Document:

exv10w1

 

Exhibit 10.1

HOME BANCSHARES

CHAIRMAN’S RETIREMENT PLAN

 

 

HOME BANCSHARES

CHAIRMAN’S RETIREMENT PLAN

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 
	 	ARTICLE 1	 	 	 	 
	 
	 	DEFINITIONS	 	 	 	 
	 
	 	 	 	 	 	 
	1.1
	 	BENEFIT	 	 	1	 
	1.2
	 	CHANGE IN CONTROL	 	 	1	 
	1.3
	 	CODE	 	 	1	 
	1.4
	 	DISABILITY	 	 	1	 
	1.5
	 	EFFECTIVE DATE	 	 	1	 
	1.6
	 	EMPLOYER	 	 	1	 
	1.7
	 	ERISA	 	 	1	 
	1.8
	 	EXECUTIVE	 	 	1	 
	1.9
	 	INVOLUNTARY TERMINATION WITHOUT CAUSE	 	 	2	 
	1.10
	 	NORMAL RETIREMENT AGE	 	 	2	 
	1.11
	 	PLAN YEAR	 	 	2	 
	1.12
	 	SECTION 409A	 	 	2	 
	1.13
	 	SPECIFIED EMPLOYEE	 	 	2	 
	1.14
	 	TERMINATION OF EMPLOYMENT	 	 	2	 
	1.15
	 	VESTED BENEFIT	 	 	3	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 2	 	 	 	 
	 
	 	LIFETIME BENEFITS	 	 	 	 
	 
	 	 	 	 	 	 
	2.1
	 	LIFETIME SALARY CONTINUATION BENEFIT	 	 	3	 
	2.2
	 	EXCESS PARACHUTE PAYMENT	 	 	4	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 3	 	 	 	 
	 
	 	DEATH BENEFITS	 	 	 	 
	 
	 	 	 	 	 	 
	3.1
	 	DEATH BEFORE BENEFIT PAYMENTS COMMENCE	 	 	4	 
	3.2
	 	DEATH DURING GUARANTEED BENEFIT PERIOD	 	 	4	 
	3.3
	 	DEATH AFTER GUARANTEED BENEFIT PERIOD	 	 	4	 
	3.4
	 	PARTICIPANT'S BENEFICIARY	 	 	4	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 4	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	CLAIMS AND REVIEW PROCEDURES	 	 	 	 
	4.1
	 	CLAIMS PROCEDURE	 	 	5	 

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	 	ARTICLE 5	 	 	 	 
	 
	 	AMENDMENT	 	 	 	 
	 
	 	 	 	 	 	 
	5.1
	 	AMENDMENT	 	 	7	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 6	 	 	 	 
	 
	 	MISCELLANEOUS	 	 	 	 
	 
	 	 	 	 	 	 
	6.1
	 	BINDING EFFECT	 	 	7	 
	6.2
	 	NO GUARANTEE OF EMPLOYMENT	 	 	7	 
	6.3
	 	NON-TRANSFERABILITY	 	 	7	 
	6.4
	 	REORGANIZATION	 	 	7	 
	6.5
	 	TAX WITHHOLDING	 	 	7	 
	6.6
	 	APPLICABLE LAW	 	 	7	 
	6.7
	 	UNFUNDED ARRANGEMENT	 	 	8	 
	6.8
	 	ENTIRE AGREEMENT	 	 	8	 
	6.9
	 	ADMINISTRATION	 	 	8	 
	6.10
	 	NAMED FIDUCIARY	 	 	8	 
	6.11
	 	REIMBURSEMENT OF EXPENSES IN ENFORCING RIGHTS	 	 	8	 
	6.12
	 	PROHIBITED ACCELERATION/DISTRIBUTION TIMING	 	 	8	 
	6.13
	 	AGGREGATION OF EMPLOYERS	 	 	9	 

ii

 

HOME BANCSHARES

CHAIRMAN’S RETIREMENT PLAN

Effective April 20, 2007

Purpose

          The purpose of this Home BancShares Chairman’s Retirement Plan is to provide salary
continuation benefits to John W. Allison (the “Executive”), Chief Executive Officer of Home
BancShares, Inc. (the “Employer”), who has contributed substantially to the success of Employer and
whom the Employer wishes to encourage to remain an employee of the Employer. This Plan shall be
unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security
Act of 1974, as amended. This Plan is intended to comply with the requirements of Section 409A of
the Internal Revenue Code of 1986, as amended, as added by the American Jobs Creation Act of 2004
and the Treasury regulations or any other authoritative guidance issued thereunder.

Article 1

Definitions

          Whenever used in this Plan, the following words and phrases shall have the meanings specified:

     1.1 “Benefit” means an annual benefit of two hundred and fifty thousand dollars ($250,000) per
year.

     1.2 “Change in Control” means the occurrence of any event that constitutes a change in control
within the meaning of subsection (a)(2)(A)(v) of Section 409A.

     1.3 “Code” means the Internal Revenue Code of 1986, as amended, and the regulations issued
thereunder.

     1.4 “Disability” means, a condition pursuant to which the Executive (a) is qualified to
receive Social Security disability benefits, or (b) is determined to be disabled under the
Employer’s long-term disability plan, if any.

     1.5 “Effective Date” means April 20, 2007.

     1.6 “Employer” means Home BancShares, Inc., and any successor

     1.7 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     1.8 “Executive” means John W. Allison, Chairman of the Board and Chief Executive Officer of
the Employer, who has been determined by the Employer to be a member of a select group of

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management or highly compensated employees of the Employer, as membership in such group is
determined for purposes of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.

     1.9 “Involuntary Termination Without Cause” means the Executives’ involuntary
Termination of Employment by the Employer for any reason other than:

          (a) Gross negligence or gross neglect of the Executive’s duties for the Employer;

          (b) The Executive’s commission of a felony or of a gross misdemeanor involving moral
turpitude; or

          (c) Fraud, disloyalty, dishonesty or willful violation of any law or significant Employer
policy committed in connection with the Executive’s employment and resulting in an adverse effect
on the Employer.

          An involuntary Termination of Employment by the Employer shall in all cases constitute an
Involuntary Termination Without Cause if the Termination of Employment occurs at any time after a
Change in Control.

     1.10 “Normal Retirement Age” means the Executive’s sixty-fifth (65th)
birthday.

     1.11 “Plan Year” means a twelve-month period commencing on January 1 and ending on December 31
of each year.

     1.12 “Section 409A” means Code section 409A and the Treasury regulations or other
authoritative guidance issued thereunder. Whenever the terms “subject to Section 409A” or “to the
extent permitted by Section 409A” (or any such similar reference so as to indicate that a Plan
provision is subject to Section 409A) are used, such terms shall be interpreted to mean that the
applicable Plan provision shall be effective only if and to the extent such provision would not
trigger penalty taxes or interest under Section 409A.

     1.13 “Specified Employee” means a key employee, as currently defined in Code §416(i) (without
regard to paragraph (5) thereof) to mean, as of the Effective Date, an employee of the Employer
who, at any time during the Plan Year, is (1) an officer of the Employer having an annual
compensation greater than one hundred thirty-five thousand dollars ($135,000) for 2007 (indexed for
inflation in future years); (ii) a five-percent (5%) owner of the Employer; or (iii) a one-percent
(1%) owner of the Employer having an annual compensation from the Employer of more than one hundred
fifty thousand dollars ($150,000).

     1.14 Termination of Employment” means that the Executive ceases to be employed by the Employer
for any reason whatsoever other than by reason of a leave of absence, which is approved by the
Employer. Notwithstanding the preceding, a Termination of Employment shall not include any event
that does not qualify as a “Separation from Service” under Code section 409A. In addition,
notwithstanding anything in the Plan to the contrary, as long as the Executive continues to

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be a
material service provider to the Employer (as determined by the Employer), the Executive shall not
be considered to have experienced a Termination of Employment solely because, following the
Effective Date, he experiences (a) a change in title and/or (b) a loss of one or more functions of
his employment for the Employer.

     1.15 “Vested Benefit” mean that portion of the Benefit that is vested as of the date of
reference. Except as provided below, the Executive shall vest in the Benefit at the following
rate, based on his age Years of Service:

	 	 	 
	Executive’s Age	 	Vested Percentage
	61
	 	7.5%
	62
	 	35%
	63
	 	60%
	64
	 	82%
	65
	 	100%

          Notwithstanding the preceding, the Executive’s Benefit shall become one hundred percent (100%)
vested as of the Executive’s Disability or Involuntary Termination Without Cause. In addition,
also notwithstanding the preceding, the Executive’s Benefit shall become one hundred percent (100%)
vested upon a Change in Control.

Article 2

Lifetime Benefits

     2.1 Lifetime Salary Continuation Benefit. Upon the earlier of the Executive’s attainment of
Normal Retirement Age or his Termination of Employment for any reason other than death, the
Employer shall pay to the Executive the benefit described in this Section 2.1 in lieu of any other
benefit under the Plan.

     2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 shall equal the
Executive’s Vested Benefit as of the earlier of the Executive’s attainment of Normal
Retirement Age or his Termination of Employment for any reason other than death.

     2.1.2 Payment of Benefit. The Employer shall pay the Executive’s Vested Benefit under
this Section 2.1 to the Executive as an annual benefit in twelve (12) equal monthly
installments payable over ten (10) years or the Executive’s lifetime, whichever is greater, on
the first day of each month commencing with the month following the earlier of the Executive’s
attainment of Normal Retirement Age or his Termination of Employment for any reason other than
death; provided, however, that to the extent required under Code section 409A, the payment (or
the first monthly payment) of the Executive’s Vested Benefit shall be
made no earlier than the date which is six (6) months after the Executive’s Termination
of Employment if the Executive is a Specified Employee and if Vested Benefit payments are due
to begin due to a Termination of Employment. In any case where distributions are delayed six

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(6) months in accordance with the preceding sentence, the first payment will include the total
number of monthly payments not paid due to the six (6) month delay.

     2.2 Excess Parachute Payment. Notwithstanding any provision of the Plan to the contrary, if
any benefit under the Plan would create an excise tax under the excess parachute rules of Section
280G of the Code, the Employer shall pay to the Executive the “Gross-Up Payment(s)” in the
amount(s) and manner described in Exhibit 2, attached hereto, in addition to all amounts due under
this Plan, which Plan amounts shall be paid as provided under the general provisions of this Plan.

Article 3

Death Benefits

     3.1 Death Before Benefit Payments Commence. If the Executive dies prior to the commencement
of Vested Benefit payments under the Plan, in lieu of any other benefit under this Plan, the
Participant’s beneficiary shall be entitled to an annual death benefit of two hundred and fifty
thousand dollars ($250,000) per year, which shall be payable to the Executive’s beneficiary in
twelve (12) equal monthly installments over the ten (10) year period following receipt by the
Employer of satisfactory proof of the Executive’s death.

     3.2 Death During Guaranteed Benefit Period. If the Executive dies after the commencement of
Vested Benefit payments under the Plan, but before the end of the guaranteed payment period under
Section 2.1.2 (i.e., before the end of the tenth (10th) year of payments), in lieu of
any other benefit under this Plan, the Executive’s beneficiary shall receive a continuation of the
annual Vested Benefit payments that had been payable to the Executive under Section 2.1 prior to
the Executive’s death. Any death benefit payable under this Section shall be payable to the
beneficiary in twelve (12) equal monthly installments over the remainder of the guaranteed payment
period commencing on, or as soon as practicable after, the Employer has been provided with
satisfactory proof of the Executive’s death.

