Document:

exv4w5

 

EXHIBIT 4.5

DIGITAL RECORDERS, INC.

AND

AMERICAN STOCK TRANSFER & TRUST COMPANY

RIGHTS AGREEMENT

DATED AS OF SEPTEMBER 22, 2006

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	Section 1. Certain Definitions
	 	 	1	 
	Section 2. Appointment of Rights Agent
	 	 	4	 
	Section 3. Issue of Right Certificates
	 	 	4	 
	Section 4. Form of Right Certificates
	 	 	7	 
	Section 5. Countersignature and Registration
	 	 	7	 
	Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates
	 	 	7	 
	Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights
	 	 	8	 
	Section 8. Cancellation and Destruction of Right Certificates
	 	 	9	 
	Section 9. Availability of Preferred Shares
	 	 	9	 
	Section 10. Preferred Shares Record Date
	 	 	10	 
	Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights
	 	 	11	 
	Section 12. Certificate of Adjustment
	 	 	17	 
	Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power
	 	 	17	 
	Section 14. Fractional Rights and Fractional Shares
	 	 	18	 
	Section 15. Rights of Action
	 	 	19	 
	Section 16. Agreement of Right Holders
	 	 	19	 
	Section 17. Right Certificate Holder Not Deemed a Stockholder
	 	 	20	 
	Section 18. Concerning the Rights Agent
	 	 	20	 
	Section 19. Merger or Consolidation or Change of Name of Rights Agent
	 	 	20	 
	Section 20. Duties of Rights Agent
	 	 	21	 
	Section 21. Change of Rights Agent
	 	 	22	 
	Section 22. Issuance of New Right Certificates
	 	 	23	 
	Section 23. Redemption
	 	 	23	 
	Section 24. Exchange
	 	 	24	 
	Section 25. Notice of Certain Events
	 	 	25	 
	Section 26. Notices
	 	 	26	 
	Section 27. Supplements and Amendments
	 	 	26	 
	Section 28. Successors
	 	 	26	 
	Section 29. Benefits of this Agreement
	 	 	27	 
	Section 30. Severability
	 	 	27	 
	Section 31. Governing Law
	 	 	27	 
	Section 32. Counterparts
	 	 	27	 
	Section 33. Descriptive Headings
	 	 	27	 
	Section 34. Administration
	 	 	27	 

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RIGHTS AGREEMENT

     Agreement, dated as of September 22, 2006, between Digital Recorders, Inc., a North Carolina
corporation (the “Company”), and American Stock Transfer & Trust Company, a New York corporation,
as Rights Agent (the “Rights Agent”).

     The Board of Directors of the Company has authorized and declared a dividend distribution of
one preferred share purchase right (a “Right”) for each share of Common Stock, par value $.10 per
share, of the Company (a “Common Share”) outstanding on the Close of Business on Monday, October 9,
2006 (the “Record Date”) and has authorized the issuance of one Right (as such number may
hereinafter be adjusted pursuant to the provisions hereof) with respect to each additional Common
Share that shall become outstanding between the Record Date and the earliest of Close of Business
on the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are
hereinafter defined), each Right representing the right to purchase one thousandth of a share of
Series D Junior Participating Preferred Stock of the Company (a “Preferred Share”) having the
rights, restrictions, voting powers, limitations as to distributions, qualifications and terms and
conditions of redemption set forth in Exhibit A hereto, or such different amount and/or kind of
securities as shall be hereinafter provided, upon the terms and subject to the conditions
hereinafter set forth.

     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
meanings indicated:

	 	(a)	 	“Acquiring Person” shall mean any Person who or which, together with all
Affiliates and Associates of such Person, shall be the Beneficial Owner of 15% or more
of the Common Shares of the Company then outstanding but shall not include (i) the
Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the
Company or any Subsidiary of the Company, or (iv) any Person or entity holding Common
Shares for or pursuant to the terms of any such employee benefit plan. Notwithstanding
the foregoing, (1) no Person shall become an “Acquiring Person” as the result of an
acquisition of Common Shares by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially owned by such
Person to 15% (or such other percentage as would otherwise result in such person
becoming an Acquiring Person) or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person shall so become the Beneficial Owner
of 15% (or such other percentage) or more of the Common Shares of the Company then
outstanding by reason of an acquisition of Common Shares by the Company and shall,
after such share purchases by the Company, become the Beneficial Owner of an additional
1% of the outstanding Common Shares of the Company (other than pursuant to a dividend
or distribution paid or made by the Company on the outstanding Common Stock or pursuant
to a share split or subdivision of the outstanding Common Stock), then such Person
shall be deemed to be an “Acquiring Person”; and (2) if the Board of Directors of the
Company determines in good faith that a Person who would otherwise be an “Acquiring
Person,” as defined pursuant to the foregoing provisions of this paragraph, has become
such inadvertently, and such Person divests as promptly as practicable a sufficient
number of Common Shares so that such Person would no longer be an “Acquiring Person,”
as defined pursuant to the foregoing provisions of this paragraph, then such
Person shall not be deemed to have become an “Acquiring Person” for any purposes of
this Agreement.

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

	 	(i)	 	which such Person or any of such Person’s Affiliates or
Associates beneficially owns, directly or indirectly, within the meaning Rule
13d-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), written or otherwise, or upon the exercise of
conversion rights, exchange rights, rights (other than the Rights), warrants or
options, or otherwise; provided, however, that a Person shall not be deemed to
be the Beneficial Owner of, or to beneficially own, securities tendered
pursuant to a tender or exchange offer made pursuant to, and in accordance
with, the applicable rules and regulations promulgated under the Exchange Act
by or on behalf of such Person or any of such Person’s Affiliates or Associates
until such tendered securities are accepted for purchase or exchange; or (B)
the right to vote pursuant to any agreement, arrangement or understanding,
whether or not in writing; provided, however, that a Person shall not be deemed
the Beneficial Owner of, or to beneficially own, any security 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); or
	 
	 	(iii)	 	which are beneficially owned, directly or indirectly, by any
other Person with 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), written or
otherwise, for the purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to section (B) of the immediately preceding
paragraph (ii)) or disposing of any securities of the Company.

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

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the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the
Exchange Act, as in effect on the date hereof.

	 	(d)	 	“Business Day” shall mean any day other than a Saturday, 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, New
York time on such date; provided, however, that if such date is not a Business Day it
shall mean 5:00 P.M., New York City, New York time, on the next succeeding Business
Day.
	 
	 	(f)	 	“Common Shares” when used with reference to the Company shall mean the shares
of common stock, par value $.10 per share, of the Company. “Common Shares” when used
with reference to any Person other than the Company shall mean the capital stock (or
equity interest) with the greatest voting power of such other Person or, if such other
Person is a Subsidiary of another Person, the Person or Persons which ultimately
control such first-mentioned Person.
	 
	 	(g)	 	“Common Stock Equivalents” shall have the meaning set forth in Section
11(a)(iii)(B)(3) hereof.
	 
	 	(h)	 	“Current Value” shall have the meaning set forth in Section 11(a)(iii)(A)(1)
hereof.
	 
	 	(i)	 	“Distribution Date” shall have the meaning set forth in Section 3(a) hereof.
	 
	 	(j)	 	“Equivalent Preferred Shares” shall have the meaning set forth in Section 11(b)
hereof.
	 
	 	(k)	 	“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
	 
	 	(l)	 	“Exchange Ratio” shall have the meaning set forth in Section 24(a) hereof.
	 
	 	(m)	 	“Final Expiration Date” shall mean September 22, 2016.
	 
	 	(n)	 	“Person” shall mean any individual, firm, corporation, partnership, limited
partnership, limited liability partnership, business trust, limited liability company,
unincorporated association or other entity, and shall include any successor (by merger
or otherwise) of such entity.
	 
	 	(o)	 	“Preferred Shares” shall mean shares of Series D Junior Participating Preferred
Stock, par value $.10 per share, of the Company having such rights and preferences upon
adoption as are set forth in the form of Certificate of Designation set forth as
Exhibit A hereto.
	 
	 	(p)	 	“Purchase Price” shall have the meaning set forth in Section 7(b) hereof.
	 
	 	(q)	 	“Redemption Date” shall have the meaning set forth in Section 23(b) hereof.
	 
	 	(r)	 	“Redemption Price” shall have the meaning set forth in Section 23(a) hereof.
	 
	 	(s)	 	“Right Certificate” shall mean a certificate evidencing a Right in
substantially the form of Exhibit B hereto.

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	 	(t)	 	“Section 11(a)(ii) Trigger Date” shall have the meaning set forth in Section
11(a)(iii) hereof.
	 
	 	(u)	 	“Securities Act” shall mean the Securities Act of 1933, as amended.
	 
	 	(v)	 	“Security” shall have the meaning set forth in Section 11(d) hereof.
	 
	 	(w)	 	“Shares Acquisition Date” shall mean the earlier of the date of (i) the public
announcement by the Company or an Acquiring Person that an Acquiring Person has become
such or (ii) the public disclosure of facts by the Company or an Acquiring Person
indicating that an Acquiring Person has become such.
	 
	 	(x)	 	“Spread” shall have the meaning set forth in Section 11(a)(iii)(A) hereof.
	 
	 	(y)	 	“Subsidiary” of any Person shall mean any corporation of which a majority of
the voting power of the voting equity securities or equity interest is owned, directly
or indirectly, by such Person.
	 
