares of Preferred Stock, in substantially the form of Exhibit C
hereto (the “Summary of Rights”), by first-class, postage-prepaid mail,
to each record holder of Common Stock as of the Close of Business on the Record
Date (other than any Acquiring Person or any Associate or Affiliate of any
Acquiring Person), at the address of such holder shown on the records of the
Company.  With respect to certificates
for Common Stock outstanding as of the Record Date, until the Distribution
Date, the Rights will be evidenced by such certificates registered in the names
of the holders thereof together with the Summary of Rights.  Until the Distribution Date (or, if earlier,
the Expiration Date), the surrender for transfer of any certificate for Common
Stock outstanding on the Record Date, with or without a copy of the Summary of
Rights, shall also constitute the transfer of the Rights associated with the Common
Stock represented thereby.

 

(c)                                  Rights shall be
issued in respect of all shares of Common Stock issued or disposed of
(including, without limitation, upon disposition of Common Stock out of
treasury stock or issuance or reissuance of Common Stock out of authorized but
unissued shares) after the Record Date but prior to the earlier of the
Distribution Date and the Expiration Date, or in certain circumstances provided
in Section 22 hereof, after the Distribution Date.  Certificates issued for Common Stock
(including, without limitation, upon transfer of outstanding Common Stock,
disposition of Common Stock out of treasury stock or issuance or reissuance of
Common Stock out of authorized but unissued shares) after the Record Date but
prior to the earlier of the Distribution Date and the Expiration Date shall
have impressed on, printed on, written on or otherwise affixed to them the
following legend:

 

7

 

This certificate also evidences and entitles
the holder hereof to certain Rights as set forth in a Rights Agreement between
Sonus Networks, Inc. (the “Company”) and American Stock Transfer &
Trust Company, LLC, as Rights Agent, dated as of June 26, 2008 and as
amended from time to time (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 the Company. 
Under certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate.  The
Company will mail to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.  Under certain circumstances, as set forth
in the Rights Agreement, Rights owned by or transferred to any Person who is or
becomes an Acquiring Person (as defined in the Rights Agreement) and certain
transferees thereof will become null and void and will no longer be
transferable.

 

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

 

Notwithstanding this paragraph (c), the
omission of a legend shall not affect the enforceability of any part of this
Agreement or the rights of any holder of the Rights.

 

Section 4.  Form of Right Certificates.  The Right Certificates (and the forms of
election to purchase shares and of assignment to be printed on the reverse
thereof) shall be substantially in the form set forth in 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 or interdealer quotation system on which the Rights may from
time to time be listed or quoted, or to conform to usage.  Subject to the provisions of this Agreement,
the Right Certificates shall entitle the holders thereof to purchase such
number of one one-thousandths of a share of Preferred Stock as shall be set
forth therein at the Purchase Price, but the number of such one one-thousandths
of a share of Preferred Stock and the Purchase Price shall be subject to
adjustment as provided herein.

 

8

 

Section 5.  Countersignature and Registration.

 

(a)                                  The Right
Certificates shall be executed on behalf of the Company by the President of the
Company, either manually or by facsimile signature, shall have affixed thereto
the Company’s seal or a facsimile thereof and shall be attested by the
Secretary of the Company, either manually or by facsimile signature.  The Right Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose unless
countersigned.  In case any officer of
the Company who shall have signed any of the Right Certificates shall cease to
be such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Right Certificates, nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the
Company with the same force and effect as though the Person who signed such
Right Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any Person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Agreement any such Person was not such an officer.

 

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

 

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

 

(a)                                  Subject to the
provisions of this Agreement, at any time after the Distribution Date and prior
to the Expiration Date, any Right Certificate or Right Certificates may be
transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates, entitling the registered holder to purchase a like number
of one one-thousandths of a share of Preferred Stock as the Right Certificate
or Right Certificates surrendered then entitled such holder to purchase.  Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the office or agency of the Rights Agent designated
for such purpose.  Thereupon the Rights
Agent shall countersign and deliver to the Person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested.  The Company may require payment 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 Right
Certificates.

 

9

 

(b)                                 Subject to the
provisions of this Agreement, at any time after the Distribution Date and prior
to the Expiration Date, upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Right Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and, at the Company’s
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Right Certificate if mutilated, the Company will make and
deliver a new Right Certificate of like tenor to the Rights Agent for delivery
to the registered holder in lieu of the Right Certificate so lost, stolen,
destroyed or mutilated.

 

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

 

(a)                                  Except as otherwise
provided herein, the Rights shall become exercisable on the Distribution Date,
and thereafter the registered holder of any Right Certificate may, subject to Section 11(a)(ii) hereof
and except as otherwise provided herein, exercise the Rights evidenced thereby
in whole or in part upon surrender of the Right Certificate, with the form of
election to purchase on the reverse side thereof duly executed, to the Rights
Agent at the office or agency of the Rights Agent designated for such purpose,
together with payment of the aggregate Purchase Price with respect to the total
number of one one-thousandths of a share of Preferred Stock (or other
securities, cash or other assets, as the case may be) as to which the Rights
are exercised, at any time which is both after the Distribution Date and prior
to the time (the “Expiration Date”) that is the earliest of (i) the
Close of Business on June 26, 2011 (the “Final Expiration Date”), (ii) the
time at which the Rights are redeemed as provided in Section 23
hereof (the “Redemption Date”) or (iii) the time at which such
Rights are exchanged as provided in Section 24 hereof.

 

(b)                                 The Purchase Price
shall be initially $25.00 for each one one-thousandth of a share of Preferred
Stock purchasable upon the exercise of a Right. 
The Purchase Price and the number of one one-thousandths of a share of
Preferred Stock or other securities or property to be acquired upon exercise of
a Right 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) of this Section 7.

 

(c)                                  Except as otherwise
provided herein, upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the aggregate Purchase Price for the shares of Preferred Stock to be
purchased and an amount equal to any applicable transfer tax required to be
paid by the holder of such Right Certificate in accordance with Section 9
hereof, in cash or by certified check, cashier’s check or money order payable
to the order of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition
from any transfer agent of the Preferred Stock, or make available if the Rights
Agent is the transfer agent for the Preferred Stock, certificates for the
number of shares of Preferred Stock to be purchased, 

 

10

 

and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, or (B) requisition
from a depositary agent appointed by the Company depositary receipts
representing interests in such number of one one-thousandths of a share of
Preferred Stock as are to be purchased (in which case certificates for the
Preferred Stock represented by such receipts shall be deposited by the transfer
agent with the depositary agent), and the Company hereby directs any such
depositary 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) promptly
after receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, promptly deliver such
cash to or upon the order of the registered holder of such Right Certificate.

 

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

 

(e)                                  Notwithstanding
anything in this Agreement to the contrary, neither the Rights Agent nor the
Company shall be obligated to undertake any action with respect to a registered
holder of Rights upon the occurrence of any purported transfer or exercise of
Rights pursuant to Section 6 hereof or this Section 7
unless such registered holder shall have (i) completed and signed the
certificate contained in the form of assignment or form of election to purchase
set forth on the reverse side of the Right Certificate surrendered for such
transfer or exercise and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) thereof as the
Company shall reasonably request.

 

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

 

11

 

Section 9.  Availability of Shares of Preferred Stock.

 

(a)                                  The Company covenants
and agrees that it will cause to be reserved and kept available out of its
authorized and unissued shares of Preferred Stock or any shares of Preferred
Stock held in its treasury, the number of shares of Preferred Stock that will
be sufficient to permit the exercise in full of all outstanding Rights.

 

(b)                                 So long as the shares
of Preferred Stock issuable upon the exercise of Rights may be listed or
admitted to trading on any national securities exchange, or quoted on NASDAQ,
the Company shall use its best efforts to cause, from and after such time as
the Rights become exercisable, all shares reserved for such issuance to be
listed or admitted to trading on such exchange, or quoted on NASDAQ, upon
official notice of issuance upon such exercise.

 

(c)                                  From and after such
time as the Rights become exercisable, the Company shall use its best efforts,
if then necessary to permit the issuance of shares of Preferred Stock upon the
exercise of Rights, to register and qualify such shares of Preferred Stock
under the Securities Act and any applicable state securities or “Blue Sky” laws
(to the extent exemptions therefrom are not available), cause such registration
statement and qualifications to become effective as soon as possible after such
filing and keep such registration and qualifications effective (with a
prospectus at all times meeting the requirements of the Securities Act) until
the earlier of the date as of which the Rights are no longer exercisable for
such securities and the Expiration Date. 
The Company may temporarily suspend, for a period of time not to exceed
90 days, the exercisability of the Rights in order to prepare and file a
registration statement under the Securities Act and permit it to become
effective.  Upon any such suspension, the
Company shall issue a public announcement stating that the exercisability of
the Rights has been temporarily suspended, as well as a public announcement at
such time as the suspension is no longer in effect.  Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction unless the requisite qualification in such jurisdiction shall have
been obtained and until a registration statement under the Securities Act shall
have been declared effective, unless an exemption therefrom is available.