     3.3 Death After Guaranteed Benefit Period. If the Executive dies after the commencement of
Vested Benefit payments under the Plan, and after the end of the guaranteed payment period under
Section 2.1.2 (i.e., after the end of the tenth (10th) year of payments), no further
benefits shall be payable under this Plan.

     3.4 Participant’s Beneficiary. The Executive shall designate his or her beneficiary
by filing a written designation with the Employer (Exhibit 2). The Executive may revoke or modify
the designation at any time by filing a new designation. However, designations will only be
effective if signed by the Executive and accepted by the Employer during the Executive’s lifetime.
The Executive’s beneficiary designation shall be deemed automatically revoked if the beneficiary
predeceases the Executive or if the Executive names a spouse as beneficiary and the marriage is
subsequently dissolved. If the Executive dies without a valid beneficiary designation, all
payments shall be made to the Executive’s estate.

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Article 4

Claims and Review Procedures

     4.1 Claims Procedure. This Section 4.1 is based on final regulations issued by the Department
of Labor and published in the Federal Register on November 21, 2000 and codified at 29 C.F.R.
§2560.503-1. If any provision of this Section 4.1 conflicts with the requirements of those
regulations, the requirements of those regulations will prevail.

          (a) Initial Claim. The Executive, a beneficiary or an entity that believes he or she
is entitled to any benefit (a “Claimant”) under the Plan may file a claim with the Employer. The
Employer will review the claim itself or appoint another individual or entity to review the claim.

               (i) Notice of Decision on Initial Claim. The Claimant will be notified within ninety
(90) days after the claim is filed whether the claim is allowed or denied, unless the Claimant
receives written notice from the Employer or appointee of the Employer before the end of the ninety
(90) day period stating that special circumstances require an extension of the time for decision,
such extension not to extend beyond the day which is one hundred eighty (180) days after the day
the claim is filed.

               (ii) Manner and Content of Denial of Initial Claims. If the Employer denies a claim,
it must provide to the Claimant, in writing or by electronic communication:

                    (A) The specific reasons for the denial;

                    (B) A reference to the Plan provision or insurance contract
provision upon which the denial is
based;

                    (C) A description of any additional information or material that
the Claimant must provide in
order to perfect the claim;

                    (D) An explanation of why such additional material or information
is necessary;

                    (E) Notice that the Claimant has a right to request a review of
the claim denial and
information on the steps to be taken if the Claimant wishes to request a review of the claim
denial; and

                    (F) A statement of the Executive’s right to bring a civil
action under section 502(a) of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”) following a denial on review
of the initial denial.

          (b) Review Procedures.

               (i) Request for Review of Denied Claim. A request for review of a denied claim must
be made in writing to the Employer within sixty (60) days after receiving notice

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of denial. The
decision upon review will be made within sixty (60) days after the Employer’s receipt of a request
for review, unless special circumstances require an extension of time for processing, in which case
a decision will be rendered not later than one hundred twenty (120) days after receipt of a request
for review. A notice of such an extension must be provided to the Claimant within the initial
sixty (60) day period and must explain the special circumstances and provide an expected date of
decision.

                    The reviewer will afford the Claimant an opportunity to review and
receive, without charge,
all relevant documents, information and records and to submit issues and comments in writing to the
Employer. The reviewer will take into account all comments, documents, records and other
information submitted by the Claimant relating to the claim regardless of whether the information
was submitted or considered in the initial benefit determination.

               (ii) Manner and Content of Notice of Decision on Review. Upon completion of its
review of an adverse initial claim determination, the Employer will give the Claimant, in writing
or by electronic notification, a notice containing:

                    (A) its decision;

                    (B) the specific reasons for the decision;

                    (C) the relevant Plan provisions or insurance contract provisions
on which its decision is
based;

                    (D) a statement that the Claimant is entitled to receive, upon
request and without charge,
reasonable access to, and copies of, all documents, records and other information in the Plan’s
files which is relevant to the Claimant’s claim for benefits;

                    (E) a statement describing the Claimant’s right to bring an
action for judicial review under
ERISA section 502(a); and

                    (F) if an internal rule, guideline, protocol or other similar
criterion was relied upon in
making the adverse determination on review, a statement that a copy of the rule, guideline,
protocol or other similar criterion will be provided without charge to the Claimant upon request.

          (c) Calculation of Time Periods. For purposes of the time periods specified in this
Section, the period of time during which a benefit determination is required to be made begins
at the time a claim is filed in accordance with this Plan’s procedures without regard to whether
all the information necessary to make a decision accompanies the claim. If a period of time is
extended due to a Claimant’s failure to submit all information necessary, the period for making the
determination will be tolled from the date the notification is sent to the Claimant until the date
the Claimant responds.

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          (d) Failure of Employer to Follow Procedures. If the Employer fails to follow the
claims procedures required by this Section, a Claimant will be deemed to have exhausted the
administrative remedies available under the Plan and will be entitled to pursue any available
remedy under ERISA section 502(a) on the basis that the Employer (on behalf of the Plan) has failed
to provide a reasonable claims procedure that would yield a decision on the merits of the claim.

          (e) Failure of Claimant to Follow Procedures. A Claimant’s compliance with the
foregoing provisions of this Section is a mandatory prerequisite to the Claimant’s right to
commence any legal action with respect to any claim for benefits under this Plan.

Article 5

Amendment

     5.1 Amendment. The Employer may, at any time, amend or modify the Plan in whole or in part,
by action of its Board of Directors; provided, however, that no amendment or modification shall be
effective without the consent of the Executive or, if the Executive is then deceased, without the
consent of the Executive’s beneficiaries.

Article 6

Miscellaneous

     6.1 Binding Effect. This Plan shall bind the Executive and the Employer, and their
beneficiaries, survivors, executors, successors, administrators and transferees.

     6.2 No Guarantee of Employment. This Plan is not an employment policy or contract. It does
not give the Executive the right to remain an employee of the Employer, nor does it interfere with
the Employer’s right to discharge the Executive. It also does not require the Executive to remain
an employee nor interfere with the Executive’s right to terminate employment at any time.

     6.3 Non-Transferability. Benefits under this Plan cannot be sold, transferred, assigned,
pledged, attached or encumbered in any manner.

     6.4 Reorganization. The Employer shall not merge or consolidate into or with another company,
or reorganize, or sell substantially all of its assets to another company, firm, or person unless
such succeeding or continuing company, firm, or person
agrees to assume and discharge the obligations of the Employer under this Plan. Upon the
occurrence of such event, the term “Employer” as used in this Plan shall be deemed to refer to the
successor or survivor company.

     6.5 Tax Withholding. The Employer shall withhold any taxes that are required to be withheld
from the benefits provided under this Plan.

     6.6 Applicable Law. The Plan and all rights hereunder shall be governed by the laws of the
State of Arkansas, except to the extent preempted by the laws of the United States of America.

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     6.7 Unfunded Arrangement. The Executive is a general unsecured creditor of the Employer for
the payment of benefits under this Plan. The benefits represent the mere promise by the Employer
to pay such benefits. The rights to benefits are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by
creditors. Any insurance on the Executive’s life is a general asset of the Employer to which the
Executive has no preferred or secured claim.

     6.8 Entire Agreement. This Plan constitutes the entire agreement between the Employer and the
Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of
this Plan other than those specifically set forth herein.

     6.9 Administration. The Employer shall have powers which are necessary to administer this
Plan, including but not limited to:

     (a) Interpreting the provisions of the Plan;

     (b) Establishing and revising the method of accounting for the Plan;

     (c) Maintaining a record of benefit payments; and

     (d) Establishing rules and prescribing any forms necessary or desirable to administer the
Plan.

     6.10 Named Fiduciary. The Employer shall be the named fiduciary and plan administrator under
this Plan. It may delegate to others certain aspects of the management and operational
responsibilities including the employment of advisors and the delegation of ministerial duties to
qualified individuals.

     6.11 Reimbursement of Expenses in Enforcing Rights. All reasonable costs and expenses,
including, without limitation, fees and disbursements of actuaries, accountants and counsels
incurred by the Executive in seeking in good faith to enforce rights pursuant to this Plan shall be
paid on behalf of or reimbursed to the Executive promptly by the Employer. The Executive shall be
responsible to reimburse the Employer for amounts expended by the Employer under this Section if an
enforcement action is initiated by the Executive hereunder and the Executive does not
substantially prevail on the merits of such enforcement action.

     6.12 Prohibited Acceleration/Distribution Timing. This Section shall take precedence over any
other provision of the Plan to the contrary. No provision of this Plan shall be followed if
following the provision would result in the acceleration of the time or schedule of any payment
from the Plan (i) as would require income tax to an Executive prior to the date on which the amount
is distributable to or on behalf of the Executive hereunder or (ii) which would result in penalties
to the Executive under Section 409A. In addition, if the timing of any distribution election would
result in any tax or other penalty (other than ordinarily payable Federal, state or local income or
payroll

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taxes), which tax or penalty can be avoided by payment of the distribution at a later time,
then the distribution shall be made (or commence, as the case may be) on (or as soon as practicable
after) the first date on which such distributions can be made (or commence) without such tax or
penalty.

     6.13 Aggregation of Employers. To the extent required under Section 409A, if the Employer is
a member of a controlled group of corporations or a group of trades or business under common
control (as described in Code §414(b) or (c)), all members of the group shall be treated as a
single Employer for purposes of whether there has occurred a Termination of Employment and for any
other purposes under the Plan as Section 409A shall require.

     IN WITNESS WHEREOF, a duly authorized officer of the Employer has signed this Plan document as
of April 20, 2007.

	 	 	 	 	 
	 	 	EMPLOYER: HOME BANCSHARES
	 
	 	 	 	 
	 

	 	By
	 	/s/ Dale A. Bruns
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Title
	 	Chairman Compensation Committee

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EXHIBIT 1

TO

HOME BANCSHARES

CHAIRMAN’S RETIREMENT PLAN

Beneficiary Designation Form

for John W. Allison

     I hereby revoke any prior designations of death benefit beneficiary/ies under the Plan, and I
hereby designate the following beneficiary/ies to receive any benefit payable on account of my
death under the Plan, subject to my right to change this designation and subject to the terms of
the Plan:

	A.	 	Primary Beneficiary/ie

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Name, Address,	 	Relationship to	 	 	% of Plan	 	 	Date of	 	 	Social Security	 
	Phone	 	Participant	 	 	Benefit	 	 	Birth	 	 	Number	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

	B.	 	Contingent Beneficiary/ies (Will receive indicated portions of Plan benefit if no
Primary Beneficiary/ies survive the Participant)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Name, Address,	 	Relationship to	 	 	% of Plan	 	 	Date of	 	 	Social Security	 
	Phone	 	Participant	 	 	Benefit	 	 	Birth	 	 	Number	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

     I acknowledge that I have been given a copy of the Plan and I agree that the above
elections are subject to all of the terms of the Plan.

	 	 	 
	Date:
                                        

	 	 
	 

	 	 
	 

	 	John W. Allison

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EXHIBIT 2

TO

HOME BANCSHARES

CHAIRMAN’S RETIREMENT PLAN

SECTION 280G GROSS-UP PROVISIONS

Equalization Payment.