	 	(z)	 	“Substitution Period” shall have the meaning set forth in Section 11(a)(iii)
hereof.
	 
	 	(aa)	 	“Summary of Rights” shall mean the Summary of Rights to Purchase Preferred
Shares in substantially the form of Exhibit C hereto.
	 
	 	(bb)	 	“Trading Day” shall have the meaning set forth in Section 11(d) hereof.

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

     Section 3. Issue of Right Certificates.

	 	(a)	 	Until the Close of Business on the earlier of (i) the tenth day after the
Shares Acquisition Date or (ii) the tenth Business Day (or such later date as may be
determined by action of the Board of Directors prior to such time as any Person becomes
an Acquiring Person) after the date of the commencement by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company or of
any Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the terms of any such plan) of, or of the first public announcement of the intention of
any Person (other than any of the Persons referred to in the preceding parenthetical)
to commence, a tender or exchange offer, the consummation of which would result in any
Person becoming the Beneficial Owner of Common Shares aggregating 15% or more of the
then outstanding Common Stock(the earlier of such date being herein referred to as the
“Distribution Date”), (x) the Rights will be evidenced (subject to the provisions of
Section 3(b) hereof) by the certificates for Common Shares registered in the names of
the holders thereof (which certificates shall also be deemed to be Right Certificates)
and not
by separate Right Certificates, and (y) the right to receive Right Certificates will
be transferable only in connection with the transfer of Common Shares. 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

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	 	 	 	Agent will, if requested, send) by first-class, insured, postage-prepaid
mail, to each record holder of Common Shares as of the Close of Business on the
Distribution Date, at the address of such holder shown on the records of the
Company, a Right Certificate evidencing one Right for each Common Share so held. As
of the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.

	 	(i)	 	On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of the Summary of Rights by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the Close of
Business on the Record Date, at the address of such holder shown on the records
of the Company.
	 
	 	(ii)	 	With respect to Common Shares outstanding as of the Record Date
that are represented by certificates, until the Close of Business on the
Distribution Date, the Rights will be evidenced by such certificates registered
in the names of the holders thereof together with a copy of the Summary of
Rights attached thereto. Until the Close of Business on the Distribution Date
(or the earlier of the Redemption Date or the Close of Business on the Final
Expiration Date), the surrender for transfer of any certificate for Common
Shares outstanding on the Record Date, with or without a copy of the Summary of
Rights attached thereto, shall also constitute the transfer of the Rights
associated with the Common Shares evidenced thereby.
	 
	 	(iii)	 	With respect to Common Shares outstanding as of the Record
Date that are uncertificated, until the Close of Business on the Distribution
Date, the Rights will be evidenced by the registration by the Corporation or
its agent of the holders of such shares as the registered owner together with a
copy of the Summary of Rights. Until the Close of Business on the Distribution
Date (or the earlier of the Redemption Date or the Close of Business on the
Final Expiration Date), the transfer of any Common Shares outstanding on the
Record Date that are uncertificated, with or without a copy of the Summary of
Rights, shall also constitute the transfer of the Rights associated with the
Common Shares so transferred.

(b)  

	 	(i)	 	Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in clause
(iii) of this paragraph (c)) after the Record Date but prior to the earliest of
the Close of Business on the Distribution Date, the Redemption Date or the
Close of Business on the Final Expiration Date shall have impressed on, printed
on, written on or otherwise affixed to them the following legend:

This certificate also evidences and entitles the holder
hereof to certain Rights as set forth in a Rights Agreement
between Digital Recorders, Inc. and American Stock Transfer &
Trust Company, as Rights Agent, dated as of September 22,
2006 (the “2006 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 Digital Recorders, Inc. Under
certain circumstances, as set forth in the 2006 Rights
Agreement, such Rights will be evidenced by separate
certificates and will no

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longer be evidenced by this
certificate. Digital Recorders, Inc. will mail to the holder
of this certificate a copy of the 2006 Rights Agreement
without charge after receipt of a written request therefor.
Under certain circumstances, as set forth in the 2006 Rights
Agreement, Rights owned or transferred to any Person who is
or becomes an Acquiring Person (as defined in the 2006 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 Close of Business on the Distribution Date,
the Rights associated with the Common Shares represented by
certificates shall be evidenced by such certificates alone,
and the surrender for transfer of any such certificate shall
also constitute the transfer of the Rights associated with
the Common Shares represented thereby. Notwithstanding this
paragraph, the omission of a legend shall not affect the
enforceability of any part of this Agreement or of the rights
of any holder of the Rights.

	 	(ii)	 	The Corporation shall send to the owner of Common Shares that
are uncertificated which become outstanding (including, without limitation,
reacquired Common Shares referred to in clause (iii) of this paragraph (c))
after the Record Date but prior to the earliest of the Close of Business on the
Distribution Date, the Redemption Date or the Close of Business on the Final
Expiration Date the following notice:

Ownership of these shares entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between
Digital Recorders, Inc. and American Stock Transfer & Trust
Company, as Rights Agent, dated as of September 22, 2006 (the
“2006 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 Digital Recorders,
Inc. Under certain circumstances, as set forth in the 2006
Rights Agreement, such Rights will be evidenced by
certificates. Digital Recorders, Inc. will mail to the owner
of these shares a copy of the 2006 Rights Agreement without
charge after receipt of a written request therefor. Under
certain circumstances, as set forth in the 2006 Rights
Agreement, Rights owned or transferred to any Person who is
or becomes an Acquiring Person (as defined in the 2006 Rights
Agreement) and certain transferees thereof will become null
and void and will no longer be transferable.

Until the Close of Business on the Distribution Date, the
Rights associated with the Common Shares that are
uncertificated shall be evidenced solely by the registration
of the owner of such
shares as the registered owner, and the transfer of any such
shares shall also constitute the transfer of the Rights
associated with the Common Shares.

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

     Section 4. Form of Right Certificates. The Right Certificates (and the forms of election to
purchase Preferred 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 which do not affect the duties or responsibilities of the Rights Agent and as are not
inconsistent with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Rights may from time to time be listed, or to conform to usage.
Subject to the other provisions of this Agreement, the Right Certificates shall entitle the holders
thereof to purchase such number of one thousandths of a Preferred Share as shall be set forth
therein at the Purchase Price, but the number of one thousandths of a Preferred Share and the
Purchase Price shall be subject to adjustment as provided herein.

     Section 5. Countersignature and Registration. The Right Certificates shall be executed on
behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President, any
of its Vice Presidents, or its Treasurer, either manually or by facsimile signature, shall have
affixed thereto the Company’s seal or a facsimile thereof, and shall be attested by the Secretary
or any Assistant Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be countersigned by the Rights Agent and shall not be valid for any purpose
unless so countersigned, either manually or by facsimile. 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 Rights Agreement any such person was not such an officer.

     Following the Distribution Date and receipt by the Rights Agent of all required information
necessary for books of registration, the Rights Agent will keep or cause to be kept, at its office
designated for such purpose, books for registration of the 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. Subject to the provisions of this Agreement, at any time after the Close of Business on the
Distribution Date, and prior to the earlier of the Redemption Date or the Close of Business on the
Final Expiration Date, any Right Certificate or Right Certificates (other than Right Certificates
representing Rights that have become void pursuant to Section 11(a)(ii) hereof or that have been
exchanged pursuant to Section 24 hereof) 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 thousandths of a Preferred Share 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

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Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchanged at the principal office of the
Rights Agent. Neither the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any such surrendered Right Certificate until the
registered holder shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Right Certificate and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the Rights Agent shall
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 for any
tax or governmental charge that may be imposed in connection with any transfer, split up,
combination or exchange of Right Certificates.

     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)	 	The registered holder of any Right Certificate (other than a holder whose
Rights have become void pursuant to Section 11(a)(ii) hereof or have been exchanged
pursuant to Section 24 hereof) may exercise the Rights evidenced thereby in whole or in
part at any time after the Distribution Date upon surrender of the Right Certificate,
with the form of election to purchase on the reverse side thereof duly and properly
executed, to the Rights Agent at its office designated for such purpose, together with
payment of the Purchase Price for each one thousandth of a Preferred Share as to which
the Rights are exercised, prior to the earliest of (i) the Close of Business on the
Final Expiration Date, (ii) the time at which the right to exercise the Rights
terminates pursuant to Section 23 hereof, or (iii) the time at which the right to
exercise the Rights terminates pursuant to Section 24 hereof.
	 
	 	(b)	 	The purchase price for each one thousandth of a Preferred Share to be purchased
upon the exercise of a Right shall initially be Five Dollars ($5.00) (the “Purchase
Price”). The Purchase Price and the number of one thousandths of a Preferred Share 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) below.
	 
	 	(c)	 	Except as otherwise provided herein, upon receipt of a Right Certificate
representing exercisable Rights, with the form of election to purchase and certificate
duly and properly executed, accompanied by payment of the Purchase Price for the number
of one thousandths of a Preferred Share to be purchased and an amount equal to any
applicable tax or charge required to be paid by the holder of such Right Certificate in
accordance with Section 9 hereof by cash, 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 Shares certificates for
the number of one thousandths of a Preferred Share to be purchased and the Company
hereby irrevocably authorizes its transfer agent to comply with all such requests, or
(B) requisition from any

8

 

	 	 	 	depositary agent for the Preferred Shares depositary receipts
representing such number of one thousandths of a Preferred Share as are to be purchased
(in which case certificates for the Preferred Shares represented by such receipts shall
be deposited by the transfer agent with the depositary agent) and the Company hereby
directs the 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 Preferred Shares in accordance with Section 14 hereof, (iii) after receipt
of such certificates or depositary receipts, cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in such name
or names as may be designated by such holder and (iv) when appropriate, after receipt,
deliver such cash to or upon the order of the registered holder of such Right
Certificate.
	 