 

(d)                                 The Company covenants
and agrees that it will take all such action as may be necessary to ensure that
all shares of Preferred Stock delivered upon exercise of Rights shall, at the
time of delivery of the certificates therefor (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
issuance or delivery of the Right Certificates or of any shares of Preferred
Stock upon the exercise of Rights.  The
Company shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Right Certificates to a
Person other than, or the issuance or delivery of certificates or depositary
receipts for the Preferred Stock in a name other than that of, the registered
holder of the Right Certificate evidencing Rights surrendered for exercise or
to issue or deliver any 

 

12

 

certificates or depositary receipts for
Preferred Stock upon the exercise of any Rights until any such tax shall have
been paid (any such tax being payable by that holder of such Right Certificate
at the time of surrender) or until it has been established to the Company’s
reasonable satisfaction that no such tax is due.

 

Section 10.  Preferred Stock Record Date.  Each Person in whose name any certificate for
Preferred Stock is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the shares of Preferred Stock
represented thereby on, and such certificate shall be dated, the date upon
which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made; provided,
however, that if the date of such surrender and payment is a date upon
which the Preferred Stock transfer books of the Company are closed, such Person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Stock transfer books of the Company are open.  Prior to the exercise of the Rights evidenced
thereby, the holder of a Right Certificate shall not be entitled to any rights
of a holder of Preferred Stock for which the Rights shall be exercisable,
including, without limitation, the right to vote or to receive dividends or other
distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.

 

Section 11.  Adjustment of Purchase Price, Number and
Kind of Shares and Number of Rights. 
The Purchase Price, the number of shares of Preferred Stock or other
securities or property purchasable upon exercise of each Right and the number
of Rights outstanding are subject to adjustment from time to time as provided
in this Section 11.

 

(a)(i)  In the event the Company shall
at any time after the date of this Agreement (A) declare and pay a
dividend on the Preferred Stock payable in shares of Preferred Stock, (B) subdivide
the outstanding Preferred Stock, (C) combine the outstanding Preferred
Stock into a smaller number of shares of Preferred Stock or (D) issue any
shares of its capital stock in a reclassification of the Preferred Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a), the number and kind of
shares of capital stock issuable upon exercise of a Right as of the record date
for such dividend or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the holder of any
Right exercised after such time shall be entitled to receive the aggregate
number and kind of shares of capital stock which, if such Right had been
exercised immediately prior to such date and at a time when the Preferred Stock
transfer books of the Company were open, the holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification.

 

(ii)                                  Subject to Section 24
of this Agreement, in the event any Person becomes an Acquiring Person (the
first occurrence of such event being referred to hereinafter as the “Flip-In
Event”), then (A) the Purchase Price shall be adjusted to be the 

 

13

 

Purchase Price in effect immediately prior to
the Flip-In Event multiplied by the number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to such
Flip-In Event, whether or not such Right was then exercisable, and (B) each
holder of a Right, except as otherwise provided in this Section 11(a)(ii) and
Section 11(a)(iii) hereof, shall thereafter have the right to
receive, upon exercise thereof at a price equal to the Purchase Price (as so
adjusted), in accordance with the terms of this Agreement and in lieu of shares
of Preferred Stock, such number of shares of Common Stock as shall equal the
result obtained by dividing the Purchase Price (as so adjusted) by 50% of the
current per share market price of the Common Stock (determined pursuant to Section 11(d) hereof)
on the date of such Flip-In Event; provided, however, that the
Purchase Price (as so adjusted) and the number of shares of Common Stock so
receivable upon exercise of a Right shall, following the Flip-In Event, be
subject to further adjustment as appropriate in accordance with Section 11(f) hereof.  Notwithstanding anything in this Agreement to
the contrary, however, from and after the Flip-In Event, any Rights that are
beneficially owned by (x) any Acquiring Person (or any Affiliate or
Associate of any Acquiring Person), (y) a transferee of any Acquiring
Person (or any such Affiliate or Associate) who becomes a transferee after the
Flip-In Event or (z) a transferee of any Acquiring Person (or any such
Affiliate or Associate) who became a transferee prior to or concurrently with
the Flip-In Event pursuant to either (I) a transfer from the Acquiring
Person to holders of its equity securities or to any Person with whom it has
any continuing agreement, arrangement or understanding regarding the
transferred Rights or (II) a transfer which the Board of Directors of the
Company has determined is part of a plan, arrangement or understanding which
has the purpose or effect of avoiding the provisions of this paragraph, and
subsequent transferees of such Persons, shall be void without any further
action and any holder of such Rights shall thereafter have no rights whatsoever
with respect to such Rights under any provision of this Agreement.  The Company shall use all reasonable efforts
to ensure that the provisions of this Section 11(a)(ii) are
complied with, but shall have no liability to any holder of Right Certificates
or other Person as a result of its failure to make any determinations with
respect to an Acquiring Person or its Affiliates, Associates or transferees
hereunder.  From and after the Flip-In
Event, no Right Certificate shall be issued pursuant to Section 3
or Section 6 hereof that represents Rights that are or have become
void pursuant to the provisions of this paragraph, and any Right Certificate
delivered to the Rights Agent that represents Rights that are or have become
void pursuant to the provisions of this paragraph shall be canceled.  From and after the occurrence of an event
specified in Section 13(a) hereof, any Rights that theretofore
have not been exercised pursuant to this Section 11(a)(ii) shall
thereafter be exercisable only in accordance with Section 13 and
not pursuant to this Section 11(a)(ii).

 

(iii)                               The Company may at its
option substitute for a share of Common Stock issuable upon the exercise of
Rights in accordance with the foregoing subparagraph (ii) a number of
shares of Preferred Stock or fraction thereof such that the current per share
market price of one share of Preferred Stock multiplied by such number or
fraction is equal to the current per share market price of one share of Common
Stock.  In the event that there shall not
be sufficient shares of Common Stock issued but not outstanding or authorized
but unissued to permit the exercise in full of the Rights in accordance with
the 

 

14

 

foregoing subparagraph (ii), the Board of
Directors of the Company shall, with respect to such deficiency, to the extent
permitted by applicable law and any material agreements then in effect to which
the Company is a party, (A) determine the excess (such excess, the “Spread”)
of (1) the value of the shares of Common Stock issuable upon the exercise
of a Right in accordance with the foregoing subparagraph (ii) (the “Current
Value”) over (2) the Purchase Price (as adjusted in accordance with
the foregoing subparagraph (ii)), and (B) with respect to each Right
(other than Rights which have become void pursuant to the foregoing
subparagraph (ii)), make adequate provision to substitute for the shares of
Common Stock issuable in accordance with the foregoing subparagraph (ii) upon
exercise of the Right and payment of the Purchase Price (as adjusted in
accordance therewith), (1) cash, (2) a reduction in such Purchase
Price, (3) shares of Preferred Stock or other equity securities of the
Company (including, without limitation, shares or fractions of shares of
preferred stock which, by virtue of having dividend, voting and liquidation
rights substantially comparable to those of the shares of Common Stock, are
deemed in good faith by the Board of Directors of the Company to have
substantially the same value as the shares of Common Stock (such shares of
Preferred Stock and shares or fractions of shares of preferred stock are
hereinafter referred to as “Common Stock Equivalents”)), (4) debt
securities of the Company, (5) other assets, or (6) any combination
of the foregoing, having a value which, when added to the value of the shares
of Common Stock issued upon exercise of such Right, shall have an aggregate
value equal to the Current Value (less the amount of any reduction in such
Purchase Price), where such aggregate value has been determined by the Board of
Directors of the Company upon the advice of a nationally recognized investment
banking firm selected in good faith by the Board of Directors of the Company; provided,
however, that if the Company shall not make adequate provision to
deliver value pursuant to clause (B) above within thirty (30) days
following the Flip-In Event (the date of the Flip-In Event being the “Section 11(a)(ii) Trigger
Date”), then the Company shall be obligated to deliver, to the extent
permitted by applicable law and any material agreements then in effect to which
the Company is a party, upon the surrender for exercise of a Right and without
requiring payment of such Purchase Price, shares of Common Stock (to the extent
available), and then, if necessary, such number or fractions of shares of
Preferred Stock (to the extent available) and then, if necessary, cash, which
shares and/or cash have an aggregate value equal to the Spread.  If, upon the occurrence of the Flip-In Event,
the Board of Directors of the Company shall determine in good faith that it is
likely that sufficient additional shares of Common Stock could be authorized
for issuance upon exercise in full of the Rights, then, if the Board of
Directors of the Company so elects, 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
(such thirty (30) day period, as it may be extended, is herein called the “Substitution
Period”).  To the extent that the
Company determines that some action need be taken pursuant to the second and/or
third sentence of this Section 11(a)(iii), the Company (x) shall
provide, subject to Section 11(a)(ii) hereof and the last
sentence of this Section 11(a)(iii) hereof, that such action
shall apply uniformly to all outstanding Rights and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution Period in
order to seek any authorization of additional shares and/or to decide the 

 

15

 

appropriate form of distribution to be made
pursuant to such second sentence and to determine the value thereof.  In the event of any such suspension, the
Company shall issue a public announcement stating that the exercisability of
the Rights has been temporarily suspended, as well as a public announcement at
such time as the suspension is no longer in effect.  For purposes of this Section 11(a)(iii),
the value of the shares of Common Stock shall be the current per share market
price (as determined pursuant to Section 11(d)(i)) on the Section 11(a)(ii) Trigger
Date and the per share or fractional value of any “Common Stock Equivalent”
shall be deemed to equal the current per share market price of the Common
Stock.  The Board of Directors of the
Company may, but shall not be required to, establish procedures to allocate the
right to receive shares of Common Stock upon the exercise of the Rights among
holders of Rights pursuant to this Section 11(a)(iii).