If, upon or following a Change in Control, the Employer, in consultation with its legal advisors
and/or the Accounting Firm (defined below), determines that any payment under this Plan constitutes
an “excess parachute payment” as defined in Section 280G of the Internal Revenue Code of 1986, as
amended (the “Code”), then the Employer shall pay the Executive an additional amount (“Gross-Up
Payment”) such that the net amount retained by the Executive after deduction of any excise tax
imposed by Section 4999 (or any successor provision) of the Code and any interest charges or
penalties in respect of the imposition of such excise tax (collectively, the “Excise Tax”) on the
excess parachute payment, and any Federal, state and local income and employment taxes and Excise
Tax upon the Gross-Up Payment provided for by this Exhibit 2, shall be equal to the benefit the
Executive would have been entitled to receive under the Plan had no excess parachute payment under
the Plan occurred. Such Gross-Up Payment shall be made by the Employer to Executive or, at the
Employer’s election, to the applicable taxing authority on behalf of Executive, as soon as
practicable following the later of the date of the excess parachute payment or the calculation of
the Gross-Up Payment, and may be satisfied by the Employer making a payment or payments on
Executive’s account in lieu of withholding for tax purposes. Notwithstanding the preceding, or
anything else in this Exhibit 2, no Gross-Up Payment shall be made later than the end of the
Executive’s taxable year next following the Executive’s taxable year in which the Excise Tax
corresponding to the Gross-Up Payment is remitted.

Calculation of Gross-Up Payment. The determination of whether a Gross-Up Payment is required
pursuant to this Exhibit 2 and the amount of any such Gross-Up Payment shall be determined by the
Employer, in consultation with its legal advisors and/or a certified public accounting firm
selected by the Employer (the “Accounting Firm”), and shall be binding on all parties. Any
expenses associated with such determinations shall be paid by the Employer.

Computation Assumptions. For purposes of determining the existence of any excess parachute payment
from the Plan and, if applicable, the amount of any Excise Tax payable in respect of the excess
parachute payment, the calculating entity (e.g., the Accounting Firm) shall use such assumptions as
the Employer, in consultation with its legal advisors and/or the Accounting Firm, determines to be
reasonable based on all the facts and circumstances and any authoritative guidance issued under the
excess parachute payment provisions of the Code. For example, it is expected that the Executive
shall be assumed to pay Federal, state, and local income taxes at the highest applicable marginal
rate of taxation (subject, in the case of employment taxes, to any applicable wage base
limitations) in the calendar year in which the Gross-Up Payment is to be made.

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Executive’s Obligation to Notify Employer. Executive shall promptly notify the Employer in writing
of any claim by the Internal Revenue Service (or any successor thereof) or any state or local
taxing authority (individually or collectively, the “Taxing Authority”) that, if successful, would
require the payment by the Employer of a Gross-Up Payment in excess of any Gross-Up Payment as
originally determined as described above. If the Employer notifies Executive in writing that it
desires to contest such claim, Executive shall: (a) give the Employer any information reasonably
requested by the Employer relating to such claim; (b) take such action in connection with
contesting such claim as the Employer shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to such claim by an
attorney selected by the Employer that is reasonably acceptable to Executive; (c) cooperate with
the Employer in good faith in order to effectively contest such claim; and (d) permit the Employer
to participate in any proceedings relating to such claim; provided that the Employer shall bear and
pay directly all attorneys fees, costs and expenses (including additional interest, penalties and
additions to tax) incurred in connection with such contest and shall indemnify and hold Executive
harmless, on an after-tax basis, for all taxes (including, without limitation, income and excise
taxes), interest, penalties and additions to tax imposed in relation to such claim and in relation
to the payment of such costs and expenses or indemnification.

Subsequent Recalculation. In the event of a binding or uncontested determination by the Taxing
Authority that adjusts the computation determined above so that Executive did not receive the
greatest net benefit required pursuant to this Exhibit 2, if and to the extent permitted under
Section 409A, the Employer shall reimburse Executive as provided herein for the full amount
necessary to place Executive in the same after-tax position as he would have been in had no Excise
Tax applied. In the event of a binding or uncontested determination by the Taxing Authority that
adjusts the computation determined above so that Executive received a payment or benefit in excess
of the amount required pursuant to this Exhibit 2, then Executive shall promptly pay to the
Employer (without interest) the amount of such excess.

12exv4w1

 

Exhibit 4.1

 

Rights Agreement

Dated as of May 4, 2007,

By and Between

Peerless Mfg. Co.

and

Mellon Investor Services LLC,

as Rights Agent

 

 

TABLE OF CONTENTS

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

i

 

	 	 	 	 	 
	30. Governing Law
	 	 	34	 
	 
	 	 	 	 
	31. Severability
	 	 	34	 
	 
	 	 	 	 
	32. Descriptive Headings, Etc.
	 	 	35	 
	 
	 	 	 	 
	33. Determinations and Actions by the Board
	 	 	35	 
	 
	 	 	 	 
	34. Effective Time
	 	 	35	 
	 
	 	 	 	 
	35. Counterparts
	 	 	35	 
	 
	 	 	 	 
	Exhibit A
	 	 	A-1	 
	 
	 	 	 	 
	Exhibit B
	 	 	B-1	 

ii

 

RIGHTS AGREEMENT

     This Rights Agreement, dated as of May 4, 2007 (this “Agreement”), is made and entered into by
and between Peerless Mfg. Co., a Texas corporation (the “Company”), and Mellon Investor Services
LLC, a New Jersey limited liability company, as Rights Agent (the “Rights Agent”).

RECITALS

     WHEREAS, on May 4, 2007, the Board of Directors of the Company authorized and declared a
dividend distribution of one right (a “Right”) for each share of Common Stock, par value $1.00 per
share, of the Company (a “Common Share”) outstanding as of the Close of Business (as hereinafter
defined) on May 22, 2007 (the “Record Date”), and further authorized and directed the issuance of
one Right (subject to adjustment as provided herein) with respect to each Common Share issued or
delivered by the Company (whether originally issued or delivered from the Company’s treasury) after
the Record Date but prior to the earlier of the Distribution Date (as hereinafter defined) and the
Expiration Date (as hereinafter defined) or as provided in Section 22, each Right initially
representing the right to purchase one hundredth of a Common Share, on the terms and subject to the
conditions herein set forth.

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

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

     (a) “Acquiring Person” means any Person (other than the Company, any Related Person or any
Institutional Investor) who or which, together with all Affiliates and Associates of such Person,
is or becomes the Beneficial Owner of 20% or more of the then-outstanding Common Shares;
provided, however, that a Person will not be deemed to have become an Acquiring
Person solely as a result of a reduction in the number of Common Shares outstanding unless and
until such time as (A) such Person or any Affiliate or Associate of such Person thereafter becomes
the Beneficial Owner of additional Common Shares representing 1% or more of the then-outstanding
Common Shares, other than as a result of a stock dividend, stock split or similar transaction
effected by the Company in which all holders of Common Shares are treated equally, or (B) any other
Person who is the Beneficial Owner of Common Shares representing 1% or more of the then-outstanding
Common Shares thereafter becomes an Affiliate or Associate of such Person. Notwithstanding the
foregoing, 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
Section 1(a), has become such inadvertently, and such Person divests as promptly as practicable or
agrees in writing with the Company to divest, a sufficient number of Common Shares so that such
Person would no longer be an “Acquiring Person” as defined pursuant to the foregoing provisions of
this Section 1(a), then such Person shall not be deemed to be an “Acquiring Person” for any
purposes of this Agreement.

 

     (b) “Affiliate” and “Associate” will 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, provided, however, that a Person will not be deemed to be the
Affiliate or Associate of another Person solely because either or both Persons are or were
Directors of the Company.

     (c) A Person will be deemed the “Beneficial Owner” of, and to “Beneficially Own,” any
securities:

     (i) which such Person or any of such Person’s Affiliates or Associates is deemed to
beneficially own, directly or indirectly, within the meaning of Rule 13d-3 of the General
Rules and Regulations under the Exchange Act as in effect on the date of this Agreement;

     (ii) the beneficial ownership of which such Person or any of such Person’s Affiliates
or Associates, directly or indirectly, has the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in writing), or upon the exercise of conversion
rights, exchange rights, warrants, options or other rights (in each case, other than upon
exercise or exchange of the Rights); provided, however, that a Person will
not be deemed the Beneficial Owner of, or to Beneficially Own, securities tendered pursuant
to a tender or exchange offer made by or on behalf of such Person or any of such Person’s
Affiliates or Associates until such tendered securities are accepted for purchase or
exchange; or

     (iii) which such Person or any of such Person’s Affiliates or Associates, directly or
indirectly, has or shares the right to vote or dispose of, including pursuant to any
agreement, arrangement or understanding (whether or not in writing); or

     (iv) of which any other Person is the Beneficial Owner, if such Person or any of such
Person’s Affiliates or Associates has any agreement, arrangement or understanding (whether
or not in writing) with such other Person (or any of such other Person’s Affiliates or
Associates) with respect to acquiring, holding, voting or disposing of any securities of the
Company;

provided, however, that a Person will not be deemed the Beneficial Owner of, or to
Beneficially Own, any security (A) if such Person has the right to vote such security pursuant to
an agreement, arrangement or understanding (whether or not in writing) which (1) arises solely from
a revocable proxy or consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the
Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report), or (B) if such beneficial ownership arises solely as a result of
such Person’s status as a “clearing agency,” as defined in Section 3(a)(23) of the Exchange Act;
provided further, however, that nothing in this Section 1(c) will cause a
Person engaged in business as an underwriter of securities to be the Beneficial Owner of, or to
Beneficially Own, any securities acquired through such Person’s participation in good faith in an
underwriting

2

 

syndicate until the expiration of 40 calendar days after the date of such acquisition, or such
later date as the Directors of the Company may determine in any specific case.

     (d) “Business Day” means any day other than a Saturday, Sunday or a day on which banking
institutions in the State of Texas or New Jersey (or such other state 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 means 5:00 p.m., Dallas, Texas time, on such date;
provided, however, that if such date is not a Business Day, it means 5:00 p.m.,
Dallas, Texas time, on the next succeeding Business Day.

     (f) “Common Shares” when used with reference to the Company means the shares of Common Stock,
par value $1.00 per share, of the Company; provided, however, that if the Company
is the continuing or surviving corporation in a transaction described in Section 13(a)(ii), “Common
Shares” when used with reference to the Company means shares of the capital stock or units of the
equity interests with the greatest aggregate voting power of the Company. “Common Shares” when
used with reference to any corporation or other legal entity other than the Company, including an
Issuer, means shares of the capital stock or units of the equity interests with the greatest
aggregate voting power of such corporation or other legal entity.

     (g) “Company” means Peerless Mfg. Co., a Texas corporation.

     (h) “Distribution Date” means the earlier of: (i) the Close of Business on the tenth calendar
day following the Share Acquisition Date (or, if the tenth calendar day after the Share Acquisition
Date occurs before the Record Date, the Close of Business on the Record Date), or (ii) the Close of
Business on the tenth Business Day (or, unless the Distribution Date shall have previously
occurred, such later date as may be specified by the Board of Directors of the Company) after the
commencement of a tender or exchange offer by any Person (other than the Company or any Related
Person), if upon the consummation thereof such Person would be the Beneficial Owner of 20% or more
of the then-outstanding Common Shares.

     (i) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     (j) “Expiration Date” means the earliest of (i) the Close of Business on the tenth anniversary
of the Record Date, (ii) the time at which the Rights are redeemed as provided in Section 23, and
(iii) the time at which all exercisable Rights are exchanged as provided in Section 24.

     (k) “Flip-in Event” means any event described in clauses (A), (B) or (C) of Section 11(a)(ii).

     (l) “Flip-over Event” means any event described in clauses (i), (ii) or (iii) of Section
13(a).