	 	(d)	 	In case the registered holder of any Right Certificate shall exercise less than
all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent
to the 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 upon the occurrence of any purported exercise as set forth in this
Section 7 unless such registered holder shall have (i) completed and signed the
certificate following the form of election to purchase set forth on the reverse side of
the Right Certificate surrendered for such exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company or the Rights Agent shall reasonably
request.

     Section 8. Cancellation and Destruction of 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 Rights 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.

     Section 9. Availability of Preferred Shares.

	 	(a)	 	The Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such Preferred Shares (subject to
payment of the Purchase Price), be duly and validly authorized and issued and fully
paid and non-assessable shares.
	 
	 	(b)	 	The Company further covenants and agrees that it will pay when due and payable
any and all taxes and charges which may be payable in respect of the issuance or
delivery of the Right Certificates or of any Preferred Shares upon the exercise of
Rights. The Company shall not, however, be required to pay any tax or charge which may
be payable in respect of any transfer or delivery of Right Certificates to a person
other than, or the

9

 

	 	 	 	issuance or delivery of certificates or depositary receipts for the
Preferred Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver any
certificates or depositary receipts for Preferred Shares upon the exercise of any
Rights until any such tax or charge shall have been paid (any such tax or charge being
payable by the 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 or
charge is due.

	 	(c)	 	The Company covenants and agrees that it will cause to be reserved and kept
available, out of its authorized and unissued Preferred Shares or any Preferred Shares
held in its treasury, the number of Preferred Shares that will be sufficient to permit
the exercise in full of all outstanding Rights in accordance with Section 7 hereof.
	 
	 	(d)	 	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 Preferred Shares upon
the exercise of Rights, to register and qualify such Preferred Shares 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 (with a prospectus at all times meeting the
requirement of the Securities Act) as soon as possible after such filing and keep such
registration and qualifications effective until the earlier of the date as of which the
Rights are no longer exercisable for such securities or the Expiration Date. The
Company may temporarily suspend, for a period of time not to exceed 120 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.
	 
	 	(e)	 	So long as the Preferred Shares issuable upon the exercise of Rights may be
listed or admitted to trading on any national securities exchange or quoted on National
Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”), the
Company shall use its best efforts to cause, from and after such time as the Rights
become exercisable, all Preferred 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.

     Section 10. Preferred Shares Record Date. Each Person in whose name any certificate for
Preferred Shares is issued upon the exercise of Rights shall for all purposes be deemed to have
become the holder of record of the Preferred Shares 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 taxes or charges) was made. 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 Shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings
of the Company, except as provided herein.

10

 

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

     (a)

	 	(i)	 	In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the
Preferred Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a), the Purchase
Price in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, 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, he would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification;
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of
capital stock of the Company issuable upon exercise of one Right.
	 
	 	(ii)	 	Subject to the following paragraph of this subparagraph (ii) to
Section 24 of this Agreement, in the event any Person shall become an Acquiring
Person, each holder of a Right shall thereafter have a right to receive, upon
exercise thereof at a price equal to the then current Purchase Price multiplied
by the number of one thousandths of a Preferred Share for which a Right is then
exercisable, in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of Common Shares of the Company as shall equal
the result obtained by (x) multiplying the then current Purchase Price by the
number of one thousandths of a Preferred Share for which a Right is then
exercisable and dividing that
product by (y) 50% of the then current per share market price of the
Company’s Common Shares (determined pursuant to Section 11(d) hereof) on the
date such Person became an Acquiring Person. In the event that any Person
shall become an Acquiring Person and the Rights shall then be outstanding,
the Company shall not take any action that would eliminate or diminish the
benefits intended to be afforded by the Rights.

From and after the occurrence of such an event, any Rights that are or were acquired or
beneficially owned by such Acquiring Person, (or any Associate or Affiliate of such
Acquiring Person) on or after the earlier of (x) the date of such event and (y) the
Distribution Date, shall be null and void and any holder of such Rights shall thereafter
have no right to exercise such Rights under any provision of this Agreement. No Right
Certificate shall be issued pursuant to Section 3 that represents Rights beneficially owned
by an Acquiring Person whose Rights would be null and void pursuant to the preceding
sentence or any Associate or Affiliate thereof; no Right Certificate shall be issued at any
time upon the transfer of any Rights to an Acquiring Person whose Rights would be null and
void pursuant to the preceding sentence or any Associate or

11

 

Affiliate thereof or to any
nominee of such Acquiring Person, Associate or Affiliate; and any Right Certificate
delivered to the Rights Agent for transfer to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence or any Associate or Affiliate thereof shall be canceled.

	 	(iii)	 	In the event that the number of Common Shares which are
authorized by the Company’s Articles of Incorporation and not outstanding or
subscribed for, or reserved or otherwise committed for issuance for purposes
other than upon exercise of the Rights, are not sufficient to permit the holder
of each Right to purchase the number of Common Shares to which he would be
entitled upon the exercise in full of the Rights in accordance with the
foregoing subparagraph (ii) of paragraph (a) of this Section 11, or should the
Board of Directors so elect, the Company shall: (A) determine the excess of (1)
the value of the Common Shares issuable upon the exercise of a Right
(calculated as provided in the last sentence of this subparagraph (iii))
pursuant to Section 11(a)(ii) hereof (the “Current Value”) over (2) the
Purchase Price (such excess, the “Spread”), and (B) with respect to each Right,
make adequate provision to substitute for such Common Shares, upon payment of
the applicable Purchase Price, any one or more of the following having an
aggregate value determined by the Board of Directors to be equal to the Current
Value: (1) cash, (2) a reduction in the Purchase Price, (3) Common Shares or
other equity securities of the Company (including, without limitation, shares,
or units of shares, of preferred stock which the Board of Directors of the
Company has determined to have the same value as shares of Common Stock (such
shares of preferred stock, “Common Stock Equivalents”), (4) debt securities of
the Company, or (5) other assets; provided, however, if the Company shall not
have made adequate provision to deliver value pursuant to clause (B) above
within thirty (30) days following the first occurrence of an event triggering
the rights to purchase Common Shares described in Section 11(a)(ii) (the
“Section 11(a)(ii) Trigger Date”), then the Company shall be obligated to
deliver, upon the surrender for exercise of a Right and without requiring
payment of the Purchase Price, shares of Common Stock (to the extent available)
and then, necessary, cash, which shares and cash have an aggregate value equal
to the Spread. If the Board of Directors of the Company shall determine in good
faith that it is likely that sufficient additional Common Shares could be
authorized for issuance upon exercise in full of the Rights, 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 period, as it may be extended, the
“Substitution Period”). To the extent that the Company determines that some
action need be taken pursuant to the first and/or second sentences of this
Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e)
hereof and the last paragraph of Section 11(a)(ii) 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 appropriate form of distribution to be made pursuant to such
first sentence and to determine the value thereof. In the event of any such
suspension, Company shall make a public announcement, and shall deliver to
the Rights Agent a statement, stating that the exercisability of the Rights
has been temporarily suspended. At such time as the suspension is no longer
in effect, the Company shall make another public announcement, and

12

 

	 	 	 	deliver
to the Rights Agent a statement, so stating. For purposes of this Section
11(a)(iii), the value of the Common Shares shall be the current per share
market price (as determined pursuant to Section 11(d)(i) hereof) of the
Common Shares on the Section 11(a)(ii) Trigger Date and the value of any
common stock equivalent shall be deemed to have the same value as the Common
Shares on such date.

	 	(b)	 	In case the Company shall fix a record date for the issuance of rights, options
or warrants to all holders of Preferred Shares entitling them (for a period expiring
within 45 calendar days after such record date) to subscribe for or purchase Preferred
Shares (or shares having the same rights, privileges and preferences as the Preferred
Shares (“Equivalent Preferred Shares”)) or securities convertible into Preferred Shares
or Equivalent Preferred Shares at a price per Preferred Share or equivalent preferred
share (or having a conversion price per share, if a security convertible into Preferred
Shares or Equivalent Preferred Shares) less than the then current per share market
price of the Preferred Shares (as defined in Section 11(d)) on such record date, the
Purchase Price to be in effect after such record date shall be adjusted 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 Preferred Shares outstanding on such record
date plus the number of Preferred Shares which the aggregate offering price of the
total number of Preferred Shares 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 Preferred Shares outstanding on such record date plus the number of
additional Preferred Shares 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. 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.
	 