 

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

 

16

 

(c)           In case the Company
shall fix a record date for the making of a distribution to all holders of the
Preferred Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing or surviving corporation)
of evidences of indebtedness or assets (other than a regular quarterly cash
dividend or a dividend payable in Preferred Stock) or subscription rights or
warrants (excluding those referred to in Section 11(b) hereof),
the Purchase Price to be in effect after such record date shall be determined
by multiplying the Purchase Price in effect immediately prior to such record
date by a fraction, the numerator of which shall be the then current per share
market price of the Preferred Stock (determined pursuant to Section 11(d) hereof)
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 assets or
evidences of indebtedness so to be distributed or of such subscription rights
or warrants applicable to one share of Preferred Stock, and the denominator of
which shall be such current per share market price (determined pursuant to Section 11(d) hereof)
of the Preferred Stock; provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company to be issued
upon exercise of one Right.  Such
adjustments shall be made successively whenever such a record date is fixed;
and in the event that such distribution is not so made, the Purchase Price
shall again be adjusted to be the Purchase Price which would then be in effect
if such record date had not been fixed.

 

(d)(i)       Except as otherwise
provided herein, for the purpose of any computation hereunder, the “current
per share market price” of any security (a “Security” for the
purpose of this Section 11(d)(i)) on any date shall be deemed to be
the average of the daily closing prices per share of such Security for the 30
consecutive Trading Days (as such term is hereinafter defined) immediately
prior to such date; provided, however, that in the event that the
current per share market price of the Security is determined during a period
following the announcement by the issuer of such Security of (A) a
dividend or distribution on such Security payable in shares of such Security or
securities convertible into such shares, or (B) any subdivision, combination
or reclassification of such Security, and prior to the expiration of 30 Trading
Days after the ex-dividend date for such dividend or distribution, or the
record date for such subdivision, combination or reclassification, then, and in
each such case, the current per share market price shall be appropriately
adjusted to reflect the current market price per share equivalent of such
Security.  The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported by the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices on NASDAQ or in the over-the-counter market, as
reported by

 

17

 

NASDAQ or such other system then in use, or, if on any such date the
Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Security selected by the Board of Directors of the Company.  The term “Trading Day” shall mean a
day on which the principal national securities exchange on which the Security
is listed or admitted to trading is open for the transaction of business or, if
the Security is not listed or admitted to trading on any national securities
exchange, a Business Day.

 

(ii)           For the purpose of
any computation hereunder, if the Preferred Stock is publicly traded, the “current
per share market price” of the Preferred Stock shall be determined in
accordance with the method set forth in Section 11(d)(i).  If the Preferred Stock is not publicly traded
but the Common Stock is publicly traded, the “current per share market price”
of the Preferred Stock shall be conclusively deemed to be the current per share
market price of the Common Stock as determined pursuant to Section 11(d)(i) multiplied
by the then applicable Adjustment Number (as defined in and determined in
accordance with the Certificate of Designation for the Preferred Stock).  If neither the Common Stock nor the Preferred
Stock is publicly 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.

 

(e)           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, however,
that any adjustments which by reason of this Section 11(e) are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment.  All calculations
under this Section 11 shall be made to the nearest cent or to the
nearest one hundred-thousandth of a share of Preferred Stock or one-hundredth
of a share of Common Stock or other share or security as the case may be.  Notwithstanding the first sentence of this Section 11(e),
any adjustment required by this Section 11 shall be made no later
than the earlier of (i) three years from the date of the transaction which
requires such adjustment or (ii) the Expiration Date.

 

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

 

(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 one-thousandths of a share of Preferred 

 

18

 

Stock purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.

 

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

 

(i)            The Company may
elect on or after the date of any adjustment of the Purchase Price pursuant to Sections
11(b) or 11(c) hereof to adjust the number of Rights, in
substitution for any adjustment in the number of one one-thousandths of a share
of Preferred Stock purchasable upon the exercise of a Right.  Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-thousandths of a share of Preferred Stock for which a Right was exercisable
immediately prior to such adjustment. 
Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest
one-hundredth) obtained by dividing the Purchase Price in effect immediately
prior to adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price.  The Company shall make a public announcement
of its election to adjust the number of Rights, indicating the record date for
the adjustment, and, if known at the time, the amount of the adjustment to be
made.  Such record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the
Right Certificates have been issued, shall be at least 10 days later than the
date of the public announcement.  If
Right Certificates have been issued, upon each adjustment of the number of
Rights pursuant to this Section 11(i), the Company may, as promptly
as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to Section 14
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
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment.  Right Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein and shall be registered in the names of the holders of record of
Right 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 one one-thousandths
of a share of Preferred Stock issuable upon the exercise of a Right, the Right
Certificates theretofore and thereafter issued may continue to express the 

 

19

 

Purchase Price and the number of one one-thousandths of a share of
Preferred Stock which were expressed in the initial Right Certificates issued
hereunder.

 

(k)           Before taking any
action that would cause an adjustment reducing the Purchase Price below the
then par value, if any, of the fraction of Preferred Stock or other shares of
capital stock issuable upon exercise of a Right, the Company shall take any
corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Preferred Stock or other such shares 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 issuing to the
holder of any Right exercised after such record date the Preferred Stock and
other capital stock or securities of the Company, if any, issuable upon such
exercise over and above the Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Purchase Price in effect prior to such adjustment; provided, however,
that the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder’s right to receive such additional shares
upon the occurrence of the event requiring such adjustment.

 

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

 

(n)           Anything in this
Agreement to the contrary notwithstanding, in the event that at any time after
the date of this Agreement and prior to the Distribution Date, the Company
shall (i) declare and pay any dividend on the Common Stock payable in Common
Stock or (ii) effect a subdivision, combination or consolidation of the
Common Stock (by reclassification or otherwise than by payment of a dividend
payable in Common Stock) into a greater or lesser number of shares of Common
Stock, then, in each such case, the number of Rights associated with each share
of Common Stock then outstanding, or issued or delivered thereafter, shall be
proportionately adjusted so that the number of Rights thereafter associated
with each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator of
which shall be the total number of shares of Common Stock outstanding immediately
prior

 

20

 

to the occurrence of the event and the denominator of which shall be
the total number of shares of Common Stock outstanding immediately following
the occurrence of such event.

 

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

 

Section 12.  Certificate
of Adjusted Purchase Price or Number of Shares.  Whenever an adjustment is made as provided in
Section 11 or 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 Common Stock and the Preferred Stock a copy of such
certificate and (c) mail a brief summary thereof to each holder of a Right
Certificate in accordance with Section 25 hereof (if so required
under Section 25 hereof). 
The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained and shall not be deemed to
have knowledge of any such adjustment unless and until it shall have received
such certificate.