3

 

     (m) “Institutional Investor” means a Person who is required to file, and has filed, a Schedule
13G with the Securities and Exchange Commission pursuant to Rule 13d-1 of the
General Rules and Regulations under the Exchange Act with respect to its holdings of shares of
the Company’s Common Shares, so long as (i) such Person is principally engaged in the business of
managing investment funds for unaffiliated securities investors and, as part of such Person’s
duties as agent for fully managed accounts, holds or exercises voting and/or dispositive power over
shares of the Company’s Common Shares, (ii) such Person acquires Beneficial Ownership of shares of
the Company’s Common Shares pursuant to trading activities undertaken in the ordinary course of
such Person’s business and not with the purpose nor the effect, either alone or in concert with any
other Person or Persons, of exercising the power to direct or cause the direction of the management
and policies of the Company or of otherwise changing or influencing the control of the Company, nor
in connection with or as a participant in any transaction having such purpose or effect, including
any transaction subject to Rule 13d-3(b) of the General Rules and Regulations under the Exchange
Act, and (iii) if such Person is a Person included in Rule 13d-1(b)(1)(ii) of the General Rules and
Regulations under the Exchange Act, such Person is not required to, has not and does not, file a
Schedule 13D with respect to the securities of the Company.

     (n) “Issuer” has the meaning set forth in Section 13(b).

     (o) “Person” means any individual, firm, corporation, limited liability company or other legal
entity, and includes any successor (by merger or otherwise) of such entity.

     (p) “Purchase Price” means initially $120.00 per Common Share (equivalent to $1.20 per one
hundredth of a Common Share), which Purchase Price will automatically be adjusted to $60.00 per
Common Share (equivalent to $0.60 per one hundredth of a Common Share) upon the payment of the
two-for-one stock split to be effected in the form of a stock dividend payable to holders of record
of Common Shares as of the Close of Business on May 18, 2007, and which Purchase Price is subject
to further adjustment from time to time as provided in this Agreement.

     (q) “Record Date” has the meaning set forth in the Recitals to this Agreement.

     (r) “Redemption Price” means $0.001 per Right, subject to adjustment by resolution of the
Board of Directors of the Company to reflect any stock split, stock dividend or similar transaction
occurring after the Record Date.

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

     (t) “Right” has the meaning set forth in the Recitals to this Agreement.

     (u) “Right Certificates” means certificates evidencing the Rights, in substantially the form
attached as Exhibit A.

4

 

     (v) “Rights Agent” means Mellon Investor Services LLC, unless and until a successor Rights
Agent has become such pursuant to the terms of this Agreement, and thereafter, “Rights Agent” means
such successor Rights Agent.

     (w) “Securities Act” means the Securities Act of 1933, as amended.

     (x) “Share Acquisition Date” means the first date of public announcement by the Company (by
press release, filing made with the Securities and Exchange Commission or otherwise) that an
Acquiring Person has become such.

     (y) “Subsidiary” when used with reference to any Person means any corporation or other legal
entity of which a majority of the voting power of the voting equity securities or equity interests
is owned, directly or indirectly, by such Person; provided, however, that for
purposes of Section 13(b), “Subsidiary” when used with reference to any Person means any
corporation or other legal entity of which at least 20% of the voting power of the voting equity
securities or equity interests is owned, directly or indirectly, by such Person.

     (z) “Trading Day” means any day on which the principal national securities exchange or
quotation system on which the Common Shares are listed or admitted to trading is open for the
transaction of business or, if the Common Shares are not listed or admitted to trading on any
national securities exchange or quotation system, a Business Day.

     (aa) “Triggering Event” means any Flip-in Event or Flip-over Event.

     2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act
as agent for the Company in accordance with the terms and conditions of this Agreement, and the
Rights Agent hereby accepts such appointment and hereby certifies that it complies with the
applicable requirements governing transfer agents and registrars. The Company may from time to
time act as Co-Rights Agent or appoint such Co-Rights Agents as it may deem necessary or desirable
upon ten (10) days’ prior written notice to the Rights Agent. Any actions which may be taken by
the Rights Agent pursuant to the terms of this Agreement may be taken by any such Co-Rights Agent.
To the extent that any Co-Rights Agent takes any action pursuant to this Agreement, such Co-Rights
Agent will be entitled to all of the rights and protections of, and subject to all of the
applicable duties and obligations imposed upon, the Rights Agent pursuant to the terms of this
Agreement. 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.

     3. Issue of Right Certificates. (a) Until the Distribution Date, (i) the Rights will
be evidenced by the certificates representing Common Shares registered in the names of the record
holders thereof, which certificates representing Common Shares will also be deemed to be Right
Certificates (or, if the Common Shares are uncertificated, by the registration of the associated
Common Shares on the stock transfer books of the Company), (ii) the Rights will be transferable
only in connection with the transfer of the underlying Common Shares, and (iii) the transfer of any
Common Shares in respect of which Rights have been issued will also constitute the transfer of the
Rights associated with such Common Shares. Commencing as promptly as practicable after the Record
Date, the Company will make available a copy of a Summary of Common Stock

5

 

Purchase Rights in substantially the form attached as Exhibit B to any holder of Rights who may request it
from time to time prior to the Expiration Date.

     (b) Rights will be issued by the Company in respect of all Common Shares (other than Common
Shares issued upon the exercise or exchange of any Right) issued or delivered by
the Company (whether originally issued or delivered from the Company’s treasury) after the
Record Date but prior to the earlier of the Distribution Date and the Expiration Date.
Certificates evidencing such Common Shares will have stamped on, impressed on, printed on, written
on, or otherwise affixed to them the following legend or such similar legend as the Company may
deem appropriate and as is not inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any stock exchange or quotation system on which the Common Shares
may from time to time be listed or quoted, or to conform to usage:

This Certificate also evidences and entitles the holder hereof to certain Rights as
set forth in a Rights Agreement between Peerless Mfg. Co. and Mellon Investor
Services LLC, dated as of May 4, 2007 (the “Rights Agreement”), as may be amended
from time to time, the terms of which are hereby incorporated herein by reference
and a copy of which is on file at the principal executive offices of Peerless Mfg.
Co. The Rights are not exercisable prior to the occurrence of certain events
specified in the Rights Agreement. Under certain circumstances, as set forth in the
Rights Agreement, such Rights may be redeemed, may be exchanged, may expire, may be
amended, or may be evidenced by separate certificates and no longer be evidenced by
this Certificate. Peerless Mfg. Co. will mail to the holder of this Certificate a
copy of the Rights Agreement, as in effect on the date of mailing, without charge
promptly after receipt of a written request therefor. Under certain circumstances
as set forth in the Rights Agreement, Rights that are or were beneficially owned by
an Acquiring Person or any Affiliate or Associate of an Acquiring Person (as such
terms are defined in the Rights Agreement) may become null and void.

     (c) Any Right Certificate issued pursuant to this Section 3 that represents Rights
beneficially owned by an Acquiring Person or any Associate or Affiliate thereof and any Right
Certificate issued at any time upon the transfer of any Rights to an Acquiring Person or any
Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate
and any Right Certificate issued pursuant to Section 6 or 11 upon transfer, exchange, replacement
or adjustment of any other Right Certificate referred to in this sentence, shall be subject to and
contain the following legend or such similar legend as the Company may deem appropriate and as is
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:

The Rights represented by this Right Certificate are or were beneficially owned by a
Person who was an Acquiring Person or an Affiliate or an Associate of an Acquiring
Person (as such terms are defined in the Rights Agreement). This Right Certificate
and the Rights represented hereby may become null and void in the

6

 

circumstances specified in Section 11(a)(ii) or Section 13 of the Rights Agreement.

     (d) As promptly as practicable after the Distribution Date, the Company will prepare and
execute, the Rights Agent will countersign and the Company will send or cause to be sent
(and the Rights Agent will, if requested and if provided with all necessary information,
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, subject to
adjustment as provided herein. As of and after the Distribution Date, the Rights will be evidenced
solely by such Right Certificates. The Company shall promptly notify the Rights Agent in writing
upon the occurrence of the Distribution Date and, if such notification is given orally, the Company
shall confirm same in writing on or prior to the Business Day next following. Until such notice is
received by the Rights Agent, the Rights Agent may presume conclusively that the Distribution Date
has not occurred.

     (e) In the event that the Company purchases or otherwise acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such Common Shares will
be deemed canceled and retired so that the Company will not be entitled to exercise any Rights
associated with the Common Shares so purchased or acquired.

     4. Form of Right Certificates. The Right Certificates (and the form of election to
purchase and the form of assignment to be printed on the reverse thereof) will be substantially in
the form attached as Exhibit A with such changes and marks of identification or
designation, and such legends, summaries or endorsements printed thereon, as the Company may deem
appropriate (but which do not affect the rights, duties or 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 or quotation system on which the Rights may from time to time be
listed or quoted, or to conform to usage. Subject to the provisions of Section 22, the Right
Certificates, whenever issued, on their face will entitle the holders thereof to purchase such
number of Common Shares as are set forth therein at the Purchase Price set forth therein, but the
Purchase Price, the number and kind of securities issuable upon exercise of each Right and the
number of Rights outstanding will be subject to adjustment as provided herein.

     5. Countersignature and Registration. (a) The Right Certificates will be executed on
behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its Chief
Financial Officer, President or any Vice President, either manually or by facsimile signature, and
will have affixed thereto the Company’s seal or a facsimile thereof which will be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The
Right Certificates will be countersigned by the Rights Agent, either manually or by facsimile
signature, and will not be valid for any purpose unless so countersigned. In case any officer of
the Company who signed any of the Right Certificates ceases 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

7

 

Certificate may be signed on behalf of the Company by any person who, at the actual date of the
execution of such Right Certificate, is
a proper officer of the Company to sign such Right Certificate, although at the date of the
execution of this Agreement any such person was not such officer.

     (b) Following the Distribution Date, receipt by the Rights Agent of notice to that effect and
receipt of all other relevant information referred to in Section 3(d) above, the Rights Agent will
keep or cause to be kept, at the office of the Rights Agent designated for such purpose and at such
other offices as may be required to comply with any applicable law or with any rule or regulation
made pursuant thereto or with any rule or regulation of any stock exchange or any quotation system
on which the Rights may from time to time be listed or quoted, books for registration and transfer
of the Right Certificates issued hereunder. Such books will 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.

     6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates. (a) Subject to the provisions of Sections 7(d)
and 14, at any time after the Close of Business on the Distribution Date and prior to the
Expiration Date, any Right Certificate or Right Certificates representing exercisable Rights 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 Common Shares (or other securities, as
the case may be) as the Right Certificate or Right Certificates surrendered then entitled such
holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any such Right Certificate or Right Certificates must make
such request in a writing delivered to the Rights Agent and must surrender the Right Certificate or
Right Certificates to be transferred, split up, combined or exchanged at the office of the Rights
Agent designated for such purpose. The Rights Certificates are transferable only on the registry
books 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 or the Rights Agent shall reasonably request. Thereupon or as
promptly as practicable thereafter, subject to the provisions of Sections 7(d) and 14, the Company
will prepare, execute and deliver to the Rights Agent, and the Rights Agent will countersign and
deliver, a Right Certificate or Right Certificates, as the case may be, as so requested. The
Company or the Rights Agent may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split up, combination or
exchange of Right Certificates. The Rights Agent shall have no duty or obligation under this
Section unless and until it is satisfied that all such taxes and/or governmental charges have been
paid.

     (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to
them of the loss, theft, destruction or mutilation of a Right Certificate and, in case of loss,
theft or destruction, of indemnity or security satisfactory to them, and, if requested by the

8

 

Company, 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 prepare, execute and deliver a new Right Certificate of like tenor to
the Rights Agent and the Rights Agent will countersign and deliver such new Right Certificate to
the registered holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.