	 	(c)	 	In case the Company shall fix a record date for the making of a distribution to
all holders of the Preferred Shares (including any such distribution made in connection
with a consolidation or merger in which the Company is the continuing or surviving
corporation) of evidences of indebtedness or assets (other than a regular quarterly
cash dividend or a dividend payable in Preferred Shares) 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 Shares 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 Preferred
Share and the denominator of

13

 

	 	 	 	which shall be such current per share market price of the
Preferred Shares; 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)	 	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 but not including
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 but not
including the ex-dividend date for such dividend or distribution, the record
date for such subdivision, combination or reclassification, then, and in each
such case, the current per share market price shall be appropriately adjusted
to reflect the current market price per share equivalent of such Security. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, as reported in
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Security is listed or admitted to trading or, if the Security is not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as
reported by the NASDAQ or such other system then in use, or, if on any such
date the Security is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
making a market in the Security selected by the Board of Directors of the
Company. The term “Trading Day” shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is not
listed or admitted to trading on any national securities exchange, a
Business Day.
	 
	 	(ii)	 	For the purpose of any computation hereunder, the “current per
share market price” of the Preferred Shares shall be determined in accordance
with the method set forth in Section 11(d)(i). If the Preferred Shares are not
publicly traded, the “current per share market price” of the Preferred Shares
shall be conclusively deemed to be the current per share market price of the
Common Shares as determined pursuant to Section 11(d)(i) (appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof),

14

 

	 	 	 	multiplied by 1000. If neither the Common
Shares nor the Preferred Shares are publicly held or so listed or traded,
“current per share market price” shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes, until notified otherwise.

	 	(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 ten-millionth of a Preferred Share or one ten thousandth of any other share
or security as the case may be. Notwithstanding the first sentence of this Section
11(e), any adjustment required by this Section 11 shall be made no later than three
years from the date of the transaction which requires such adjustment.
	 
	 	(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 Preferred Shares, the number of such other
shares so receivable upon exercise of any Right shall thereafter be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Shares contained in Section
11(a) through (c), inclusive, and the provisions of Sections 7, 9, 10 and 13 with
respect to the Preferred Shares shall apply on like terms to any such other shares.
	 
	 	(g)	 	All Rights originally issued by the Company subsequent to any adjustment made
to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted
Purchase Price, the number of one thousandths of a Preferred Share purchasable from
time to time hereunder upon exercise of the Rights, all subject to further adjustment
as provided herein.
	 
	 	(h)	 	Unless the Company shall have exercised its election as provided in Section
11(a), upon each adjustment of the Purchase Price as a result of the calculations made
in Sections 11(b) and (c), each Right outstanding immediately prior to the making of
such adjustment
shall thereafter evidence the right to purchase, at the adjusted Purchase Price,
that number of one thousandths of a Preferred Share (calculated to the nearest one
ten-millionth of a Preferred Share) obtained by (i) multiplying (x) the number of
one thousandths of a share covered by a Right immediately prior to this adjustment
by (y) the Purchase Price in effect immediately prior to such adjustment of the
Purchase Price and (ii) dividing the product so obtained by the Purchase Price in
effect immediately after such adjustment of the Purchase Price.
	 
	 	(i)	 	The Company may elect on or after the date of any adjustment of the Purchase
Price to adjust the number of Rights in substitution for any adjustment in the number
of one thousandths of a Preferred Share purchasable upon the exercise of a Right. Each
of the Rights outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one thousandths of a Preferred Share for which a Right
was exercisable immediately prior to such adjustment. Each Right held of record prior
to such adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one hundred-thousandth) obtained by dividing the Purchase
Price in effect immediately prior

15

 

	 	 	 	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 with prompt notice thereof to the Rights Agent. This record date
may be the date on which the Purchase Price is adjusted or any day thereafter, but, if
the Right Certificates have been distributed, shall be at least 10 days later than the
date of the public announcement. If Right Certificates have been distributed, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company shall,
as promptly as practicable, cause to be distributed to holders of record of 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 to be so
distributed shall be issued, executed and countersigned in the manner provided for
herein and shall be registered in the names of the holders of record of 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 thousandths of a Preferred Share issuable upon the exercise of the Rights, the
Right Certificates theretofore and thereafter issued may continue to express the
Purchase Price and the number of one thousandths of a Preferred Share 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 one thousandth of the then par value of the Preferred Shares issuable upon
exercise of the Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly and legally
issue fully paid and non-assessable Preferred 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 with notice thereof to the Rights Agent until the occurrence of such
event the
issuing to the holder of any Right exercised after such record date of the Preferred
Shares and other capital stock or securities of the Company, if any, issuable upon
such exercise over and above the Preferred Shares and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of the
Purchase Price in effect prior to such adjustment; provided, however, that the
Company shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder’s right to receive such additional shares upon the occurrence
of the event requiring such adjustment.
	 
	 	(m)	 	Anything in this Section 11 to the contrary notwithstanding, the Company shall
be entitled to make such reductions in the Purchase Price, in addition to those
adjustments expressly required by this Section 11, as and to the extent that it in its
sole discretion shall determine to be advisable in order that any (i) combination or
subdivision of the Preferred Shares, (ii) issuance wholly for cash of any Preferred
Shares at less than the current market price, (iii) issuance wholly for cash of
Preferred Shares or securities which by their terms are convertible into or
exchangeable for Preferred Shares, (iv) dividends on Preferred Shares payable in
Preferred Shares or (v) issuance of any rights, options or

16

 

	 	 	 	warrants referred to herein
above in Section 11(b), hereafter made by the Company to holders of its Preferred
Shares shall not be taxable to such stockholders.
	 
	 	(n)	 	In the event that at any time after the date of this Agreement and prior to the
Distribution Date, the Company shall (i) declare or pay any dividend on the Common
Shares payable in Common Shares or (ii) effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise other than by
payment of dividends in Common Shares) into a greater or lesser number of Common
Shares, then in any such case (i) the number of one thousandths of a Preferred Share
purchasable after such event upon proper exercise of each Right shall be determined by
multiplying the number of one thousandths of a Preferred Share so purchasable
immediately prior to such event by a fraction, the numerator of which is the number of
Common Shares outstanding immediately before such event and the denominator of which is
the number of Common Shares outstanding immediately after such event, and (ii) each
Common Share outstanding immediately after such event shall have issued with respect to
it that number of Rights which each Common Share outstanding immediately prior to such
event had issued with respect to it. The adjustments provided for in this Section 11(n)
shall be made successively whenever such a dividend is declared or paid or such a
subdivision, combination or consolidation is effected.

     Section 12. Certificate of Adjustment. Whenever an adjustment is made as provided in Sections
11 and 13 hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment and computations, (b)
file with the Rights Agent and with each transfer agent for the Common Shares or the Preferred
Shares 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. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment therein contained and shall have no duty with
respect to 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. In the event
that, at any time after a Person becomes an Acquiring Person, directly or indirectly, (i) the
Company shall consolidate with, or merge with and into, any other Person, (ii) any Person shall
consolidate with the Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such merger, all or part
of the Common Shares shall be changed into or exchanged for stock or other securities of any other
Person (or the Company) or 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 of its wholly-owned Subsidiaries, then, and in each such case, proper provision shall be
made so that (A) each holder of a Right (except as otherwise provided herein) shall thereafter have
the right to receive, upon the exercise thereof at a price equal to the then current Purchase Price
multiplied by the number of one thousandths of a Preferred Share for which a Right is then
exercisable, in accordance with the terms of this Agreement and in lieu of Preferred Shares, such
number of Common Shares of such other Person (including the Company as successor thereto or as the
surviving corporation) as shall equal the result obtained by (x) multiplying the then current
Purchase Price by the number of one thousandths of a Preferred Share for which a Right is then
exercisable and dividing that product by (y) 50% of the then current per share market price of the
Common Shares of such other Person (determined pursuant to Section 11(d) hereof) on the date of
consummation of such consolidation, merger, sale or transfer; (B) the issuer of such Common Shares
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

17

 

“Company” shall thereafter be deemed to refer to such issuer; and (D) such issuer shall take such
steps (including, but not limited to, the reservation of a sufficient number of its Common Shares
in accordance with Section 9 hereof) in connection with such consummation as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be,
in relation to the Common Shares thereafter deliverable upon the exercise of the Rights. The
Company covenants and agrees that it shall not consummate any such consolidation, merger, sale or
transfer unless prior thereto the Company and such issuer shall have executed and delivered to the
Rights Agent a supplemental agreement so providing. The Company shall not enter into any
transaction of the kind referred to in this Section 13 if at the time of such transaction there are
any rights, warrants, instruments or securities outstanding or any agreements or arrangements
which, as a result of the consummation of such transaction, would eliminate or substantially
diminish the benefits intended to be afforded by the Rights. The provisions of this Section 13
shall similarly apply to successive mergers or consolidations or sales or other transfers. For
purposes hereof, the “earning power” of the Company and its Subsidiaries shall be determined in
good faith by the Company’s Board of Directors on the basis of the operating earnings of each
business operated by the Company and its Subsidiaries during the three fiscal years preceding the
date of such determination (or, in the case of any business not operated by the Company or any
Subsidiary during three full fiscal years preceding such date, during the period such business was
operated by the Company or any Subsidiary).

     Section 14. Fractional Rights and Fractional Shares.