 

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

 

(a)           In the event,
directly or indirectly, at any time after the Flip-In Event (i) the
Company shall consolidate with or shall merge into any other Person, (ii) any
Person shall merge with and into the Company and the Company shall be the continuing
or surviving corporation of such merger and, in connection with such merger,
all or part of the Common Stock shall be changed into or exchanged for stock or
other securities of any other Person (or of the Company) or cash or any other
property, 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 (other than the Company or one or more wholly-owned Subsidiaries
of the Company), then upon the first occurrence of such event, proper provision
shall be made so that: (A) each holder of a Right (other than Rights which
have become void pursuant to Section 11(a)(ii) hereof) shall
thereafter have the right to receive, upon the exercise thereof at the Purchase
Price (as theretofore adjusted in accordance with Section 11(a)(ii) hereof),
in accordance with the terms of this Agreement and in lieu of shares of
Preferred Stock or Common Stock of the Company, such number of validly
authorized and issued, fully paid, non-assessable and freely tradeable shares
of Common Stock of the Principal Party (as such term is hereinafter defined),
not subject to any liens, encumbrances, rights of first refusal or other
adverse claims, as shall equal the result obtained by dividing the Purchase
Price (as theretofore adjusted in accordance with Section 11(a)(ii) hereof)
by 50% of the current per share market price of the Common Stock of such
Principal Party (determined pursuant to Section 11(d) hereof)
on the date of consummation of such consolidation,

 

21

 

merger, sale or transfer; provided, however, that the
Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii)
hereof) and the number of shares of Common Stock of such Principal Party so
receivable upon exercise of a Right shall be subject to further adjustment as
appropriate in accordance with Section 11(f) hereof to reflect
any events occurring in respect of the Common Stock of such Principal Party
after the occurrence of such consolidation, merger, sale or transfer; (B) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such consolidation, merger, sale or transfer, all the obligations and duties of
the Company pursuant to this Agreement; (C) the term “Company”
shall thereafter be deemed to refer to such Principal Party; and (D) such Principal
Party shall take such steps (including, but not limited to, the reservation of
a sufficient number of its shares of Common Stock in accordance with Section 9
hereof) in connection with such 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 the shares of its Common Stock
thereafter deliverable upon the exercise of the Rights; provided that, upon the
subsequent occurrence of any consolidation, merger, sale or transfer of assets
or other extraordinary transaction in respect of such Principal Party, each
holder of a Right shall thereupon be entitled to receive, upon exercise of a
Right and payment of the Purchase Price as provided in this Section 13(a),
such cash, shares, rights, warrants and other property which such holder would
have been entitled to receive had such holder, at the time of such transaction,
owned the Common Stock of the Principal Party receivable upon the exercise of a
Right pursuant to this Section 13(a), and such Principal Party
shall take such steps (including, but not limited to, reservation of shares of
stock) as may be necessary to permit the subsequent exercise of the Rights in
accordance with the terms hereof for such cash, shares, rights, warrants and
other property.

 

(b)           “Principal Party”
shall mean:

 

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

 

(ii)          in the case of any
transaction described in (iii) of the first sentence of Section 13(a) hereof,
the Person that is the party receiving the greatest portion of the assets or
earning power transferred pursuant to such transaction or transactions, or, if
each Person that is a party to such transaction or transactions receives the
same portion of the assets or earning power so transferred or if the Person
receiving the greatest portion of 

 

22

 

the assets or earning power cannot be determined, whichever of such
Persons is the issuer of Common Stock having the greatest aggregate market
value of shares outstanding;

 

provided, however, that in any such case described in
the foregoing clause (b)(i) or (b)(ii), if the Common Stock of such Person
is not at such time or has not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, then (1) if
such Person is a direct or indirect Subsidiary of another Person the Common
Stock of which is and has been so registered, the term “Principal Party”
shall refer to such other Person, or (2) if such Person is a Subsidiary,
directly or indirectly, of more than one Person, the Common Stock of all of
which is and has been so registered, the term “Principal Party” shall
refer to whichever of such Persons is the issuer of Common Stock having the
greatest aggregate market value of shares outstanding, or (3) if such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly, by the same Person,
the rules set forth in clauses (1) and (2) above shall apply to
each of the owners having an interest in the venture as if the Person owned by
the joint venture was a Subsidiary of both or all of such joint venturers, and
the Principal Party in each such case shall bear the obligations set forth in
this Section 13 in the same ratio as its interest in such Person
bears to the total of such interests.

 

(c)           The Company shall
not consummate any consolidation, merger, sale or transfer referred to in Section 13(a) hereof
unless prior thereto the Company and the Principal Party involved therein shall
have executed and delivered to the Rights Agent an agreement confirming that
the requirements of Sections 13(a) and (b) hereof shall
promptly be performed in accordance with their terms and that such
consolidation, merger, sale or transfer of assets shall not result in a default
by the Principal Party under this Agreement as the same shall have been assumed
by the Principal Party pursuant to Sections 13(a) and (b) hereof
and providing that, as soon as practicable after executing such agreement
pursuant to this Section 13, the Principal Party will:

 

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

 

(ii)          use its best
efforts, if the Common Stock of the Principal Party shall be listed or admitted
to trading on the New York Stock Exchange or on another national securities
exchange, to list or admit to trading (or continue the listing of) the Rights
and the securities purchasable upon exercise of the Rights on the New York
Stock Exchange or such securities exchange, or, if the Common Stock of the
Principal Party shall not be listed or admitted to trading on the New York
Stock Exchange or a national securities exchange, to cause the Rights and the
securities receivable upon exercise of the Rights to be authorized for
quotation on NASDAQ or on such other system then in use;

 

23

 

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

 

(iv)         obtain waivers of any
rights of first refusal or preemptive rights in respect of the Common Stock of
the Principal Party subject to purchase upon exercise of outstanding Rights.

 

(d)           In case the
Principal Party has a provision in any of its authorized securities or in its
certificate of incorporation or by-laws or other instrument governing its
affairs, which provision would have the effect of (i) causing such
Principal Party to issue (other than to holders of Rights pursuant to this Section 13),
in connection with, or as a consequence of, the consummation of a transaction
referred to in this Section 13, shares of Common Stock or Common
Stock Equivalents of such Principal Party at less than the then current market
price per share thereof (determined pursuant to Section 11(d) hereof)
or securities exercisable for, or convertible into, Common Stock or Common
Stock Equivalents of such Principal Party at less than such then current market
price, or (ii) providing for any special payment, tax or similar provision
in connection with the issuance of the Common Stock of such Principal Party
pursuant to the provisions of Section 13, then, in such event, the
Company hereby agrees with each holder of Rights that it shall not consummate
any such transaction unless prior thereto the Company and such Principal Party
shall have executed and delivered to the Rights Agent a supplemental agreement
providing that the provision in question of such Principal Party shall have
been canceled, waived or amended, or that the authorized securities shall be
redeemed, so that the applicable provision will have no effect in connection
with, or as a consequence of, the consummation of the proposed transaction.

 

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

 

Section 14.  Fractional
Rights and Fractional Shares.

 

(a)           The Company shall
not be required to issue fractions of Rights (except prior to the Distribution
Date in accordance with Section 11(n) hereof) or to distribute

 

24

 

Right Certificates which evidence fractional Rights.  In lieu of such fractional Rights, there
shall be paid to the registered holders of the Right Certificates with regard
to which such fractional Rights would otherwise be issuable, an amount in cash
equal to the same fraction of the current market value of a whole Right.  For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable.  The closing price for any day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock Exchange
or, if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading or, if the
Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices on NASDAQ or in the over-the-counter market, as
reported by NASDAQ or such other system then in use or, if on any such date the
Rights are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Rights selected by the Board of Directors of the Company.  If on any such date no such market maker is
making a market in the Rights, the fair value of the Rights on such date as
determined in good faith by the Board of Directors of the Company shall be
used.

 

(b)           The Company shall
not be required to issue fractions of Preferred Stock (other than fractions
which are integral multiples of one one-thousandth of a share of Preferred
Stock) or to distribute certificates which evidence fractional shares of Preferred
Stock (other than fractions which are integral multiples of one one-thousandth
of a share of Preferred Stock) upon the exercise or exchange of Rights.  Interests in fractions of Preferred Stock in
integral multiples of one one-thousandth of a share of Preferred Stock may, at
the election of the Company, be evidenced by depositary receipts, pursuant to
an appropriate agreement between the Company and a depositary selected by it; provided,
that such agreement shall provide that the holders of such depositary receipts
shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the Preferred Stock represented by such
depositary receipts.  In lieu of
fractional shares of Preferred Stock that are not integral multiples of one
one-thousandth of a share of Preferred Stock, the Company shall pay to the
registered holders of Right Certificates at the time such Rights are exercised
or exchanged as herein provided an amount in cash equal to the same fraction of
the current market value of a whole share of Preferred Stock (as determined in
accordance with Section 14(a) hereof) for the Trading Day
immediately prior to the date of such exercise or exchange.

 

(c)           The Company shall
not be required to issue fractions of shares of Common Stock or to distribute
certificates which evidence fractional shares of Common Stock upon the exercise
or exchange of Rights.  In lieu of such
fractional shares of Common Stock, the Company shall pay to the registered
holders of the Right Certificates

 

25

 

with regard to which such fractional shares of Common Stock would
otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole share of Common Stock (as determined in
accordance with Section 14(a) hereof) for the Trading Day
immediately prior to the date of such exercise or exchange.

 

(d)           The holder of a
Right by the acceptance of the Right expressly waives his right to receive any
fractional Rights or any fractional shares upon exercise or exchange of a Right
(except as provided above).