     7. Exercise of Rights; Purchase Price; Expiration Date of Rights. (a) The registered
holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date and prior to the
Expiration Date, upon surrender of the Right Certificate, with the form of election to purchase on
the reverse side thereof duly executed, to the Rights Agent at the office or offices of the Rights
Agent designated for such purpose, together with payment in cash, in lawful money of the United
States of America by certified check or bank draft payable to the order of the Company, equal to
the sum of (i) the Purchase Price for the total number of securities as to which such surrendered
Rights are exercised and (ii) an amount equal to any applicable transfer tax required to be paid by
the holder of such Right Certificate in accordance with the provisions of Section 9(d).

     (b) Upon receipt of a Right Certificate representing exercisable Rights with the form of
election to purchase duly executed, accompanied by payment as described above, the Rights Agent
will promptly (i) requisition from any transfer agent of the Common Shares (or make available, if
the Rights Agent is the transfer agent) certificates representing the number of Common Shares to be
purchased or, in the case of uncertificated shares or other securities, requisition from any
transfer agent therefor a notice setting forth such number of shares or other securities to be
purchased for which registration will be made on the stock transfer books of the Company (and the
Company hereby irrevocably authorizes and directs its transfer agent to comply with all such
requests), or, if the Company elects to deposit Common Shares issuable upon exercise of the Rights
hereunder with a depositary agent, requisition from the depositary agent depositary receipts
representing such number of Common Shares as are to be purchased (and the Company hereby
irrevocably authorizes and directs such depositary agent to comply with all such requests), (ii)
after receipt of such certificates (or notices or depositary receipts, as the case may be), 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, (iii) when appropriate,
requisition from the Company or any transfer agent therefor (or make available, if the Rights Agent
is the transfer agent) certificates representing the number of equivalent common shares (or, in the
case of uncertificated shares, a notice of the number of equivalent common shares for which
registration will be made on the stock transfer books of the Company) to be issued in lieu of the
issuance of Common Shares in accordance with the provisions of Section 11(a)(iii), (iv) when
appropriate, after receipt of such certificates or notices, 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, (v) when appropriate, requisition from the Company the amount
of cash to be paid in lieu of the issuance of fractional shares in accordance with the provisions
of Section 14 or in lieu of the issuance of Common Shares in accordance with the provisions of
Section 11(a)(iii), (vi) when appropriate, after receipt, deliver such cash to or upon the order of
the registered holder of such Right Certificate, and (vii) when appropriate, deliver any due bill
or other instrument provided to the Rights Agent by the Company for delivery to the registered
holder of such Right

9

 

Certificate as provided by Section 11(l). In the event that the Company is
obligated to issue other securities (including Common Shares) of the Company, pay cash and/or
distribute other property pursuant to Section 11(a), the Company shall make all arrangements
necessary so that such other securities, cash and/or other property are available for distribution
by the Rights Agent, if and when necessary to comply with this Agreement.

     (c) In case the registered holder of any Right Certificate exercises less than all the Rights
evidenced thereby, the Company will prepare, execute and deliver a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised and the Rights Agent will countersign and
deliver such new Right Certificate to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14.

     (d) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor
the Company will be obligated to undertake any action with respect to any purported transfer, split
up, combination or exchange of any Right Certificate pursuant to Section 6 or exercise of a Right
Certificate as set forth in this Section 7 unless the registered holder of such Right Certificate
has (i) properly completed and duly signed the certificate following the form of assignment or the
form of election to purchase, as applicable, set forth on the reverse side of the Right Certificate
surrendered for such transfer, split up, combination, exchange or 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 may reasonably request. The
Company shall give the Rights Agent written notice of the identity of any such Acquiring Person,
Associate or Affiliate, or the nominee of any of the foregoing, and the Rights Agent may rely on
such notice in carrying out its duties under this Agreement and shall be deemed not to have any
knowledge of the identity of any such Acquiring Person, Associate or Affiliate, or the nominee of
any of the foregoing unless and until it shall have received such notice.

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

     9. Company Covenants Concerning Securities and Rights. The Company covenants and
agrees that:

     (a) The Company will use its best efforts to reserve and keep available out of its authorized
and unissued Common Shares (and/or other securities) or any Common Shares

10

 

(and/or other securities) held in its treasury, a number of Common Shares (and/or other securities)
that will be sufficient to permit the exercise in full of all outstanding Rights in accordance with Section 7.

     (b) So long as the Common Shares (and, following the occurrence of a Triggering Event, other
securities) issuable upon the exercise of the Rights may be listed on a national securities
exchange or quoted on a quotation system, the Company will endeavor to cause, from and after such
time as the Rights become exercisable, all securities reserved for issuance upon the exercise of Rights
to be listed on such exchange or quoted on such system, upon official notice of issuance upon such exercise.

     (c) The Company will take all such action as may be necessary to ensure that all Common Shares
(and, following the occurrence of a Triggering Event, other securities) delivered (or evidenced by
registration on the stock transfer books of the Company) upon exercise of Rights, at the time of
delivery of the certificates for (or registration of) such securities, will be (subject to payment
of the Purchase Price) duly authorized, validly issued, fully paid and nonassessable securities.

     (d) The Company will pay when due and payable any and all taxes and charges that may be
payable in respect of the issuance or delivery of the Right Certificates and of any certificates
representing securities issued upon the exercise of Rights (or, if such securities are
uncertificated, the registration of such securities on the stock transfer books of the Company);
provided, however, that the Company will not 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 issuance or delivery of certificates or depositary receipts representing (or the
registration of) securities issued upon the exercise of Rights in a name other than that of, the
registered holder of the Right Certificate evidencing Rights surrendered for exercise, or to issue
or deliver any certificates, depositary receipts or notices representing securities issued upon the
exercise of any Rights until any such tax or charge has 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 or the Rights Agent’s reasonable satisfaction that no such tax or
charge is due.

     (e) The Company will use its best efforts (i) to file on an appropriate form, as soon as
practicable following the later of the Share Acquisition Date and the Distribution Date, a
registration statement under the Securities Act with respect to the securities issuable upon
exercise of the Rights, (ii) to cause such registration statement to become effective as soon as
practicable after such filing, (iii) to cause such registration statement to remain effective (with
a prospectus at all times meeting the requirements of the Securities Act) until the earlier of (A)
the date as of which the Rights are no longer exercisable for such securities and (B) the
Expiration Date, and (iv) to obtain such other regulatory approvals as may be necessary for it to
issue securities purchasable upon the exercise of the Rights. The Company will also take such
action as may be appropriate under, or to ensure compliance with, the applicable state securities
or “blue sky” laws of the various states in connection with the exercisability of the Rights. The
Company may temporarily suspend, for a period of time not to exceed ninety (90) days after the date
set forth in clause (i) of the first sentence of this Section 9(e), the exercisability of the
Rights in order to prepare and file such registration statement and to permit it to become
effective. Upon any such suspension, the Company will issue a public announcement stating that the

11

 

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. In addition, if the Company determines that a
registration statement should be filed under the Securities Act or any state securities laws
following the Distribution Date, the Company may temporarily suspend, for a period of time not to
exceed ninety (90) days after the date set forth in clause (i) of the first sentence of this
Section 9(e), the exercisability of the Rights in each relevant jurisdiction until such time as a
registration statement has been declared effective and, upon any such suspension, the Company will
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. The Company shall notify the Rights Agent whenever it makes a public announcement pursuant
to this Section 9(e) and give the Rights Agent a copy of such announcement. Notwithstanding
anything in this Agreement to the contrary, the Rights will not be exercisable in any jurisdiction
if the requisite registration or qualification in such jurisdiction has not been effected or the
exercise of the Rights is not permitted under applicable law.

     (f) Notwithstanding anything in this Agreement to the contrary, after the later of the Share
Acquisition Date and the Distribution Date the Company will not take (or permit any Subsidiary to
take) any action if at the time such action is taken it is reasonably foreseeable that such action
will eliminate or otherwise diminish the benefits intended to be afforded by the Rights.

     (g) In the event that the Company is obligated to issue other securities of the Company and/or
pay cash pursuant to Section 11, 13, 14 or 24, it will make all arrangements necessary so that such
other securities and/or cash are available for distribution by the Rights Agent, if and when
appropriate.

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

     11. Adjustment of Purchase Price, Number and Kind of Securities or Number of Rights.
The Purchase Price, the number and kind of securities issuable upon exercise of each

12

 

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 that the Company at any time after the Record Date (A)declares a
dividend on the Common Shares payable in Common Shares, (B) subdivides the outstanding
Common Shares, (C) combines the outstanding Common Shares into a smaller number of Common
Shares, or (D) issues any shares of its capital stock in a reclassification of the Common
Shares (including any such reclassification in connection with a consolidation or merger in
which the Company is the continuing or surviving
corporation), 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/or the number and/or kind of shares of
capital stock issuable on such date upon exercise of a Right, will be proportionately
adjusted so that the holder of any Right exercised after such time is entitled to receive
upon payment of the Purchase Price then in effect the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such date and at
a time when the transfer books of the Company for the Common Shares were open, the holder of
such Right would have owned upon such exercise (and, in the case of a reclassification,
would have retained after giving effect to such reclassification) and would have been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the aggregate par value
of the shares of capital stock issuable upon exercise of one Right. If an event occurs
which would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) or
Section 13, the adjustment provided for in this Section 11(a)(i) will be in addition to, and
will be made prior to, any adjustment required pursuant to Section 11(a)(ii) or Section 13.

(ii) Subject to the provisions of Section 24, if:

(A) any Person becomes an Acquiring Person; or

     (B) any Acquiring Person or any Affiliate or Associate of any Acquiring Person, directly or
indirectly, (1) merges into the Company or otherwise combines with the Company and the Company
is the continuing or surviving corporation of such merger or combination (other than in a
transaction subject to Section 13), (2) merges or otherwise combines with any Subsidiary of the
Company, (3) in one or more transactions (otherwise than in connection with the exercise,
exchange or conversion of securities exercisable or exchangeable for or convertible into shares
of any class of capital stock of the Company or any of its Subsidiaries) transfers cash,
securities or any other property to the Company or any of its Subsidiaries in exchange (in whole
or in part) for shares of any class of capital stock of the Company

13

 

or any of its Subsidiaries
or for securities exercisable or exchangeable for or convertible into shares of any class of
capital stock of the Company or any of its Subsidiaries, or otherwise obtains from the Company
or any of its Subsidiaries, with or without consideration, any additional shares of any class of
capital stock of the Company or any of its Subsidiaries or securities exercisable or
exchangeable for or convertible into shares of any class of capital stock of the Company or any
of its Subsidiaries (otherwise than as part of a pro rata distribution to all holders of shares
of any class of capital stock of the Company, or any of its Subsidiaries), (4) sells, purchases,
leases, exchanges, mortgages, pledges, transfers or otherwise disposes (in one or more
transactions) to, from, with or of, as the case may be, the Company or any of its Subsidiaries
(otherwise than in a transaction subject to Section 13), any property, including securities, on
terms and conditions less favorable to the Company than the Company would be able to obtain in
an arm’s-length transaction with an unaffiliated third party, (5) receives any compensation from
the Company or any of its Subsidiaries other than compensation as a director or a regular
full-time employee, in either case at rates consistent with the Company’s (or its Subsidiaries’)
past practices, or (6) receives the benefit, directly or indirectly (except proportionately as a
stockholder), of any
loans, advances, guarantees, pledges or other financial assistance or any tax credits or
other tax advantage provided by the Company or any of its Subsidiaries; or