	 	(a)	 	The Company shall not be required to issue fractions of Rights or to distribute
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 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 Shares (other
than fractions which are integral multiples of one thousandth of a Preferred Share)
upon exercise of the Rights or to distribute certificates which evidence fractional
Preferred Shares (other than fractions which are integral multiples of one thousandth
of a Preferred Share). Fractions of Preferred Shares in integral multiples of one
thousandth of a Preferred Share may, at the election of the Company,
be evidenced by depositary

18

 

	 	 	 	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 Shares represented by
such depositary receipts. In lieu of fractional Preferred Shares that are not integral
multiples of one thousandth of a Preferred Share, the Company shall pay to each
registered holder of Right Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market value of
one Preferred Share as the fraction of one Preferred Share that such holder would
otherwise receive upon the exercise of the aggregate number of rights exercised by such
holder. For the purposes of this Section 14(b), the current market value of a Preferred
Share shall be the closing price of a Preferred Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
	 
	 	(c)	 	The holder of a Right by the acceptance of the Right expressly waives any right
to receive fractional Rights or fractional shares upon exercise 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 this Agreement hereof, are vested in the
respective registered holders of the Right Certificates (and, prior to the Distribution Date, the
registered holders of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares) may, 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
Shares), on his own behalf and for his own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner provided in such
Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available
to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have
an adequate remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement.

     Section 16. Agreement of 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 Shares;
	 
	 	(b)	 	after the Distribution Date, the Right Certificates are transferable only on
the registry books maintained by the Rights Agent if surrendered at the principal
office of the Rights Agent, duly endorsed or accompanied by a proper instrument of
transfer with a completed form of certification; 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 associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights evidenced
thereby (notwithstanding any notations of ownership or writing on the Right
Certificates or the associated Common Shares certificate made by anyone other than the
Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor
the Rights Agent shall be affected by any notice to the contrary.

19

 

     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 Shares or any other securities of the Company which may at any time be
issuable on the exercise of the Rights represented thereby nor shall anything contained herein or
in any 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 Section 25 hereof), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate
shall have been exercised in accordance with the provisions hereof.

     Section 18. Concerning the Rights Agent. 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.

     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 Preferred Shares or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons or otherwise upon the advice of counsel as set forth in Section 20.

     Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any Person into which
the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated,
or any Person resulting from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any Person succeeding to the stock transfer or corporate 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 Person 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.

     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.

20

 

     Section 20. Duties of Rights Agent. The Rights Agent only 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 and protection to the Rights Agent for any
action taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
	 
	 	(c)	 	The Rights Agent shall be liable hereunder to the Company and any other Person
only for its own gross negligence, bad faith or willful misconduct.
	 
	 	(d)	 	The Rights Agent shall not be liable for or by reason of any of the statements
of fact or recitals contained in this Agreement or in the Right Certificates (except as
to 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 liability or 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 voice pursuant to this
Agreement) or any adjustment in the terms of the Rights provided for in Sections 11 or
13 hereof or the ascertaining of the existence of facts that would require any such
change or adjustment (except with respect to the exercise of Rights evidenced by 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 Shares or other securities to be issued pursuant to this Agreement
or any Right Certificate or as to whether any Preferred Shares or other securities
will, when so issued, be validly authorized and issued, fully paid and nonassessable.
	 
	 	(f)	 	The Company agrees that it will perform, execute, acknowledge and deliver or
cause to be performed, executed, acknowledged and delivered all such further and other
acts, instruments and assurances as may reasonably be required by the Rights Agent for
the carrying out or performing by the Rights Agent of the provisions of this Agreement.
	 
	 	(g)	 	The Rights Agent is hereby authorized and directed to accept instructions with
respect to the performance of its duties hereunder from any person reasonably believed
by the Rights Agent to be one of the President or the Secretary of the Company, and to
apply to

21

 

	 	 	 	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 suffered 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.
	 
	 	(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 Right 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 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 Shares and the Preferred Shares 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 Shares and the Preferred Shares 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

22

 

new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court, shall be a Person
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 North
Carolina or New York, which is authorized under such laws to exercise 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 Shares and the Preferred Shares, 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 form as may be approved by its Board of Directors to reflect
any adjustment or change in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in accordance with the
provisions of this Agreement.

     Section 23. Redemption.

	 	(a)	 	The Board of Directors of the Company may, at its option, at any time prior to
such time as any Person becomes an Acquiring Person, redeem all but not less than all
the then outstanding Rights at a redemption price of $0.001 per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction occurring
after the date hereof (such redemption price being hereinafter referred to as the
“Redemption Price”). The redemption of the Rights by the Board of Directors may be made
effective at such time, on such basis and subject to such conditions as the Board of
Directors in its sole discretion may establish. The Redemption Price shall be payable,
at the option of the Company, in cash, Common Shares, or such other form of
consideration as the Board of Directors shall determine.
	 
	 	(b)	 	Immediately upon the time of the effectiveness of the redemption of the Rights
pursuant to paragraph (a) of this Section 23 or such earlier time as may be determined
by the Board of Directors of the Company in the action ordering such redemption
(although not earlier than the time of such action) (such time the “Redemption Date”),
and without any further action and without any notice, the right to exercise the Rights
shall 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 ordering the redemption of the Rights pursuant to
paragraph (a), the Company shall mail a notice of redemption to all the holders of the
then outstanding Rights and the Rights Agent at their last addresses as they appear
upon the registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Shares. Any notice which is mailed
in the manner herein provided shall be deemed given, whether or not the holder receives
the notice. If the payment of the

23

 

	 	 	 	Redemption Price is not included with such notice,
each such notice shall state the method by which the payment of the Redemption Price
will be made. Neither the Company nor any of its Affiliates or Associates may redeem,
acquire or purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in Section 24 hereof, other than in
connection with the purchase of Common Shares prior to the Distribution Date.

     Section 24. Exchange.

	 	(a)	 	The Board of Directors of the Company may, at its option, at any time after any
Person becomes an Acquiring Person, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become null and void
pursuant to the provisions of Section 11(a)(ii) hereof) for Common Shares at an
exchange ratio of one Common Share per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date hereof
(such exchange ratio being hereinafter referred to as the “Exchange Ratio”).
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any such
Subsidiary, or any entity holding Common Shares for or pursuant to the terms of any
such plan), together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of a majority of the Common Shares then outstanding.
	 
	 	(b)	 	Immediately upon the action of the Board of Directors of the Company ordering
the exchange of any Rights pursuant to subsection (a) of this Section 24 and without
any further action and without any notice, the right to exercise such Rights shall
terminate and the only right thereafter of the holder of such Rights shall be to
receive that number of Common Shares equal to the number of such Rights held by such
holder multiplied by the Exchange Ratio. The Company shall promptly give public notice
of any such exchange with prompt notice thereof to the Rights Agent; provided, however,
that the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The Company promptly shall mail a notice of any such exchange to all
of the holders of such Rights at their last addresses as they appear upon the registry
books of the Rights Agent. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the Common Shares for Rights
will be effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become null and void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.
	 
	 	(c)	 	In any exchange pursuant to this Section 24, the Company, at its option, may
substitute Preferred Shares or Common Stock Equivalents for Common Shares exchangeable
for Rights, at the initial rate of one thousandth of a Preferred Share (or an
appropriate number of Common Stock Equivalents) for each Common Share, as appropriately
adjusted to reflect adjustments in the voting rights of the Preferred Shares pursuant
to the terms thereof, so that the fraction of a Preferred Share delivered in lieu of
each Common Share shall have the same voting rights as one Common Share.
	 
	 	(d)	 	In the event that there shall not be sufficient Common Shares, Preferred Shares
or Common Stock Equivalents authorized by the Company’s Articles of Incorporation and

24

 

	 	 	 	not outstanding or subscribed for, or reserved or otherwise committed for issuance for
purposes other than upon exercise of Rights, to permit any exchange of Rights as
contemplated in accordance with this Section 24, the Company shall take all such action
as may be necessary to authorize additional Common Shares, Preferred Shares or Common
Stock Equivalents for issuance upon exchange of the Rights.
	 
	 	(e)	 	The Company shall not be required to issue fractions of Common Shares or to
distribute certificates which evidence fractional Common Shares. In lieu of such
fractional Common Shares, the Company shall pay to the registered holders of the Right
Certificates with regard to which such fractional Common Shares would otherwise be
issuable an amount in cash equal to the same fraction of the current per share market
value of a whole Common Share. For the purposes of this paragraph (e), the current
per share market value of a whole Common Share shall be the closing price of a
Common Share (as determined pursuant to the second sentence of Section 11(d)(i)
hereof) for the Trading Day immediately prior to the date of exchange pursuant to
this Section 24.

     Section 25. Notice of Certain Events.

	 	(a)	 	In case the Company shall after the Distribution Date propose (i) to pay any
dividend payable in stock of any class to the holders of its Preferred Shares or to
make any other distribution to the holders of its Preferred Shares (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares
rights or warrants to subscribe for or to purchase any additional Preferred Shares or
shares of stock of any class or any other securities, rights or options, (iii) to
effect any reclassification of its Preferred Shares (other than a reclassification
involving only the subdivision of outstanding Preferred Shares), (iv) to effect any
consolidation or merger into or with, or to effect any sale or other transfer (or to
permit one or more of its Subsidiaries to effect any sale or other transfer), in one or
more transactions, of 50% or more of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to, any other Person, (v) to effect the liquidation,
dissolution or winding up of the Company, or (vi) to declare or pay any dividend on the
Common Shares payable in Common Shares or to effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise than by payment of
dividends in Common Shares), then, in each such case, the Company shall give to each
holder of a Right Certificate and the Rights Agent, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record date for the
purposes of such stock dividend, or distribution of rights or warrants, or the date on
which such reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation therein by
the holders of the Common Shares and/or Preferred Shares, 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 Shares 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 Shares and/or Preferred
Shares, whichever shall be the earlier.
	 