 

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 Right Certificates (and, prior to the Distribution
Date, the registered holders of the Common Stock); and any registered holder of
any Right Certificate (or, prior to the Distribution Date, of the Common
Stock), without the consent of the Rights Agent or of the holder of any other
Right Certificate (or, prior to the Distribution Date, of the Common Stock), on
his own behalf and for his own benefit, may enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, his right to exercise the Rights evidenced by such
Right Certificate (or, prior to the Distribution Date, such Common Stock) in
the manner provided therein 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
Right Holders.  Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:

 

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

 

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

 

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

 

26

 

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

 

Section 18.  Concerning
the Rights Agent.

 

(a)           The Company agrees
to pay to the Rights Agent reasonable compensation for all services rendered by
it hereunder and, from time to time, on demand of the Rights Agent, its
reasonable expenses and counsel fees and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of its duties hereunder.  The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or
omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the costs and expenses of defending
against any claim of liability arising therefrom, directly or indirectly.  Foregoing indemnities in this paragraph should
survive the resignation or substitution of the Rights Agent or 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 Right Certificate or certificate for the
Preferred Stock or Common Stock or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons, or
otherwise upon the advice of counsel as set forth in Section 20
hereof.

 

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

 

(a)           Any corporation into
which the Rights Agent or any successor Rights Agent may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Rights Agent or any successor Rights Agent shall be
a party, or any corporation succeeding to the stock transfer or corporate

 

27

 

trust powers 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.  In case at the time such
successor Rights Agent shall succeed to the agency created by this Agreement,
any of the Right Certificates shall have been countersigned but not delivered,
any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and in case at that time any of the Right Certificates shall not have been countersigned,
any successor Rights Agent may countersign such Right Certificates either in
the name of the predecessor Rights Agent or in the name of the successor Rights
Agent; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.

 

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

 

Section 20.  Duties of
Rights Agent.  The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:

 

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

 

(b)           Whenever in the
performance of its duties under this Agreement the Rights Agent shall deem it
necessary or desirable that any fact or matter be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed)
may be deemed to be conclusively proved and established by a certificate signed
by the President and the Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.

 

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

 

28

 

(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 Right 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 Right
Certificate (except its countersignature thereof); nor shall it be responsible
for any breach by the Company of any covenant or condition contained in this
Agreement or in any Right Certificate; nor shall it be responsible for any
change in the exercisability of the Rights (including the Rights becoming void
pursuant to Section 11(a)(ii) hereof) or any adjustment in the
terms of the Rights provided for in Sections 3, 11, 13, 23
and 24, or the ascertaining of the existence of facts that would require
any such change or adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after receipt of a certificate furnished
pursuant to Section 12, describing such change or adjustment); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any shares of Preferred Stock or
other securities to be issued pursuant to this Agreement or any Right
Certificate or as to whether any shares of Preferred Stock or other securities
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 person reasonably believed by the
Rights Agent to be one of the President or the 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 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
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.

 

29

 

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

 

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

 

(j)            If, with respect to
any Rights Certificate surrendered to the Rights Agent for exercise or
transfer, the certificate contained in the form of assignment or the form of
election to purchase set forth on the reverse thereof, as the case may be, has
not been completed to certify the holder is not an Acquiring Person (or an
Affiliate or Associate thereof) or a transferee 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 30 days’ notice in writing mailed to the Company and to
each transfer agent of the Common Stock or Preferred Stock by registered or
certified mail, and, following the Distribution Date, to the holders of the
Right Certificates by first-class mail. 
The Company may remove the Rights Agent or any successor Rights Agent
upon 30 days’ notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Stock or
Preferred Stock by registered or certified mail, and, following the
Distribution Date, to the holders of the Right Certificates by first-class
mail.  If the Rights Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. 
If the Company shall fail to make such appointment within a period of 30
days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Right Certificate (who shall, with such
notice, submit his Right Certificate for inspection by the Company), then the
registered holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent.  Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation organized and doing
business under the laws of the United States or the laws of any state of the
United States or the District of Columbia, in good standing, having an office
in the State of South Dakota, State of Illinois or the State of New York, which
is authorized under such laws to exercise 

 

30

 

corporate trust or stock transfer powers and is subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million.  After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and
transfer to the successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose.  Not
later than the effective date of any such appointment the Company shall file
notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Common Stock or Preferred Stock, and, following the Distribution
Date, mail a notice thereof in writing to the registered holders of the Right
Certificates.  Failure to give any notice
provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may
be.

 

Section 22.  Issuance of
New Right Certificates.  Notwithstanding
any of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such forms as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement.  In addition, in connection with the issuance
or sale of Common Stock following the Distribution Date and prior to the
Expiration Date, the Company may with respect to shares of Common Stock so
issued or sold pursuant to (i) the exercise of stock options, (ii) under
any employee plan or arrangement, (iii) upon the exercise, conversion or
exchange of securities, notes or debentures issued by the Company or (iv) a
contractual obligation of the Company, in each case existing prior to the
Distribution Date, issue Right Certificates representing the appropriate number
of Rights in connection with such issuance or sale.

 

Section 23.  Redemption.

 

(a)           The Board of
Directors of the Company may, at any time prior to the Flip-In Event, redeem
all but not less than all the then outstanding Rights at a redemption price of
$.01 per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring in respect of the Common Stock after
the date hereof (the redemption price being hereinafter referred to as the “Redemption
Price”).  The redemption of the
Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors of the Company in its sole discretion may
establish.  The Redemption Price shall be
payable, at the option of the Company, in cash, shares of Common Stock, or such
other form of consideration as the Board of Directors of the Company shall
determine.

 

(b)           Immediately upon the
action of the Board of Directors of the Company ordering the redemption of the
Rights pursuant to paragraph (a) of this Section 23 (or at
such later time as the Board of Directors of the Company may establish for the 

 

31

 

effectiveness of such redemption), and without any further action and
without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price.  The Company shall
promptly give public notice of any such redemption; provided, however,
that the failure to give, or any defect in, any such notice shall not affect
the validity of such redemption.  Within
10 days after such action of the Board of Directors of the Company ordering the
redemption of the Rights (or such later time as the Board of Directors of the
Company may establish for the effectiveness of such redemption), the Company
shall mail a notice of redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Stock.  Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. 
Each such notice of redemption shall state the method by which the
payment of the Redemption Price will be made.

 

Section 24.  Exchange.

 

(a)           The Board of
Directors of the Company may, at its option, at any time after the Flip-In
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 11(a)(ii) hereof)
for Common Stock at an exchange ratio of one share of Common Stock per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring in respect of the Common Stock after the date hereof
(such amount per Right being hereinafter referred to as the “Exchange Ratio”).  Notwithstanding the foregoing, the Board of
Directors of the Company shall not be empowered to effect such exchange at any
time after an Acquiring Person shall have become the Beneficial Owner of shares
of Common Stock aggregating 50% or more of the shares of Common Stock then
outstanding.  From and after the
occurrence of an event specified in Section 13(a) hereof, any
Rights that theretofore have not been exchanged pursuant to this Section 24(a) shall
thereafter be exercisable only in accordance with Section 13 and
may not be exchanged pursuant to this Section 24(a).  The exchange of the Rights by the Board of
Directors of the Company may be made effective at such time, on such basis and
with such conditions as the Board of Directors of the Company in its sole
discretion may establish.

 

(b)           Immediately upon the
effectiveness of the action of the Board of Directors of the Company ordering
the exchange of any Rights pursuant to paragraph (a) of this Section 24
and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of shares of Common Stock equal to the
number of such Rights held by such holder multiplied by the Exchange
Ratio.  The Company shall promptly give
public notice of any such exchange; provided, however, that the
failure to give, or any defect in, such notice shall not affect the validity of
such exchange.  The Company shall
promptly mail a notice of any such exchange to all of the holders of the Rights
so exchanged 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,

 

32

 

whether or not the holder receives the notice.  Each such notice of exchange will state the
method by which the exchange of the shares of Common Stock for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged.  Any partial exchange
shall be effected pro rata based on the number of Rights (other than Rights
which have become void pursuant to the provisions of Section 11(a)(ii) hereof)
held by each holder of Rights.

 

(c)           The Company may at
its option substitute, and, in the event that there shall not be sufficient
shares of Common Stock issued but not outstanding or authorized but unissued to
permit an exchange of Rights for Common Stock as contemplated in accordance
with this Section 24, the Company shall substitute to the extent of
such insufficiency, for each share of Common Stock that would otherwise be
issuable upon exchange of a Right, a number of shares of Preferred Stock or
fraction thereof (or Equivalent Preferred Shares, as such term is defined in Section 11(b))
such that the current per share market price (determined pursuant to Section 11(d) hereof)
of one share of Preferred Stock (or Equivalent Preferred Share) multiplied by
such number or fraction is equal to the current per share market price of one
share of Common Stock (determined pursuant to Section 11(d) hereof)
as of the date of such exchange.

 

Section 25.  Notice of
Certain Events.