     (C) during such time as there is an Acquiring Person, there is any reclassification of
securities of the Company (including any reverse stock split), or any recapitalization of the
Company, or any merger or consolidation of the Company with any of its Subsidiaries, or any
other transaction or series of transactions involving the Company or any of its Subsidiaries
(whether or not with or into or otherwise involving an Acquiring Person), other than a
transaction subject to Section 13, which has the effect, directly or indirectly, of increasing
by more than 1% the proportionate share of the outstanding shares of any class of equity
securities of the Company or any of its Subsidiaries, or of securities exercisable or
exchangeable for or convertible into equity securities of the Company or any of its
Subsidiaries, of which an Acquiring Person, or any Affiliate or Associate of any Acquiring
Person, is the Beneficial Owner;

then, and in each such case, from and after the latest of the Distribution Date, the
Share Acquisition Date and the date of the occurrence of such Flip-in Event, proper
provision will be made so that each holder of a Right, except as provided below, will
thereafter have the right to receive, upon exercise thereof in accordance with the terms
of this Agreement at an exercise price per Right equal to the product of one hundred
times the then-current Purchase Price per Common Share multiplied by the number of
Common Shares for which a Right was exercisable immediately prior to the date of the
occurrence of such Flip-in Event (or, if any other Flip-in Event shall have previously
occurred, the product of one hundred times the then-current Purchase Price per Common
Share multiplied by the number of Common Shares for which a Right was exercisable
immediately prior to the date of the first occurrence of a Flip-in Event), such number
of Common Shares as equals the result obtained by (x) multiplying the product of one
hundred times the then-current Purchase Price per Common Share by the number of Common
Shares for which a Right was exercisable immediately prior to the date of the occurrence
of such Flip-in Event (or, if any other Flip-in Event shall have previously occurred,
multiplying the product of one hundred times the then-current Purchase Price per Common
Share by the number of Common Shares for which a Right was exercisable immediately prior
to the date of the first occurrence of a Flip-in Event), and dividing that product by
(y) 50% of the current per share market price of the Common Shares (determined pursuant
to Section 11(d)) on the date of the occurrence of such Flip-in Event. Notwithstanding
anything in this Agreement to the contrary, from and after the first occurrence of a
Flip-in Event, any

14

 

Rights that are Beneficially Owned by (A) any Acquiring Person (or
any Affiliate or Associate of any Acquiring Person), (B) a transferee of any Acquiring
Person (or any such Affiliate or Associate) who becomes a transferee after the
occurrence of a Flip-in Event, or (C) a transferee of any Acquiring Person (or any such
Affiliate or Associate) who became a transferee prior to or concurrently with the
occurrence of a Flip-in Event pursuant to either (1) a transfer from an Acquiring Person
to holders of its equity securities or to any Person with whom it has any continuing
agreement, arrangement or understanding regarding the transferred Rights or (2) a
transfer which the Directors of the Company have determined is part of a plan,
arrangement or understanding which has the purpose or effect of avoiding the provisions
of this
Section 11(a)(ii), and subsequent transferees of any of such Persons, will be null and
void without any further action and any holder of such Rights will thereafter have no
rights whatsoever with respect to such Rights under any provision of this Agreement.
The Company will use all reasonable efforts to ensure that the provisions of this
Section 11(a)(ii) are complied with, but will have no liability to any holder of Right
Certificates or any other Person as a result of its failure to make any determinations
with respect to an Acquiring Person or its Affiliates, Associates or transferees
hereunder. Upon the occurrence of a Flip-in Event, no Right Certificate that represents
Rights that are or have become null and void pursuant to the provisions of this Section
11(a)(ii) will thereafter be issued pursuant to Section 3 or Section 6, and any Right
Certificate delivered to the Rights Agent that represents Rights that are or have become
null and void pursuant to the provisions of this Section 11(a)(ii) will be canceled.
Upon the occurrence of a Flip-over Event, any Rights that shall not have been previously
exercised pursuant to this Section 11(a)(ii) shall thereafter be exercisable only
pursuant to Section 13 and not pursuant to this Section 11(a)(ii).

          (iii) Upon the occurrence of a Flip-in Event, if there are not sufficient Common Shares
authorized but unissued or issued but not outstanding to permit the issuance of all the Common
Shares issuable in accordance with Section 11(a)(ii) upon the exercise of a Right, the Board of
Directors of the Company will use its best efforts promptly to authorize and, subject to the
provisions of Section 9(e), make available for issuance additional Common Shares or other equity
securities of the Company having equivalent voting rights and an equivalent value (as determined
in good faith by the Board of Directors of the Company) to the Common Shares (for purposes of
this Section 11(a)(iii), “equivalent common
shares”). In the event that equivalent common shares are so authorized, upon the exercise of a Right in accordance with the provisions of
Section 7, the registered holder will be entitled to receive (A) Common Shares, to the extent
any are available, and (B) a number of equivalent common shares, which the Board of Directors of
the Company has determined in good faith to have a value equivalent to the excess of (x) the
aggregate current per share market value on the date of the occurrence of the most recent
Flip-in Event of all the Common Shares issuable in accordance with Section 11(a)(ii) upon the
exercise of a Right (the “Exercise Value”) over (y) the aggregate current per share market value
on the date of the occurrence of the most recent Flip-in Event of any Common Shares available
for issuance upon the exercise of such Right; provided, however, that if at any
time after 90 calendar days after the latest of the Share Acquisition Date, the Distribution
Date and the date of the occurrence of the most recent Flip-in Event, there are not sufficient
Common Shares and/or

15

 

equivalent common shares available for issuance upon the exercise of a
Right, then the Company will be obligated to deliver, upon the surrender of such Right and
without requiring payment of the Purchase Price, Common Shares (to the extent available),
equivalent common shares (to the extent available) and then cash (to the extent permitted by
applicable law and any agreements or instruments to which the Company is a party in effect
immediately prior to the Share Acquisition Date), which securities and cash have an aggregate
value equal to the excess of (1) the Exercise Value over (2) the product of one hundred times
the then-current Purchase Price per Common Share multiplied by the number of Common Shares for
which a Right was exercisable immediately prior to the date of the occurrence of the most recent
Flip-in Event (or, if any other Flip-in Event shall have previously occurred, the product of one
hundred times the then-current Purchase Price per Common Share multiplied
by the number of Common Shares for which a Right would have been exercisable immediately
prior to the date of the occurrence of such Flip-in Event if no other Flip-in Event had
previously occurred). To the extent that any legal or contractual restrictions prevent the
Company from paying the full amount of cash payable in accordance with the foregoing sentence,
the Company will pay to holders of the Rights as to which such payments are being made all
amounts which are not then restricted on a pro rata basis and will continue to make payments on
a pro rata basis as promptly as funds become available until the full amount due to each such
Rights holder has been paid.

     (b) In the event that the Company fixes a record date for the issuance of rights, options or
warrants to all holders of Common Shares entitling them (for a period expiring within 45 calendar
days after such record date) to subscribe for or purchase Common Shares (or common stock
equivalents) or securities convertible into Common Shares or equivalent common shares at a price
per Common Share or equivalent common share (or having a conversion price per share, if a security
convertible into Common Shares or equivalent common shares) less than the current per share market
price of the Common Shares (determined pursuant to Section 11(d)) on such record date, the Purchase
Price to be in effect after such record date will be determined by multiplying the Purchase Price
in effect immediately prior to such record date by a fraction, the numerator of which is the number
of Common Shares outstanding on such record date plus the number of Common Shares which the
aggregate offering price of the total number of Common Shares and/or equivalent common 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 per share market price and the denominator of which is the
number of Common Shares outstanding on such record date plus the number of additional Common Shares
and/or equivalent common 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 issuable upon exercise of one
Right. In case such subscription price may be paid in a consideration part or all of which is in a
form other than cash, the value of such consideration will be as determined in good faith by the
Board of Directors of the Company, whose determination will be described in a statement filed with
the Rights Agent. Common Shares owned by or held for the account of the Company will not be deemed
outstanding for the purpose of any such computation. Such adjustment will 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

16

 

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

     (c) In the event that the Company fixes a record date for the making of a distribution to all
holders of Common 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, cash (other than a regular periodic cash dividend), assets, stock (other than a
dividend payable in Common Shares) or subscription rights, options or warrants (excluding those
referred to in Section 11(b)), the Purchase Price to be in effect after such record date will be
determined by multiplying the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which is the current per share market price of the Common Shares (as
determined pursuant to Section 11(d)) on such record date or, if earlier, the date on which Common
Shares begin to trade on an ex-dividend or when issued basis for such
distribution, less the fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination will be described in a statement filed with the
Rights Agent) of the portion of the evidences of indebtedness, cash, assets or stock so to be
distributed or of such subscription rights, options or warrants applicable to one Common Share, and
the denominator of which is such current per share market price of the Common 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 issuable
upon exercise of one Right. Such adjustments will be made successively whenever such a record date
is fixed; and in the event that such distribution is not so made, the Purchase Price will again be
adjusted to be the Purchase Price which would then be in effect if such record date had not been
fixed.

     (d) For the purpose of any computation hereunder, the “current per share market price” of
Common Shares on any date will be deemed to be the average of the daily closing prices per share of
such Common Shares for the 30 consecutive Trading Days immediately prior to but not including such
date; provided, however, that in the event that the current per share market price
of the Common Shares is determined during a period following the announcement by the issuer of such
Common Shares of (A)a dividend or distribution on such Common Shares payable in such Common Shares
or securities convertible into such Common Shares (other than the Rights) or (B)any subdivision,
combination or reclassification of such Common Shares, and prior to the expiration of 30 Trading
Days after but not including the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then, and in each such case, the
current per share market price will be appropriately adjusted to take into account ex-dividend
trading or to reflect the current per share market price per Common Share equivalent. The closing
price for each day will 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 quotation system with respect to securities listed or admitted to trading
on the New York Stock Exchange or, if the Common Shares are not listed or admitted to trading on
the New York Stock Exchange, as reported in the principal quotation system with respect to
securities listed on the principal national securities exchange on which the Common Shares are
listed or admitted to trading or, if the Common Shares 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 such market then in use,
or, if on any such date the Common

17

 

Shares 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
Common Shares selected by the Board of Directors of the Company. If the Common Shares are not
publicly held or not so listed or traded, or are not the subject of available bid and asked quotes,
“current per share market price” will mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination will be described in a statement filed
with the Rights Agent.

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

     (f) If as a result of an adjustment made pursuant to Section 11(a), the holder of any Right
thereafter exercised becomes entitled to receive any securities of the Company other than Common
Shares, thereafter the number and/or kind of such other securities so receivable upon exercise of
any Right (and/or the Purchase Price in respect thereof) will be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to
the Common Shares (and the Purchase Price in respect thereof) contained in this Section 11, and the
provisions of Sections 7, 9, 10, 13 and 14 with respect to the Common Shares (and the Purchase
Price in respect thereof) will apply on like terms to any such other securities (and the Purchase
Price in respect thereof).

     (g) All Rights originally issued by the Company subsequent to any adjustment made to the
Purchase Price hereunder will evidence the right to purchase, at the adjusted Purchase Price, the
number of Common Shares issuable from time to time hereunder upon exercise of the Rights, all
subject to further adjustment as provided herein.