	 	(b)	 	In case any event set forth in Section 11(a)(ii) hereof shall occur, then the
Company shall as soon as practicable thereafter give to each holder of a Right
Certificate and the Rights Agent, 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) hereof.

25

 

     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:

Digital Recorders, Inc.

5949 Sherry Lane, Suite 1050

Dallas, Texas 75225

Attn: Dave Turney

Copy to:

Gray, Layton, Kersh, Solomon, Sigmon, Furr & Smith, P.A.

516 S. New Hope

Gastonia, North Carolina 28054

Attn: David M. Furr, Esq.

     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

59 Maiden Lane

Plaza Level

New York, NY 10038

     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. The Company may from time to time, and the Rights
Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of
any holders of Right Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other provisions herein,
or to make any change to or delete any provision hereof or to adopt any other provisions with
respect to the Rights which the Company may deem necessary or desirable; provided, however, that
from and after such time as any Person becomes an Acquiring Person, this Agreement shall not be
amended or supplemented in any manner which would adversely affect the interests of the holders of
Rights (other than an Acquiring Person and its Affiliates and Associates). Any supplement or
amendment authorized by this Section 27 will be evidenced by a writing signed by the Company and
the Rights Agent; provided that any such supplement or amendment does not change or increase the
Rights Agent duties, liabilities or obligations, without the Rights Agent’s prior written consent
and; provided further that the Rights Agent receives a certificate from an appropriate officer of
the Company which states that the proposed supplement or amendment is in compliance with the terms
of this Section 27 hereof shall become effective immediately upon execution by the Company and 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.

26

 

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

     Section 30. 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.

     Section 31. 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 North Carolina 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; provided, however, that all
provisions regarding the rights, duties and obligations of the Rights Agent shall be governed by
and construed in accordance with the laws of the State of North Carolina applicable to contracts
made and to be performed entirely within such State.

     Section 32. 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 33. 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.

     Section 34. Administration. The Board of Directors of the Company shall have the exclusive
power and authority to administer and interpret the provisions of this Agreement and to exercise
all rights and powers specifically granted to the Board of Directors or the Company or as may be
necessary or advisable in the administration of this Agreement. All such actions, calculations,
determinations and interpretations which are done or made by the Board of Directors in good faith
shall be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights
and all other parties and shall not subject the Board of Directors to any liability to the holders
of the Rights.

(Signature page follows)

27

 

     IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement to be duly executed
and their respective corporate seals to be hereunder affixed and attested, all as of the day and
year first above written.

	 	 	 	 	 
	 	 	DIGITAL RECORDERS, INC.
	 
	 	 	 	 
	 

	 	 	 	/s/ Kathleen Brown Oher
	 

	 	 	 	 
	 

	 	 	 	Kathleen Brown Oher, Chief Financial Officer
	 
	 	 	 	 
	 	 	AMERICAN STOCK TRANSFER
& TRUST 
COMPANY, as Rights
Agent
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Herbert J. Lemmer
	 

	 	 	 	 
	 

	 	 	 	Herbert J. Lemmer, Vice President

28

 

EXHIBIT A

CERTIFICATE OF DESIGNATION

of

SERIES D JUNIOR PARTICIPATING PREFERRED STOCK

of

DIGITAL RECORDERS, INC.

     Digital Recorders, Inc., a corporation organized and existing under the Business Corporation
Act of the State of North Carolina (hereinafter called the “Corporation”), hereby certifies that
the following resolution was adopted by the Board of Directors of the Corporation as required by
Section 55-6-02 of the Business Corporation Act at a meeting duly called and held on December 13,
1999:

     RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of
this Corporation (hereinafter called the “Board of Directors” or the “Board”) in accordance with
the provisions of the Articles of Incorporation of the Corporation (the “Articles of
Incorporation”), the Board of Directors hereby creates a series of Preferred Stock, par value $.10
per share (the “Preferred Stock”), of the Corporation and hereby states the designation and number
of shares, and fixes the relative rights, preferences, and limitations thereof as follows:

	 	 	 
	Section 1.

	 	Designation and Amount. The shares of this series shall be
designated as “Series D Junior Participating Preferred Stock”
(the “Series D Preferred Stock”) and the number of shares
constituting the Series D Preferred Stock shall be 10,000. Such
number of shares may be increased or decreased by resolution of
the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series D Preferred Stock to a number
less than the number of shares then outstanding plus the number
of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion
of any outstanding securities issued by the Corporation
convertible into Series D Preferred Stock.
	 
	 	 
	Section 2.

	 	Dividends and Distributions.

	 	(a)	 	Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any other stock) ranking prior and superior to the Series D
Preferred Stock with respect to dividends, the holders of shares of Series D
Preferred Stock shall be entitled to receive, when, as and if declared by the Board
of Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the last day of March, June, September and December in each year
(each such date being referred to herein as a “Quarterly Dividend Payment Date”),
commencing on the first Quarterly Dividend Payment Date after the first issuance of
a share or fraction of a share of Series D Preferred Stock, in an amount (if any)
per share (rounded to the nearest cent), subject to the provision for adjustment
hereinafter set forth, equal to 1000 times the aggregate per share amount of all
cash dividends, and 1000 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, par value $.10 per share (the “Common Stock”), of the
Corporation or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a share
of Series D Preferred Stock. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or effect
a subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock, then in
each such case the amount to which holders of shares of Series D Preferred Stock
were entitled immediately prior to such event under the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.

 

 

	 	(b)	 	The Corporation shall declare a dividend or distribution on the Series D
Preferred Stock as provided
in paragraph (a) of this Section immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in shares of Common
Stock).
	 
	 	(c)	 	Dividends due pursuant to paragraph (A) of this Section shall begin to
accrue and be cumulative on outstanding shares of Series D Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series D 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 D 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 D Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.

	 	 	 
	Section 3.

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

	 	(a)	 	Subject to the provision for adjustment hereinafter set forth, each share
of Series D Preferred Stock shall entitle the holder thereof to 1000 votes on all
matters submitted to a vote of the stockholders of the Corporation. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the number of votes
per share to which holders of shares of Series D Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
	 
	 	(b)	 	Except as otherwise provided the Articles of Incorporation, including any
other Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series D Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
	 
	 	(c)	 	Except as set forth herein, or as otherwise required by law, holders of
Series D Preferred Stock shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.

	 	 	 
	Section 4.

	 	Certain Restrictions.

	 	(a)	 	Whenever quarterly dividends or other dividends or distributions payable
on the Series D 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 D Preferred Stock outstanding shall have been paid in
full, the Corporation shall not:

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

 

 

	 	(i)	 	declare or pay dividends, or make any other distributions, on any
 shares of stock ranking
on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series D Preferred Stock, except dividends paid
ratably on the Series D 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

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

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

	 	 	 
	Section 5.

	 	Reacquired Shares. Any shares of Series D Preferred Stock
purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after
the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred
Stock subject to the conditions and restrictions on issuance
set forth herein or in the Articles of Incorporation, including
any Certificate of Designations creating a series of Preferred
Stock or any similar stock, or as otherwise required by law.
	 
	 	 
	Section 6.

	 	Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation the holders of
shares of Series D Preferred Stock shall be entitled to receive
an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 1000 times the
aggregate amount to be distributed per share to holders of
shares of Common Stock plus an amount equal to any accrued and
unpaid dividends. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the aggregate
amount to which holders of shares of Series D Preferred Stock
were entitled immediately prior to such event under the
preceding sentence shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
	 
	 	 
	Section 7.

	 	Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged
for or changed into other stock or securities, cash and/or any
other property, then in any such case each share of Series D
Preferred Stock shall at the same time be similarly exchanged
or changed into an amount per share, subject to the provision
for adjustment hereinafter set forth, equal to 1000 times the
aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of
shares of Series D Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which
is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior
to such event.

 

 

	 	 	 
	Section 8.

	 	Amendment. The Articles of Incorporation shall not be amended
in any manner, including in a merger or consolidation, which
would alter, change, or repeal the powers, preferences or
special rights of the Series D Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of
at least two-thirds of the outstanding shares of Series D
Preferred Stock, voting together as a single class.
	 
	 	 
	Section 9.

	 	Rank. The Series D Preferred Stock shall rank, with respect to
the payment of dividends and upon liquidation, dissolution and
winding up, junior to all series of Preferred Stock.

     IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation
by its President this 13th day of December, 1999.

	 	 	 	 	 	 	 
	 	 	DIGITAL RECORDERS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	    /s/ David L. Turney
 

David L. Turney, President
	 	 

 

 

State of North Carolina

Department of the Secretary of State

ARTICLES OF AMENDMENT

BUSINESS CORPORATION

Pursuant to §55-10-06 of the General Statutes of North Carolina, the undersigned corporation hereby
submits the following Articles of Amendment for the purpose of amending its Articles of
Incorporation.

	 	 	 
	1.

	 	The name of the corporation is: DIGITAL RECORDERS, INC.
	 
	 	 
	2.

	 	The text of each amendment adopted is as follows (State below or attach):
	 
	 	 
	 

	 	The number of shares constituting the Series D Preferred Stock shall be increased from 10,000 to
30,000
	 
	 	 
	3.