 

(a)           In case the Company
shall at any time after the earlier of the Distribution Date or the Stock
Acquisition Date propose (i) to pay any dividend payable in stock of any
class to the holders of its Preferred Stock or to make any other distribution
to the holders of its Preferred Stock (other than a regular quarterly cash
dividend), (ii) to offer to the holders of its Preferred Stock rights or
warrants to subscribe for or to purchase any additional shares of Preferred
Stock or shares of stock of any class or any other securities, rights or
options, (iii) to effect any reclassification of its Preferred Stock
(other than a reclassification involving only the subdivision or combination of
outstanding Preferred Stock), (iv) to effect the liquidation, dissolution
or winding up of the Company, or (v) to pay any dividend on the Common
Stock payable in Common Stock or to effect a subdivision, combination or
consolidation of the Common Stock (by reclassification or otherwise than by
payment of dividends in Common Stock), then, in each such case, the Company
shall give to each holder of a Right Certificate, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record date
for the purposes of such dividend or distribution or offering of rights or
warrants, or the date on which such liquidation, dissolution, winding up,
reclassification, subdivision, combination or consolidation is to take place
and the date of participation therein by the holders of the Common Stock and/or
Preferred Stock, if any such date is to be fixed, and such notice shall be so
given in the case of any action covered by clause (i) or (ii) above
at least 10 days prior to the record date for determining holders of the
Preferred Stock for purposes of such action, and in the case of any such other
action, at least 10 days prior to the date of the taking of such proposed
action or the date of participation therein by the holders of the Common Stock
and/or Preferred Stock, whichever shall be the earlier.

 

33

 

(b)                            In
case any event described in Section 11(a)(ii) or Section 13
shall occur then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate (or if occurring prior to the Distribution
Date, the holders of the Common Stock) in accordance with Section 26
hereof, a notice of the occurrence of such event, which notice shall describe
such event and the consequences of such event to holders of Rights under Section 11(a)(ii) and
Section 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 Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:

 

SONUS NETWORKS, INC.

7 Technology Park Drive 

Westford, Massachusetts 01886

Attention: President and
Chief Executive Officer

 

With a copy to:

 

Manatt, Phelps &
Phillips LLP

11355 W. Olympic Boulevard

Los Angeles, California 90064

Attention:  Mark Kelson

 

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 Right Certificate to or on the Rights Agent
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Company)
as follows:

 

American Stock Transfer & Trust
Company, LLC

59 Maiden Lane

New York, New York 10007

Attention: Client Administration

 

Notices or demands authorized by this
Agreement to be given or made by the Company or the Rights Agent to the holder
of any Right Certificate 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.  Except as provided in the penultimate
sentence of this Section 27, for so long as the Rights are then
redeemable, the Company may in its sole and absolute discretion, and the Rights
Agent shall if the Company so directs, supplement or amend any provision of
this Agreement in any respect without the approval of any holders of the
Rights.  At any time when the Rights are
no longer redeemable, except as provided in the penultimate sentence of this Section 27,
the 

 

34

 

Company may, and the Rights Agent shall, if
the Company so directs, supplement or amend this Agreement without the approval
of any holders of Rights, provided that no such supplement or amendment
may (a) adversely affect the interests of the holders of Rights as such
(other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person), (b) cause this Agreement again to become amendable other than in
accordance with this sentence or (c) cause the Rights again to become
redeemable.  Notwithstanding anything
contained in this Agreement to the contrary, no supplement or amendment shall
be made which changes the Redemption Price. 
Upon the delivery of a certificate from an appropriate officer of the
Company which states that the supplement or amendment is in compliance with the
terms of this Section 27, the Rights Agent shall execute such supplement
or amendment, provided that any supplement or amendment that does not
amend Sections 18, 19, 20 or 21 hereof or this Section 27
in a manner adverse to the Rights Agent shall become effective immediately upon
execution by the Company, whether or not also executed by the Rights Agent.

 

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

 

Section 29.  Benefits of this Agreement.  Nothing in this Agreement shall be construed
to give to any Person other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Stock) any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Stock).

 

Section 30.  Determinations and Actions by the Board of
Directors.  The Board of Directors of
the Company shall have the exclusive power and authority to administer this
Agreement and to exercise the rights and powers specifically granted to the
Board of Directors of the Company or to the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable
for the administration of this Agreement (including, without limitation, a
determination to redeem or not redeem the Rights or to amend or not amend this
Agreement).  All such actions,
calculations, interpretations and determinations that are done or made by the
Board of Directors of the Company in good faith shall be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights, as such,
and all other parties.

 

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.

 

35

 

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

 

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

 

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

 

36

 

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

 

	
   

  	
  SONUS NETWORKS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles J. Gray

  
	
   

  	
  Name: Charles J. Gray

  
	
   

  	
  Title:  Vice President and General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  AMERICAN STOCK TRANSFER & TRUST COMPANY,
  

  
	
   

  	
  LLC

  
	
   

  	
  solely as Rights Agent herein under and not
  within its

  
	
   

  	
    individual
  capacity,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Herbert J. Lemmer

  
	
   

  	
  Name: HERBERT J. LEMMER

  
	
   

  	
  Title:  VICE PRESIDENT

  
						

 

Rights Agreement, Signature Page

 

 

Exhibit A

 

FORM OF

CERTIFICATE OF DESIGNATION

 

of

 

SERIES A JUNIOR PARTICIPATING
PREFERRED STOCK

 

of

 

SONUS NETWORKS, INC.

 

Pursuant to Section 151 of the General
Corporation Law

of the State of Delaware

 

Sonus Networks, Inc., a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the “Corporation”), in accordance with the provisions of Section 103
thereof, DOES HEREBY CERTIFY:

 

That pursuant to the authority vested in the
Board of Directors of the Corporation (the “Board of Directors”) in
accordance with the provisions of the Certificate of Incorporation of the said
Corporation, the said Board of Directors on June 26, 2008 adopted the
following resolution creating a series of 3,900,000 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 this Corporation in accordance with the
provisions of the Certificate of Incorporation, a series of Preferred Stock,
par value $.01 per share, of the Corporation be and hereby is created, and that
the designation and number of shares thereof and the voting and other powers,
preferences and relative, participating, optional or other rights of the shares
of such series and the qualifications, limitations and restrictions thereof are
as follows:

 

Series A
Junior Participating Preferred Stock

 

1.                                       Designation and Amount.  There shall be a series of Preferred Stock
that shall be designated as “Series A Junior Participating Preferred
Stock,” and the number of shares constituting such series shall be
3,900,000.  Such number of shares may be
increased or decreased by resolution of the Board of Directors; provided,
however, that no decrease shall reduce the number of shares of Series A
Junior Participating  Preferred Stock to
less than the number of shares then issued and outstanding plus the number of
shares issuable upon exercise of outstanding rights, options or warrants or
upon conversion of outstanding securities issued by the Corporation.

 

A-1

 

2.                                       Dividends and Distribution.

 

(A)                              Subject to the prior and
superior rights of the holders of any shares of any class or series of stock of
the Corporation ranking prior and superior to the shares of Series A
Junior Participating Preferred Stock with respect to dividends, the holders of
shares of Series A Junior Participating Preferred Stock, in preference to
the holders of shares of any class or series of stock of the Corporation
ranking junior to the Series A Junior Participating Preferred Stock in
respect thereof, 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 30th 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 the greater of (a) $10.00 or (b) the
Adjustment Number (as defined below) times the aggregate per share amount of all
cash dividends, and the Adjustment Number 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, par value $.001 per share, 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.  The “Adjustment
Number” shall initially be 1,000.  In
the event the Corporation shall at any time after June 26, 2008 (i) declare
and pay any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the Adjustment Number
in effect immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.

 

(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 

 

A-2

 

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 60 days
prior to the date fixed for the payment thereof.

 

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

 

(A)                              Each share of Series A
Junior Participating Preferred Stock shall entitle the holder thereof to a
number of votes equal to the Adjustment Number on all matters submitted to a
vote of the stockholders of the Corporation.

 

(B)                                Except as required by
law, by Section 3(C) and by Section 10 hereof,
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.