     (h) Unless the Company has exercised its election as provided in Section 11(i), upon each
adjustment of the Purchase Price pursuant to Section 11(b) or Section 11(c), each Right outstanding
immediately prior to the making of such adjustment will thereafter evidence the right to purchase,
at the adjusted Purchase Price, that number of Common Shares (calculated to the nearest one
ten-thousandth of a Common Share) obtained by (i) multiplying (x) the number of Common Shares
issuable upon exercise of a Right immediately prior to such adjustment of the Purchase Price 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 Common Shares
issuable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the
number of Rights will be exercisable for the number of Common Shares for

18

 

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

     (j) Without respect to any adjustment or change in the Purchase Price and/or the number and/or
kind of securities issuable upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the Purchase Price and the number and kind of securities
which were expressed in the initial Right Certificate issued hereunder.

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

     (l) In any case in which this Section 11 otherwise requires 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 prompt written notice to the Rights Agent) until the occurrence of such event the issuance to
the holder of any Right exercised after such record date the number of Common Shares or other
securities of the Company, if any, issuable upon such exercise over and above the number of Common
Shares or other 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 delivers to such holder a due bill or other appropriate instrument evidencing such holder’s
right to receive such additional Common Shares or other securities upon the occurrence of the event
requiring such adjustment.

19

 

     (m) Notwithstanding anything in this Agreement to the contrary, the Company will 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 in its good faith judgment the Board of Directors of
the Company determines to be advisable in order that any (i) consolidation or subdivision of the
Common Shares, (ii) issuance wholly for cash of Common Shares at less than the current per share
market price therefor, (iii) issuance wholly for cash of Common Shares or securities which by their
terms are convertible into or exchangeable for Common Shares, (iv) stock dividends, or (v) issuance
of rights, options or warrants referred to in this Section 11, hereafter made by the Company to
holders of its Common Shares is not taxable to such stockholders.

     (n) Notwithstanding anything in this Agreement to the contrary, in the event that the Company
at any time after the Record Date prior to the Distribution Date (i) pays a dividend on the
outstanding Common Shares payable in Common Shares, (ii) subdivides the outstanding Common Shares,
(iii) combines the outstanding Common Shares into a smaller
number of shares, or (iv) issues any shares of its capital stock in a reclassification of the
outstanding Common Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation), the number of Rights
associated with each Common Share then outstanding, or issued or delivered thereafter but prior to
the Distribution Date, will be proportionately adjusted so that the number of Rights thereafter
associated with each Common Share following any such event equals the result obtained by
multiplying the number of Rights associated with each Common Share immediately prior to such event
by a fraction the numerator of which is the total number of Common Shares outstanding immediately
prior to the occurrence of the event and the denominator of which is the total number of Common
Shares outstanding immediately following the occurrence of such event. The adjustments provided
for in this Section 11(n) will be made successively whenever such a dividend is paid or such a
subdivision, combination or reclassification is effected.

     12. Certificate of Adjusted Purchase Price or Number of Securities. Whenever an
adjustment is made or any event affecting the Rights or their exercisability (including without
limitation an event which causes Rights to become null and void) as provided in Section 11 or
Section 13, the Company will promptly (a) prepare a certificate setting forth such adjustment or
describing such event and a brief reasonably detailed statement of the facts, computations and
methodology accounting for such adjustment, (b) file with the Rights Agent and with each transfer
agent for the Common Shares a copy of such certificate, and (c) if such adjustment is made after
the Distribution Date, mail a brief summary of such adjustment to each holder of a Right
Certificate in accordance with Section 26. The Rights Agent shall be fully protected in relying on
any such certificate and on any adjustment or statement therein contained and shall have no duty or
liability with respect to, and shall not be deemed to have knowledge of any adjustment or any such
event unless and until it shall have received such certificate.

     13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. (a) In the
event that:

     (i) at any time after a Person has become an Acquiring Person, the Company consolidates
with, or merges with or into, any other Person and the Company is not the continuing or
surviving corporation of such consolidation or merger; or

20

 

     (ii) at any time after a Person has become an Acquiring Person, any Person
consolidates with the Company, or merges with or into the Company, and the Company is the
continuing or surviving corporation of such merger or consolidation and, in connection with
such merger or consolidation, all or part of the Common Shares is changed into or exchanged
for stock or other securities of any other Person or cash or any other property; or

     (iii) at any time after a Person has become an Acquiring Person, the Company, directly
or indirectly, sells or otherwise transfers (or one or more of its Subsidiaries sells or
otherwise transfers), in one or more transactions, assets or earning power (including
without limitation securities creating any obligation on the part of the Company and/or any
of its Subsidiaries) representing in the aggregate more than 50% of the assets or earning
power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons other
than the Company or one or more of its wholly owned Subsidiaries;

then, and in each such case, proper provision will be made so that from and after the latest of the
Share Acquisition Date, the Distribution Date and the date of the occurrence of such Flip-over
Event (A) each holder of a Right thereafter has the right to receive, upon the exercise thereof in
accordance with the terms of this Agreement at an exercise price per Right equal to the product of
one hundred times the then-current Purchase Price per Common Share multiplied by the number of
Common Shares for which a Right was exercisable immediately prior to the Share Acquisition Date,
such number of duly authorized, validly issued, fully paid, nonassessable and freely tradeable
Common Shares of the Issuer, free and clear of any liens, encumbrances and other adverse claims and
not subject to any rights of call or first refusal, as equals the result obtained by (x)
multiplying one hundred times the then-current Purchase Price per Common Share by the number of
Common Shares for which a Right is exercisable immediately prior to the Share Acquisition Date and
dividing that product by (y) 50% of the current per share market price of the Common Shares of the
Issuer (determined pursuant to Section 11(d)), on the date of the occurrence of such Flip-over
Event; (B) the Issuer will thereafter be liable for, and will assume, by virtue of the occurrence
of such Flip-over Event, all the obligations and duties of the Company pursuant to this Agreement;
(C) the term “Company” will thereafter be deemed to refer to the Issuer; and (D) the Issuer will
take such steps (including without limitation the reservation of a sufficient number of its Common
Shares to permit the exercise of all outstanding Rights) in connection with such consummation as
may be necessary to assure that the provisions hereof are thereafter applicable, as nearly as
reasonably may be possible, in relation to its Common Shares thereafter deliverable upon the
exercise of the Rights.

     (b) For purposes of this Section 13, “Issuer” means (i) in the case of any Flip-over Event
described in Sections 13(a)(i) or (ii) above, the Person that is the continuing, surviving,
resulting or acquiring Person (including the Company as the continuing or surviving corporation of
a transaction described in Section 13(a)(ii) above), and (ii) in the case of any Flip-over Event
described in Section 13(a)(iii) above, the Person that is the party receiving the greatest portion
of the assets or earning power (including without limitation securities creating any obligation on
the part of the Company and/or any of its Subsidiaries) transferred pursuant to such transaction or
transactions; provided, however, that, in any such case, (A) if (1) no class of
equity security of such Person is, at the time of such merger, consolidation or transaction and has
been

21

 

continuously over the preceding 12-month period, registered pursuant to Section 12 of the
Exchange Act, and (2) such Person is a Subsidiary, directly or indirectly, of another Person,
a class of equity security of which is and has been so registered, the term “Issuer” means such
other Person; and (B) in case such Person is a Subsidiary, directly or indirectly, of more than one
Person, a class of equity security of two or more of which are and have been so registered, the
term “Issuer” means whichever of such Persons is the issuer of the equity security having the
greatest aggregate market value. Notwithstanding the foregoing, if the Issuer in any of the
Flip-over Events listed above is not a corporation or other legal entity having outstanding equity
securities, then, and in each such case, (x) if the Issuer is directly or indirectly wholly owned
by a corporation or other legal entity having outstanding equity securities, then all references to
Common Shares of the Issuer will be deemed to be references to the Common Shares of the corporation
or other legal entity having outstanding equity securities which ultimately controls the Issuer,
and (y) if there is no such corporation or other legal entity having outstanding equity securities,
(I) proper provision will be made so that the Issuer creates or otherwise makes available for
purposes of the exercise of the Rights in accordance with the terms of this Agreement, a kind or
kinds of security or securities having a fair market value at least equal to the economic value of
the Common Shares which each holder of a Right would have been entitled to receive if the Issuer
had been a corporation or other legal entity having outstanding equity securities; and (II) all
other provisions of this Agreement will apply to the issuer of such securities as if such
securities were Common Shares.

     (c) The Company will not consummate any Flip-over Event if, (i) at the time of or immediately
after such Flip-over Event, there are or would be any rights, warrants, instruments or securities
outstanding or any agreements or arrangements in effect which would eliminate or substantially
diminish the benefits intended to be afforded by the Rights, (ii) prior to, simultaneously with or
immediately after such Flip-over Event, the stockholders of the Person who constitutes, or would
constitute, the Issuer for purposes of Section 13(a) shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates or Associates, or (iii) the form or nature
of the organization of the Issuer would preclude or limit the exercisability of the Rights. In
addition, the Company will not consummate any Flip-over Event unless the Issuer has a sufficient
number of authorized Common Shares (or other securities as contemplated in Section 13(b) above)
which have not been issued or reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior to such consummation the Company and the Issuer
have executed and delivered to the Rights Agent a supplemental agreement providing for the terms
set forth in subsections (a) and (b) of this Section 13 and further providing that as promptly as
practicable after the consummation of any Flip-over Event, the Issuer will:

     (A) prepare and file a registration statement under the Securities Act with respect to the
Rights and the securities issuable upon exercise of the Rights on an appropriate form, and use
its best efforts to cause such registration statement to (1) become effective as soon as
practicable after such filing and (2) remain effective (with a prospectus at all times meeting
the requirements of the Securities Act) until the Expiration Date;

22

 

     (B) take all such action as may be appropriate under, or to ensure compliance with, the
applicable state securities or “blue sky” laws in connection with the exercisability of the
Rights; and

     (C) deliver to holders of the Rights historical financial statements for the Issuer and
each of its Affiliates which comply in all respects with the requirements for registration on
Form 10 under the Exchange Act.

     (d) The provisions of this Section 13 will similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Flip-over Event occurs at any time
after the occurrence of a Flip-in Event, except for Rights that have become null and void pursuant
to Section 11(a)(ii), Rights that shall not have been previously exercised will cease to be
exercisable in the manner provided in Section 11(a)(ii) and will thereafter be exercisable in the
manner provided in Section 13(a).

     14. Fractional Rights and Fractional Securities. (a) The Company will not be required
to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights.
In lieu of such fractional Rights, the Company will pay as promptly as practicable to the
registered holders of the Right Certificates with regard to which such fractional Rights otherwise
would be issuable, an amount in cash equal to the same fraction of the current market value of one
Right. For the purposes of this Section 14(a), the current market value of one Right is the
closing price of the Rights for the Trading Day immediately prior to the date on which such
fractional Rights otherwise would have been issuable. The closing price for any day is 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 quotation
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 quotation 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 such market 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 the
Rights are not publicly held or are not so listed or traded, or are not the subject of available
bid and asked quotes, the current market value of one Right will mean the fair value thereof as
determined in good faith by the Board of Directors of the Company, whose determination will be
described in a statement filed with the Rights Agent.

     (b) The Company will not be required to issue fractions of Common Shares or other securities
issuable upon exercise or exchange of the Rights or to distribute certificates which evidence any
such fractional securities or to register any such fractional securities on the stock transfer
books of the Company. In lieu of issuing any such fractional securities, the Company may pay to
any Person to whom or which such fractional securities would otherwise be issuable an amount in
cash equal to the same fraction of the current market value of one such security. For purposes of
this Section 14(b), the current market value of one Common Share or other security issuable upon
the exercise or exchange of Rights is the closing price thereof (as

23

 

determined in the same manner
as set forth for Common Shares in the second sentence of Section 11(d)) for the Trading Day
immediately prior to the date of such exercise or exchange; provided, however, that
if neither the Common Shares nor any such other securities are publicly
held or listed or admitted to trading on any national securities exchange, or the subject of
available bid and asked quotes, the current market value of one Common Share or such other security
will mean the fair value thereof as determined in good faith by the Board of Directors of the
Company, whose determination will mean the fair value thereof as will be described in a statement
filed with the Rights Agent.