	 	If an amendment provides for an exchange, reclassification, or cancellation of issued shares,
provisions for implementing the amendment, if not contained in the amendment itself, are as
follows:
	 
	 	 
	 

	 	N/A
	 
	 	 
	4.

	 	The date of adoption of each amendment was as follows: September 22, 2006
	 
	 	 
	5.

	 	(Check either a, b, c, or d, whichever is applicable)
	 
	 	 
	 

	 	a. o The amendment(s) was (were) duly adopted by the incorporators prior to the issuance of
shares.
	 
	 	 
	 

	 	b. þ The amendment(s) was (were) duly adopted by the board of directors prior to the
issuance of shares.
	 
	 	 
	 

	 	c. o The amendment(s) was (were) duly adopted by the board of directors without shareholder
action as shareholder action was not required because (set forth a brief explanation of why
shareholder action was not required.)
	 
	 	 
	 

	 	d. o The amendment(s) was (were) approved by shareholder action, and such shareholder approval
was obtained as required by Chapter 55 of the North Carolina General Statutes.

 

 

ARTICLES OF AMENDMENT

Page 2

	 	 	 
	6.

	 	These articles will be effective upon filing, unless a delayed time and date is specified:
	 
	 	 
	 

	 	This the 28th day of September, 2006.

	 	 	 	 	 
	 

	 	DIGITAL RECORDERS, INC.	 	 
	 
	 	 	 	 
	 

	 	/s/ David L. Turney
 

	 
	 	 	Chairman, Chief Executive Officer and President

 

 

EXHIBIT B

Form of Right Certificate

Certificate No. R- _______ Rights

NOT EXERCISABLE AFTER SEPTEMBER 22, 2016 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS
ARE SUBJECT TO REDEMPTION AT $0.001 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS THAT ARE OR WERE ACQUIRED OR BENEFICIALLY OWNED BY
AN ACQUIRING PERSON OR ANY ASSOCIATES OR AFFILIATES THEREOF (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID.

Right Certificate

DIGITAL RECORDERS, 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 September 22, 2006 (the “2006 Rights
Agreement”), between Digital Recorders, Inc., a North Carolina corporation (the “Company”), and
American Stock Transfer & Trust Company (the “Rights Agent”), to purchase from the Company at any
time after the Distribution Date (as such term is defined in the 2006 Rights Agreement) and prior
to 5:00 P.M., New York, New York, on September 22, 2016, at the office of the Rights Agent, or at
the office of its successor as Rights Agent, one-thousandth of a fully paid non-assessable share of
Series D Junior Participating Preferred Stock, par value $.10 per share (the “Preferred Shares”),
of the Company, at a purchase price of $5.00 per one-thousandth of a Preferred Share (the “Purchase
Price”), upon presentation and surrender of this Right Certificate with the certification and the
Form of Election to Purchase duly executed. The number of Rights evidenced by this Right
Certificate (and the number of one-thousandths of a Preferred Share 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 September 22, 2006, based on the Preferred Shares as constituted at such date.
As provided in the 2006 Rights Agreement, the Purchase Price and the number of one-thousandths of a
Preferred Share which may be purchased upon the exercise of the Rights evidenced by this Right
Certificate are subject to modification and adjustment upon the happening of certain events.

     From and after the occurrence of an event described in Section 11(a)(ii) of the 2006 Rights
Agreement, if the Rights evidenced by this Right Certificate are or were at any time on or after
the earlier of (x) the date of such event and (y) the Distribution Date (as such term is defined in
the Rights Agreement) acquired or beneficially owned by an Acquiring Person or an Associate or
Affiliate of an Acquiring Person (as such terms are defined in the 2006 Rights Agreement), such
Rights shall become void, and any holder of such Rights shall thereafter have no right to exercise
such Rights.

     This Right Certificate is subject to all of the terms, provisions and conditions of the 2006
Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by
reference and made a part hereof and to which 2006 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 2006
Rights Agreement are on file at the principal executive offices of the Company and the office of
the Rights Agent.

     This Right Certificate, with or without other Right Certificates, upon surrender at the office
of the Rights Agent, 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
Preferred Shares 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 2006 Rights Agreement, at the Company’s option, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $0.001
per Right or (ii) may be exchanged

 

 

in whole or in part for shares of the Company’s Common Stock, par value $.10 per share, or
Preferred Shares.

     No fractional Preferred Shares will be issued upon the exercise of any Right or Rights
evidenced hereby (other than fractions which are integral multiples of one-thousandth of a
Preferred Share, which may, at the election of the Company, be evidenced by depositary receipts),
but in lieu thereof a cash payment will be made, as provided in the 2006 Rights Agreement.

     No holder of this Right Certificate shall be entitled to vote or receive dividends or be
deemed for any purpose the holder of the Preferred Shares or of any other securities of the Company
which may at any time be issuable on the exercise hereof, nor shall anything contained in the 2006
Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of directors or upon
any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting stockholders (except
as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided
in the 2006 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:                     

DIGITAL RECORDERS, INC.

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

[Name, Title]
	 	 

Countersigned:

AMERICAN STOCK TRANSFER & TRUST COMPANY

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

[Name, Title]
	 	 

 

 

[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
[Insert Name and Address of Transferee] Right Certificate,
together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint
           
           
            
      , Attorney, to transfer the
within Right Certificate on the books
of the within-named Company, with full power of substitution.

Dated:  
             
            
             
             
             
            
            
   Signature        
             
              
     

Signature Guaranteed:

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

Dated:  
             
            
             
             
             
            
            
   Signature        
             
             
      

FORM OF ELECTION TO PURCHASE

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

To Digital Recorders, Inc.:

The undersigned hereby irrevocably elects to exercise                      Rights represented by this Right
Certificate to purchase the Preferred Shares issuable upon the exercise of such Rights and requests
that certificates for such Preferred Shares be issued in the name of: [Insert Name and Address and
Social Security or Other Identifying Number].

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: [Insert Name and Address and Social Security or Other Identifying Number].

Dated:  
            
           
            
            
            
             
             
      Signature      
             
            
         

Signature Guaranteed:

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

Dated:  
             
            
             
             
             
             
             
Signature           
            
             
    

NOTICE

    
 The signature(s) on the foregoing Assignment must correspond to the name(s) as written upon
the face of this Warrant in every particular, without alteration or enlargement or any change
whatsoever. The signature(s) must be guaranteed by an eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions with membership in an approved
signature guarantee Medallion Program).

     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, the Company and the Rights Agent will
deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring
Person or an Affiliate or Associate thereof (as defined in the 2006 Rights Agreement) and such
Assignment or Election to Purchase will not be honored.

 

 

EXHIBIT C

SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES

     On September 22, 2006, the Board of Directors of Digital Recorders, Inc. (the “Company”)
declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of
common stock, par value $.10 per share (the “Common Shares”) outstanding on October 9, 2006 (the
“Record Date”) to the stockholders of record on that date. Each Right entitles the registered
holder to purchase from the Company one-thousandth of a share of Series D Junior Participating
Preferred Stock, par value $.10 per share (the “Preferred Shares”), of the Company, at a price of
$5.00 per one-thousandth of a Preferred Share (the “Purchase Price”), subject to adjustment. The
description and terms of the Rights are set forth in a 2006 Rights Agreement (the “2006 Rights
Agreement”) between the Company and American Stock Transfer & Trust Company, as Rights Agents (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 (an “Acquiring Person”) has acquired beneficial ownership
of 15% or more of the outstanding Common Shares or (ii) 10 business days (or such later date as may
be determined by action of the Board of Directors prior to such time as any Person 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 the beneficial ownership by a
person or group of 15% or more of such outstanding Common Shares (the earlier of such dates being
called the “Distribution Date”), the Rights will be evidenced, with respect to any of the Common
Share certificates outstanding as of the Record Date, by such Common Share certificate with a copy
of this Summary of Rights attached thereto. The Rights will be evidenced, with respect to Common
Shares outstanding as of the Record Date that are uncertificated by the registration by the Company
or its agent of the attachment of the Summary of Rights of the holders of such shares as the
registered owner of such Rights and shares together with a copy of this Summary of Rights attached
thereto.

     The 2006 Rights Agreement provides that, until the Distribution Date, the Rights will be
transferred with and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued after the Record Date
or upon transfer or new issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the
Rights), the Company will send, with respect to Common Shares that are uncertificated and issued
after the Record Date or upon transfer or new issuance of Common Shares, notice incorporating the
Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Shares or the transfer of
any uncertificated shares outstanding as of the Record Date, even without such notation or a copy
of this Summary of Rights being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate or so transferred. 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 Shares 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
September 22, 2016 (the “Final Expiration Date”), unless the Final Expiration Date is extended or
unless the Rights are earlier redeemed by the Company, in each case, as described below.

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

     The number of outstanding Rights and the number of one-thousandths of a Preferred Share
issuable upon exercise of each Right are also subject to adjustment in the event of a stock split
of the Common Shares or a stock dividend on the Common Shares payable in Common Shares or
subdivisions, consolidations or combinations of the
Common Shares occurring, in any such case, prior to the Distribution Date.

 

 

     Preferred Shares purchasable upon exercise of the Rights will not be redeemable. Each
Preferred Share will be entitled to a quarterly dividend payment of 1000 times the dividend
declared per Common Share. In the event of liquidation, the holders of the Preferred Shares will be
entitled to an aggregate payment of 1000 times the aggregate payment made per Common Share. Each
Preferred Share will have 1000 votes, voting together with the Common Shares. In the event of any
merger, consolidation or other transaction in which Common Shares are exchanged, each Preferred
Share will be entitled to receive 1000 times the amount received per Common Share. These rights are
protected by customary antidilution provisions.