 

(C)                                If, at the time of any
annual meeting of stockholders for the election of directors, the equivalent of
six quarterly dividends (whether or not consecutive) payable on any share or
shares of Series A Junior Participating Preferred Stock are in default,
the number of directors constituting the Board of Directors of the Corporation
shall be increased by two.  In addition
to voting together with the holders of Common Stock for the election of other
directors of the Corporation, the holders of record of the Series A Junior
Participating Preferred Stock, voting separately as a class to the exclusion of
the holders of Common Stock, shall be entitled at said meeting of stockholders
(and at each subsequent annual meeting of stockholders), unless all dividends
in arrears on the Series A Junior Participating Preferred Stock have been
paid or declared and set apart for payment prior thereto, to vote for the
election of two directors of the Corporation, the holders of any Series A
Junior Participating Preferred Stock being entitled to cast a number of votes
per share of Series A Junior Participating Preferred Stock as is specified
in paragraph (A) of this Section 3.  Each
such additional director shall not be a member of Class I, Class II
or Class III of the Board of Directors of the Corporation, but shall serve
until the next annual meeting of stockholders for the election of directors, or
until his successor shall be elected and shall qualify, or until his right to
hold such office terminates pursuant to the provisions of this Section 3(C).  Until the default in payments of all
dividends which permitted the election of said directors shall cease to exist,
any director who shall have been so elected pursuant to the provisions of this Section 3(C) may
be removed at any time, without cause, only by the affirmative vote of the
holders of the 

 

A-3

 

shares of Series A Junior Participating
Preferred Stock at the time entitled to cast a majority of the votes entitled
to be cast for the election of any such director at a special meeting of such
holders called for that purpose, and any vacancy thereby created may be filled
by the vote of such holders.  If and when
such default shall cease to exist, the holders of the Series A Junior
Participating Preferred Stock shall be divested of the foregoing special voting
rights, subject to revesting in the event of each and every subsequent like
default in payments of dividends.  Upon
the termination of the foregoing special voting rights, the terms of office of
all persons who may have been elected directors pursuant to said special voting
rights shall forthwith terminate, and the number of directors constituting the
Board of Directors shall be reduced by two. 
The voting rights granted by this Section 3(C) shall be
in addition to any other voting rights granted to the holders of the Series A
Junior Participating Preferred Stock in this Section 3.

 

4.                                       Certain Restrictions.

 

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

 

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

 

(iii)                               purchase or otherwise
acquire for consideration any shares of Series A Junior Participating
Preferred Stock, or any shares of stock ranking on a parity with the Series A
Junior Participating Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of Series A Junior Participating Preferred
Stock, or to such holders and holders of any such shares ranking on a parity
therewith, 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.

 

(B)                                The Corporation shall
not permit any subsidiary of the Corporation to purchase or otherwise acquire
for consideration any shares of stock of the 

 

A-4

 

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.

 

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 promptly after the acquisition thereof.  All such shares shall upon their retirement
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 any conditions and
restrictions on issuance set forth herein.

 

6.                                       Liquidation, Dissolution or Winding Up. (A) Upon
any liquidation, dissolution or winding up of the Corporation, voluntary or
otherwise, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless,
prior thereto, the holders of shares of Series A Junior Participating
Preferred Stock shall have received an amount per share (the “Series A
Liquidation Preference”) equal to the greater of (i) $100.00  plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment, or
(ii) the Adjustment Number times the per share amount of all cash and
other property to be distributed in respect of the Common Stock upon such
liquidation, dissolution or winding up of the Corporation.

 

(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 classes and series of stock of the Corporation, if any, that rank on a
parity with the Series A Junior Participating Preferred Stock in respect
thereof, then the assets available for such distribution shall be distributed
ratably to the holders of the Series A Junior Participating Preferred
Stock and the holders of such parity shares in proportion to their respective
liquidation preferences.

 

(C)                                Neither the merger or
consolidation of the Corporation into or with another entity nor the merger or
consolidation of any other entity into or with the Corporation shall be deemed
to be a liquidation, dissolution or winding up of the Corporation within the
meaning of this Section 6.

 

7.                                       Consolidation, Merger, Etc.  In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the outstanding 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 each
share of Series A Junior Participating Preferred Stock shall at the same
time be similarly exchanged or changed in an amount per share equal to the
Adjustment Number 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.

 

A-5

 

8.                                       No Redemption. 
Shares of Series A Junior Participating Preferred Stock
shall not be subject to redemption by the Corporation.

 

9.                                       Ranking.  The
Series A Junior Participating Preferred Stock shall rank junior to all
other series of the Preferred Stock as to the payment of dividends and as to
the distribution of assets upon liquidation, dissolution or winding up, unless
the terms of any such series shall provide otherwise, and shall rank senior to
the Common Stock as to such matters.

 

10.                                 Amendment.  At
any time that any shares of Series A Junior Participating Preferred Stock
are outstanding, the Certificate of Incorporation of the Corporation shall not
be amended, by merger, consolidation or otherwise, which would materially alter
or change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds of the outstanding shares of Series A
Junior Participating Preferred Stock, voting separately as a class.

 

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

 

[Remainder of Page Intentionally
Left Blank.]

 

A-6

 

IN WITNESS WHEREOF, the undersigned has
executed this Certificate this 26th day of June, 2008.

 

	
   

  	
  SONUS NETWORKS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: Charles J. Gray

  
	
   

  	
  Title: Vice President and General Counsel

  
				

 

7

 

Exhibit B

 

Form of
Right Certificate

 

Certificate No. R-               

 

NOT EXERCISABLE AFTER JUNE 26, 2011 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS.  THE RIGHTS ARE SUBJECT
TO REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE
RIGHTS AGREEMENT.  UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR
TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN
THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID
AND WILL NO LONGER BE TRANSFERABLE.

 

RIGHT
CERTIFICATE

 

SONUS
NETWORKS, INC.

 

This certifies that
                                                        
or registered assigns, is the registered owner of the number of Rights set
forth above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement, dated as of June 26,
2008, as the same may be amended from time to time (the “Rights Agreement”),
between Sonus Networks, Inc., a Delaware corporation (the “Company”),
and American Stock Transfer & Trust Company, LLC, as Rights Agent (the
“Rights Agent”), to purchase from the Company at any time after the
Distribution Date (as such term is defined in the Rights Agreement) and prior
to 5:00 P.M., New York City time, on June 26, 2011 at the office or
agency of the Rights Agent designated for such purpose, or of its successor as
Rights Agent, one one-thousandth of a fully paid non-assessable share of Series A
Junior Participating Preferred Stock, par value $.01 per share (the “Preferred
Stock”), of the Company at a purchase price of $25.00  per
one one-thousandth of a share of Preferred Stock (the “Purchase Price”),
upon presentation and surrender of this Right Certificate with the Form of
Election to Purchase duly executed.  The
number of Rights evidenced by this Rights Certificate (and the number of one
one-thousandths of a share of Preferred Stock which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are the
number and Purchase Price as of June 26, 2008, based on the Preferred
Stock as constituted at such date.  As
provided in the Rights Agreement, the Purchase Price, the number of one
one-thousandths of a share of Preferred Stock (or other securities or property)
which may be purchased upon the exercise of the 

 

B-1

 

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

 

This Right Certificate is subject to all of the terms, provisions and
conditions of the 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 Right Certificates.  Copies of the Rights Agreement are on file at
the principal executive offices of the Company and the above-mentioned office
or agency of the Rights Agent.  The
Company will mail to the holder of this Right Certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.

 

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

 

Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right or (ii) may be exchanged in whole or in part for
shares of the Company’s Common Stock, par value $0.001 per share, or shares of
Preferred Stock.

 

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

 

No holder of this Right Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise or exchange 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 

 

B-2

 

the Right or Rights evidenced by this Right Certificate shall have been
exercised or exchanged as provided in the Rights Agreement.

 

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

 

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

 

	
   

  	
  SONUS NETWORKS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

ATTEST:

 

 

	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title

  	
   

  

 

Countersigned:

 

AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC

solely as Rights Agent herein under and not within its individual
capacity,

 

 

	
  By

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  

 

B-3

 

Form of
Reverse Side of Right Certificate

 

FORM OF
ASSIGNMENT

 

(To
be executed by the registered holder if such

holder
desires to transfer the Right Certificate)

 

FOR VALUE RECEIVED
                                                    
hereby sells, assigns and transfers unto

                                                                                                                                                                                                                                                                                                                                                                                                                       

(Please
print name and address of transferee)

 

              
Rights represented by this Right Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint

                                                                                    

Attorney, to transfer said Rights on the books of the within-named
Company, with full power of substitution.

 

	
  Dated:

  	
   

  	
   

  

 

	
   

  	
   

  
	
   

  	
  Signature

  

 

Signature Guaranteed:

 

Signatures must be guaranteed by a bank, trust company, broker, dealer
or other eligible institution participating in a recognized signature guarantee
medallion program.

 

	
   

  	
   

  
	
  (To
  be completed)

  

 

The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by, were not acquired by the
undersigned from, and are not being assigned to an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).

 

	
   

  	
   

  
	
   

  	
  Signature

  

 

B-4

 

Form of
Reverse Side of Right Certificate - continued

 

FORM OF
ELECTION TO PURCHASE

 

(To
be executed if holder desires to exercise

Rights
represented by the Rights Certificate)

 

To SONUS NETWORKS, INC.:

 

The undersigned hereby irrevocably elects to exercise
                
Rights represented by this Right Certificate to purchase the shares of
Preferred Stock (or other securities or property) issuable upon the exercise of
such Rights and requests that certificates for such shares of Preferred Stock
(or such other securities) be issued in the name of:

	
                                                                                                                                                 

  
	
  (Please
  print name and address)

  
	
   

  
	
                                                                                                                                               

  

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

 

Please insert social security

or other identifying number

	
                                                                                                                                                 

  
	
  (Please
  print name and address)

  
	
   

  
	
                                                                                                                                               

  
	
  Dated:

  	
   

  	
   

  

 

	
   

  	
   

  
	
   

  	
  Signature

  

 

(Signature
must conform to holder specified on Right Certificate)

 

Signature Guaranteed:

 

Signature must be guaranteed by a bank, trust company, broker, dealer
or other eligible institution participating in a recognized signature guarantee
medallion program.

 

B-5

 

Form of
Reverse Side of Right Certificate - continued

 

	
                                                                                                                                                  

  
	
  (To
  be completed)

  

 

The undersigned certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement).

 

	
   

  	
   

  
	
   

  	
  Signature

  

 

                                                                                                                                                                                                                        

NOTICE

 

The signature in the Form of Assignment or Form of Election
to Purchase, as the case may be, must conform to the name as written upon the
face of this Right Certificate in every particular, without alteration or
enlargement or any change whatsoever.

 

In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, such Assignment or Election to Purchase will not be honored.

 

B-6

 

Exhibit C

 

UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT,
RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING
PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL
BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.

 

SUMMARY
OF RIGHTS TO PURCHASE

SHARES
OF PREFERRED STOCK OF

SONUS
NETWORKS, INC.

 

On June 26, 2008, the Board of Directors of Sonus Networks, Inc.
(the “Company”) declared a dividend of one preferred share purchase
right (a “Right”) for each outstanding share of common stock, par value
$0.001 per share, of the Company (the “Common Stock”).  The dividend is payable on July 7, 2008
(the “Record Date”) to the stockholders of record on that date.  Each Right entitles the registered holder to
purchase from the Company one one-thousandth of a share of Series A Junior
Participating Preferred Stock, par value $0.01 per share, of the Company (the “Preferred
Stock”) at a price of $25.00  per one
one-thousandth of a share of Preferred Stock (the “Purchase Price”),
subject to adjustment.  The description
and terms of the Rights are set forth in a Rights Agreement dated as of June 26,
2008, as the same may be amended from time to time (the “Rights Agreement”),
between the Company and American Stock Transfer & Trust Company, LLC,
as Rights Agent (the “Rights Agent”).

 

Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (with
certain limited exceptions) has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of Common Stock
(which includes for this purpose stock referenced in derivative transactions
and securities)  at any time
after the June 26, 2008 date of adoption of the Agreement, or any such
person or group that owned 15% or more of such securities as of the date of
adoption of the Agreement acquires any additional such securities (an “Acquiring Person”) or (ii) 10
business days (or such later date as may be determined by action of the Board
of Directors of the Company prior to such time as any person or group of
affiliated persons becomes an Acquiring Person) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in a person or group becoming an Acquiring
Person, (the earlier of
(i) and (ii) being called the “Distribution Date”), the Rights
will be evidenced, with respect to any of the Common Stock certificates
outstanding as of the Record Date, by such Common Stock certificate together
with this Summary of Rights.  A person or
group who beneficially owns 15% or more of the outstanding shares of Common Stock
prior to the 

 

C-1

 

adoption of the Rights Agreement will not cause the Rights to become
exercisable upon adoption of the Rights Agreement.  As a result, the Rights will not be triggered
even though Legatum Capital and its affiliates (“Legatum”) have reported
that they beneficially owned approximately 24.8% of the outstanding shares of
Common Stock prior to the adoption of the Rights Agreement based on Legatum’s
public filings.  However, Legatum will
cause the Rights to become exercisable if they, subject to certain limited
exceptions, become the beneficial owner of additional shares of Common Stock or
their beneficial ownership decreases below 15% and subsequently increases to
15% or more.

 

The Rights Agreement provides that, until the Distribution Date (or
earlier expiration of the Rights), the Rights will be transferred with and only
with the Common Stock.  Until the
Distribution Date (or earlier expiration of the Rights), new Common Stock
certificates issued after the Record Date upon transfer or new issuances of
Common Stock will contain a notation incorporating the Rights Agreement by
reference.  Until the Distribution Date
(or earlier expiration of the Rights), the surrender for transfer of any certificates
for shares of Common Stock outstanding as of the Record Date, even without such
notation or a copy of this Summary of Rights, will also constitute the transfer
of the Rights associated with the shares of Common Stock represented by such
certificate.  As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights (“Right
Certificates”) will be mailed to holders of record of the Common Stock as
of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.

 

The Rights are not exercisable until the Distribution Date.  The Rights will expire on June 26, 2011
(the “Final Expiration Date”), unless the Final Expiration Date is
advanced or extended or unless the Rights are earlier redeemed or exchanged by
the Company, in each case as described below.

 

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

 

The number of outstanding Rights is subject to adjustment in the event
of a stock dividend on the Common Stock payable in shares of Common Stock or
subdivisions, consolidations or combinations of the Common Stock occurring, in
any such case, prior to the Distribution Date.

 

C-2

 

Shares of Preferred Stock purchasable upon exercise of the Rights will
not be redeemable.  Each share of
Preferred Stock will be entitled, when, as and if declared, to a minimum
preferential quarterly dividend payment of the greater of (a) $10.00  per share, and (b) an amount equal to 1,000 times the
dividend declared per share of Common Stock. 
In the event of liquidation, dissolution or winding up of the Company,
the holders of the Preferred Stock will be entitled to a minimum preferential
payment of the greater of (a) $100.00 per share (plus any accrued but
unpaid dividends), and (b) an amount equal to 1,000 times the payment made
per share of Common Stock.  Each share of
Preferred Stock will have 1,000 votes, voting together with the Common
Stock.  Finally, in the event of any
merger, consolidation or other transaction in which outstanding shares of
Common Stock are converted or exchanged, each share of Preferred Stock will be
entitled to receive 1,000 times the amount received per share of Common
Stock.  These rights are protected by
customary antidilution provisions.

 

Because of the nature of the Preferred Stock’s dividend, liquidation
and voting rights, the value of the one one-thousandth interest in a share of
Preferred Stock purchasable upon exercise of each Right should approximate the
value of one share of Common Stock.

 

In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become void),
will thereafter have the right to receive upon exercise of a Right that number
of shares of Common Stock having a market value of two times the exercise price
of the Right.

 

In the event that, after a person or group has become an Acquiring
Person, the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are
sold, proper provisions will be made so that each holder of a Right (other than
Rights beneficially owned by an Acquiring Person which will have become void)
will thereafter have the right to receive upon the exercise of a Right that
number of shares of common stock of the person with whom the Company has
engaged in the foregoing transaction (or its parent) that at the time of such
transaction have a market value of two times the exercise price of the Right.

 

At any time after any person or group becomes an Acquiring Person and
prior to the earlier of one of the events described in the previous paragraph
or the acquisition by such Acquiring Person of 50% or more of the outstanding
shares of Common Stock, the Board of Directors of the Company may exchange the
Rights (other than Rights owned by such Acquiring Person which will have become
void), in whole or in part, for shares of Common Stock or Preferred Stock (or a
series of the Company’s preferred stock having equivalent rights, preferences
and privileges), at an exchange ratio 

 

C-3

 

of one share of Common Stock, or a fractional share of Preferred Stock
(or other preferred stock) equivalent in value thereto, per Right.

 

With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price.  No fractional
shares of Preferred Stock or Common Stock will be issued (other than fractions
of Preferred Stock which are integral multiples of one one-thousandth of a
share of Preferred Stock, which may, at the election of the Company, be
evidenced by depositary receipts), and in lieu thereof an adjustment in cash
will be made based on the current market price of the Preferred Stock or the
Common Stock.

 

At any time prior to the time an Acquiring Person becomes such, the
Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the “Redemption Price”) payable, at
the option of the Company, in cash, shares of Common Stock or such other form
of consideration as the Board of Directors of the Company shall determine.  The redemption of the Rights may be made
effective at such time, on such basis and with such conditions as the Board of
Directors of the Company in its sole discretion may establish.  Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.

 

For so long as the Rights are then redeemable, the Company may, except
with respect to the Redemption Price, amend the Rights Agreement in any
manner.  After the Rights are no longer
redeemable, the Company may, except with respect to the Redemption Price, amend
the Rights Agreement in any manner that does not adversely affect the interests
of holders of the Rights.

 

Until a Right is exercised or exchanged, the holder thereof, as such,
will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends.

 

A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 27, 2008.  A copy of the Rights Agreement is available
free of charge from the Company.  This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, as the same may
be amended from time to time, which is hereby incorporated herein by reference.

 

C-4

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