     From and after the occurrence of an event described in Section 11(a)(ii) of the Rights
Agreement, if the Rights evidenced by this Right Certificate are or were at any time on or after
the earlier of (x) the date of such event and (y) the Distribution Date (as such term is defined in
the Rights Agreement) acquired or beneficially owned by an Acquiring Person or an Associate or
Affiliate of an Acquiring Person (as such terms are defined in the Rights Agreement), such Rights
shall become null and void, and any holder of such Rights shall thereafter have no right to
exercise such Rights.

     In the event that, at any time after a Person becomes 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 provision will be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of the Right. Unless the
Board acts otherwise, in the event that any person becomes an Acquiring Person, proper provision
shall be made so that each holder of a Right, other than Rights beneficially owned by the Acquiring
Person and its Affiliates and Associates (which will thereafter be null and void), will thereafter
have the right to receive upon exercise that number of Common Shares having a market value of two
times the exercise price of the Right. If the Company does not have sufficient Common Shares to
satisfy such obligation to issue Common Shares, or if the Board of Directors so elects, the Company
shall deliver upon payment of the exercise price of a Right an amount of cash or securities
equivalent in value to the Common Shares issuable upon exercise of a Right; provided that, if the
Company fails to meet such obligation within 30 days following the later of (x) the first
occurrence of an event triggering the right to purchase Common Shares and (y) the date on which the
Company’s right to redeem the Rights expires, the Company must deliver, upon exercise of a Right
but without requiring payment of the exercise price then in effect, Common Shares (to the extent
available) and cash equal in value to the difference between the value of the Common Shares
otherwise issuable upon the exercise of a Right and the exercise price then in effect. The Board of
Directors may extend the 30-day period described above for up to an additional 60 days to permit
the taking of action that may be necessary to authorize sufficient additional Common Shares to
permit the issuance of Common Shares upon the exercise in full of the Rights.

     At any time after any Person becomes an Acquiring Person and prior to the acquisition by any
person or group of a majority of the outstanding Common Shares, the Board of Directors of the
Company may exchange the Rights (other than Rights owned by such person or group which have become
void), in whole or in part, at an exchange ratio of one Common Share per Right (subject to
adjustment).

     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 Preferred
Shares will be issued (other than fractions which are integral multiples of one-thousandth of a
Preferred Share, 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 market price of the Preferred
Shares on the last trading day prior to the date of exercise.

     At any time prior to the time any Person becomes an Acquiring Person, the Board of Directors
of the Company may redeem the Rights in whole, but not in part, at a price of $0.001 per Right (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 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.

 

 

     The terms of the Rights may be amended by the Board of Directors of the Company without the
consent of the holders of the Rights, except that from and after such time as any person becomes an
Acquiring Person no such amendment may adversely affect the interests of the holders of the Rights
(other than the Acquiring Person and its Affiliates and Associates).

     Until a Right is exercised, 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 Agreement has been filed with the Securities and Exchange Commission as an
Exhibit to a Registration Statement on Form 8-A dated September 29, 2006. A copy of the 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 Agreement, which is
hereby incorporated herein by reference.exv10w1

 

Exhibit 10.1

SECOND MODIFICATION TO

LOAN AND SECURITY AGREEMENT

     This Second Modification to Loan and Security Agreement (the “Second Modification”) is
entered into as of October 2, 2006 by and between Therma-Wave, Inc., a California corporation
(“Borrower”) and Silicon Valley Bank, a California-chartered bank (“Bank”).

1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be owing by
Borrower to Bank, Borrower is indebted to Bank pursuant to that certain Amended and Restated Loan
and Security Agreement dated as of June 10, 2005 (as may be amended from time to time, the “Loan
Agreement”). The Loan Agreement provides for, among other things, loans in the principal amount of
up to Fifteen Million Dollars ($15,000,000.00). Capitalized terms used herein but not otherwise
defined herein shall have the respective meanings accorded to them in the Loan Agreement; provided,
that all indebtedness owing by Borrower to Bank under the Loan Agreement shall be referred to
herein as the “Indebtedness.”

2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured by the Collateral
as described in the Loan Agreement and herein. Hereinafter, all documents securing repayment of
the Indebtedness, together with all other documents evidencing or securing the Indebtedness, shall
be referred to as the “Existing Loan Documents.”

3. DESCRIPTION OF CHANGES TO THE TERMS OF THE EXISTING LOAN DOCUMENTS.

     3.1 Anniversary Fees. Section 3.4 of Schedule 1 of the Loan Agreement is added to
read in full as follows:

          “3.4 Anniversary Fees:

          (a) Domestic Anniversary Fee. 1.0% of the Domestic Credit Limit, payable on each anniversary
of the date hereof, commencing with June 11, 2007; provided, that, if Borrower’s Tangible Net Worth
is greater than $35,000,000 on any such anniversary date, such amount shall be reduced to 0.75% of
the Domestic Credit Limit. This fee shall be nonrefundable.

          (b) EXIM Anniversary Fee: 1.50% of the EXIM Credit Limit, payable on each anniversary of the
date hereof, commencing with June 11, 2007; provided, that, if Borrower’s Tangible Net Worth is
greater than $35,000,000 on any such anniversary date, such amount shall be reduced to 1.25% of the
EXIM Credit Limit. This fee shall be nonrefundable.”

     3.2 Maturity Date for the Domestic Credit Line and EXIM Credit Line. Section 4 of
Schedule 1 of the Loan Agreement is hereby amended to read in full as follows:

          “4. MATURITY DATE

          (Section 6.1):               June 11, 2008.”

     3.3 Tangible Net Worth. Section 5.2 of Schedule 1 of the Loan Agreement is hereby
amended to read in full as follows:

 

 

          “5.2 Minimum Tangible Net Worth:

Borrower shall maintain a Tangible Net Worth (1) at the end of each
quarter end of not less than $17,500,000 and (2) at the end of each
month which is not a quarter end of not less than $16,000,000, plus
(i) 50% of all consideration received after the date hereof for
equity securities and subordinated debt of the Borrower, plus (ii)
25% of the Borrower’s net income in each fiscal quarter ending after
the date hereof. Increases in the Minimum Tangible Net Worth
covenant based on consideration received for equity securities and
subordinated debt of the Borrower shall be effective as of the end of
the month in which such consideration is received, and shall continue
effective thereafter. Increases in the Minimum Tangible Net Worth
covenant based on net income shall be effective on the last day of
the fiscal quarter in which said net income is realized, and shall
continue effective thereafter. In no event shall the Minimum Tangible
Net Worth covenant be decreased.”

     3.4 Minimum Liquidity. Section 5.4 of Schedule 1 of the Loan Agreement is hereby
added to read in full as follows:

5.4 Minimum Liquidity Ratio. Borrower shall maintain a Minimum
Liquidity Ratio of at least 2.0 to 1.0 at all times, tested as of
the last day of each month. Minimum Liquidity Ratio is calculated
as (i) unrestricted cash and cash equivalents held at the Bank plus
availability under the Domestic Credit Line and EXIM Credit Line
divided by (ii) the outstanding amount of the Term
Loan.

4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary
to reflect the changes described in Section 3 hereof.

5. NO DEFENSES OF BORROWER. Borrower agrees that, as of the date hereof, it has no
defenses against the obligations to pay any amounts of the Indebtedness.

6. CONTINUING VALIDITY. Borrower understands and agrees that, in modifying the Existing
Loan Documents, Bank is relying upon Borrower’s representations, warranties and agreements, all as
set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Second
Modification, the terms of the Existing Loan Documents remain unchanged and in full force and
effect, and hereafter the Existing Loan Documents shall include the terms of this Second
Modification as if set forth therein in full. Bank’s agreement to modifications to the Existing
Loan Documents pursuant to this Second Modification shall in no way obligate Bank to make any
future modifications to the Existing Loan Documents. Nothing in this Second Modification shall
constitute a satisfaction of the Indebtedness or any portion thereof. It is the intention of Bank
and Borrower to retain Borrower as the liable party under the Existing Loan Documents, and Borrower
is not released by virtue of this Second Modification.

2

 

The terms of this paragraph apply not only to this Second Modification, but also to all subsequent
loan modification agreements.

7. CONDITION PRECEDENT TO EFFECTIVENESS. Before this Second Modification, (and Bank’s and
Borrower’s respective rights and obligations hereunder) shall be effective, Borrower shall have
paid to Bank all Bank Expenses incurred by Bank in connection with its entering into this Second
Modification.

[Signature Page Follows]

3

 

IN WITNESS WHEREOF, each of the parties hereto has caused its duly authorized representative to
execute and deliver this Second Modification as of the date first set forth above.

	 	 	 	 	 	 	 
	BORROWER:	 	BANK:
	 
	 	 	 	 	 	 
	THERMA-WAVE, INC.,	 	SILICON VALLEY BANK,
	a Delaware corporation	 	a California-chartered bank
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	By:

	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 
	Name:

	 	 	 	Name:	 	 
	 

	 	 
	 	 	 	 
	Title:

	 	 	 	Title:	 	 
	 

	 	 
	 	 	 	 

4

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