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

     15. Rights of Action. All rights of action in respect of this Agreement, excepting
the rights of action given to the Rights Agent herein, 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), without the consent of the Rights Agent or of the holder
of any other Right Certificate (or, prior to the Distribution Date, of the holder of any Common
Shares), may in 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 by the Company of this Agreement and will be entitled to
specific performance of the obligations under this Agreement, and injunctive relief against actual
or threatened violations by the Company of the obligations of any Person subject to this Agreement.

     16. Agreement of Rights Holders. Every holder of a Right by accepting the same
consents and agrees with the Company and the Rights Agent and with every other holder of a Right
that:

     (a) Prior to the Distribution Date, the Rights are 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 of the Rights Agent if surrendered at the office of the Rights Agent designated for such
purpose, duly endorsed or accompanied by a proper instrument of transfer, and with the appropriate
forms and certificates properly completed and duly executed;

24

 

     (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 Share) is
registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding
any notations of ownership or writing on the Right Certificate or the associated Common Share
certificate, if any, made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent will be affected by any notice to the
contrary;

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

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

     17. Right Certificate Holder Not Deemed a Stockholder. No holder, as such, of any
Right Certificate will be entitled to vote, receive dividends, or be deemed for any purpose the
holder of Common Shares or any other securities of the Company which may at any time be issuable
upon the exercise of the Rights represented thereby, nor will 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), 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 of this Agreement or exchanged pursuant to the provisions of Section
24.

     18. Concerning the Rights Agent. (a) The Company will 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 preparation, delivery, amendment, administration and execution of this Agreement and the
exercise and performance of its duties hereunder. The Company will also indemnify the Rights Agent
for, and hold it harmless against, any loss, liability, damage, judgment, fine, penalty, claim,
demand, settlement, cost or expense (including, without limitation, the reasonable fees and
expenses of legal counsel), suit, action, proceeding or expense, incurred without gross negligence,
bad faith, or willful misconduct on the part of the Rights Agent, (which gross negligence, bad
faith or willful misconduct must be determined by a final, non-appealable order, judgment, decree
or ruling of a court of competent jurisdiction), for any action taken, suffered or omitted to be
done by the Rights Agent in connection with the

25

 

acceptance, administration, exercise and
performance of its duties under this Agreement. The costs and expenses incurred in enforcing this
right of indemnification shall be paid by the
Company. The provisions of this Section 18 and Section 20 below shall survive the termination
of this Agreement, the exercise or expiration of the Rights and the resignation, replacement or
removal of the Rights Agent.

     (b) The Rights Agent will be authorized and protected and will incur no liability for or in
respect of any action taken, suffered, or omitted by it in connection with its acceptance and
administration of this Agreement and the exercise and performance of its duties hereunder, in
reliance upon any Right Certificate or certificate or other notice evidencing Common Shares or
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.

     19. Merger or Consolidation or Change of Name of Rights Agent. (a) 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 is a party, or any Person succeeding to the business of the Rights Agent
or any successor Rights Agent, will 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. If at the time such successor Rights Agent succeeds 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 if 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 will have the
full force provided in the Right Certificates and in this Agreement.

     (b) If at any time the name of the Rights Agent changes and at such time any of the Right
Certificates have been countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Right Certificates so countersigned; and if at
that time any of the Right Certificates have not 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 will have the full force provided in the Right Certificates and
in this Agreement.

     20. Rights and Duties of Rights Agent. The Rights Agent undertakes to perform only
the duties and obligations expressly imposed by this Agreement (and no implied duties) upon the
following terms and conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, will be bound:

     (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company
or an employee of the Rights Agent), and the advice or opinion of such counsel

26

 

will be full and
complete authorization and protection to the Rights Agent and the Rights Agent
shall incur no liability for or in respect of any action taken, suffered or omitted by it and
in accordance with such advice or opinion.

     (b) Whenever in the performance of its duties under this Agreement the Rights Agent deems it
necessary or desirable that any fact or matter (including, without limitation, the identity of an
Acquiring Person and the determination of the current per share market price of any security) be
proved or established by the Company prior to taking, suffering or omitting to take any action
hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a certificate signed by any
one of the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, the
President, any Vice President, the Secretary or the Treasurer of the Company and delivered to the
Rights Agent, and such certificate will be full and complete authorization and protection to the
Rights Agent and the Rights Agent shall incur no liability for or in respect of any action taken,
suffered or omitted by it under the provisions of this Agreement in reliance upon such certificate.

     (c) The Rights Agent will be liable hereunder to the Company and any other Person only for its
own gross negligence, bad faith or willful misconduct (which gross negligence, bad faith or willful
misconduct must be determined by a final, non-appealable order, judgment, decree or ruling of a
court of competent jurisdiction). Anything to the contrary notwithstanding, in no event shall the
Rights Agent be liable for special, punitive, indirect, consequential or incidental loss or damage
of any kind whatsoever (including but not limited to lost profits), even if the Rights Agent has
been advised of the likelihood of such loss or damage. Any liability of the Rights Agent under
this Agreement will be limited to the amount of annual fees paid by the Company to the Rights
Agent.

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

     (e) The Rights Agent will not have any liability for or be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except the due execution
and delivery hereof by the Rights Agent) or in respect of the validity or execution of any Right
Certificate (except its countersignature thereof); nor will it be responsible for any breach by the
Company of any covenant contained in this Agreement or in any Right Certificate; nor will it be
responsible for any change in the exercisability of the Rights (including the Rights becoming null
and void pursuant to Section 11(a)(ii)) or any change or adjustment in the terms of the Rights,
including any adjustment required under the provisions of Sections 11 or 13 (including any
adjustment which results in Rights becoming null and void) or responsible for the manner, method or
amount of any such adjustment or the ascertaining of the existence of facts that would require any
such adjustment (except with respect to the exercise of Rights evidenced by Right Certificates
after actual notice of any such adjustment); nor will it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares of stock or other
securities to be issued pursuant to this Agreement or any Right

27

 

Certificate or as to whether any
shares of stock or other securities will, when issued, be duly authorized, validly issued, fully
paid and nonassessable.

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

     (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to
the performance of its duties hereunder from any one of the Chairman of the Board, the Chief
Executive Officer, the Chief Financial Officer, the President, any Vice President, the Secretary or
the Treasurer of the Company, and to apply to such officers for advice or instructions in
connection with its duties, and such instructions shall be full authorization and protection to the
Rights Agent and it will not be liable for or in respect of any action taken, suffered or omitted
by it in accordance with instructions of any such officer or for any delay in acting while waiting
for those instructions. The Rights Agent shall be fully authorized and protected in relying upon
the most recent instructions received by any such officer.

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

     (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it
or perform any duty hereunder either itself (through its directors, officers and employees) or by
or through its attorneys or agents, and the Rights Agent will 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 or any other Person resulting from any such act, default, neglect or misconduct, absent
gross negligence, bad faith or willful misconduct in the selection and continued employment thereof
(which gross negligence, bad faith or willful misconduct must be determined by a final,
non-appealable order, judgment, decree or ruling of a court of competent jurisdiction). The Rights
Agent will not be under any duty or responsibility to ensure compliance with any applicable federal
or state securities laws in connection with the issuance, transfer or exchange of Right
Certificates.

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

     (k) If, with respect to any Right Certificate surrendered to the Rights Agent for exercise,
transfer, split up, combination or exchange, either (i) the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not been completed or
indicates an affirmative response to clause 1 or 2 thereof, or (ii) any other actual or suspected

28

 

irregularity exists, the Rights Agent will not take any further action with respect to such
requested exercise, transfer, split up, combination or exchange without first consulting with the
Company, and will thereafter take further action with respect thereto only in accordance with
the Company’s written instructions.

     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 calendar days’ notice in writing
mailed to the Company, and to each transfer agent of the Common Shares known to the Rights Agent,
by registered or certified mail, and 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 calendar 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 by registered or certified mail, and to the holders of the
Right Certificates by first class mail. If the Rights Agent resigns or is removed or otherwise
becomes incapable of acting, the Company will appoint a successor to the Rights Agent. If the
Company fails to make such appointment within a period of 30 calendar 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 will, with
such notice, submit his Right Certificate for inspection by the Company), then the registered
holder of any Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or
by such a court, will be (i) a Person organized and doing business under the laws of the United
States or a state of the United States, in good standing, 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 $25 million or (ii) an Affiliate of such Person. After
appointment, the successor Rights Agent will 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 will 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 will file notice thereof in writing with the predecessor Rights Agent and
each transfer agent of the Common Shares, and 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, will 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.

     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 per share and the number or kind of securities
issuable upon exercise of the Rights made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale by the Company of Common Shares following the
Distribution Date and prior to the Expiration Date, the Company (a) will, with respect to Common
Shares so issued or sold pursuant to the exercise, exchange or conversion of securities (other than
Rights) issued prior to the Distribution Date which are

29

 

exercisable or exchangeable for, or
convertible into Common Shares, and (b) may, in any other case, if deemed necessary, appropriate or
desirable by the Board of Directors of the Company,
issue Right Certificates representing an equivalent number of Rights as would have been issued
in respect of such Common Shares if they had been issued or sold prior to the Distribution Date, as
appropriately adjusted as provided herein as if they had been so issued or sold; provided,
however, that (i) no such Right Certificate will be issued if, and to the extent that, in
its good faith judgment the Board of Directors of the Company determines that the issuance of such
Right Certificate could have a material adverse tax consequence to the Company or to the Person to
whom or which such Right Certificate otherwise would be issued and (ii) no such Right Certificate
will be issued if, and to the extent that, appropriate adjustment otherwise has been made in lieu
of the issuance thereof.

     23. Redemption. (a) Prior to the Expiration Date, the Board of Directors of the
Company may, at its option, redeem all but not less than all of the then-outstanding Rights at the
Redemption Price at any time prior to the Close of Business on the later of (i) the Distribution
Date and (ii) Share Acquisition Date. Any such redemption will be effective immediately upon the
action of the Board of Directors of the Company ordering the same, unless such action of the Board
of Directors of the Company expressly provides that such redemption will be effective at a
subsequent time or upon the occurrence or nonoccurrence of one or more specified events (in which
case such redemption will be effective in accordance with the provisions of such action of the
Board of Directors of the Company).

     (b) Immediately upon the effectiveness of the redemption of the Rights as provided in Section
23(a), and without any further action and without any notice, the right to exercise the Rights will
terminate and the only right thereafter of the holders of Rights will be to receive the Redemption
Price, without interest thereon. Promptly after the effectiveness of the redemption of the Rights
as provided in Section 23(a), the Company will publicly announce (with prompt written notice
thereof to the Rights Agent) such redemption and, within 10 calendar days thereafter, will give
notice of such redemption to the holders of the then-outstanding Rights by mailing such notice to
all such holders at their last addresses as they appear upon the registry books of the Company;
provided, however, that the failure to give, or any defect in, any such notice will
not affect the validity of the redemption of the Rights. Any notice that is mailed in the manner
herein provided will be deemed given, whether or not the holder receives the notice. The notice of
redemption mailed to the holders of Rights will state the method by which the payment of the
Redemption Price will be made. The Company may, at its option, pay the Redemption Price in cash,
Common Shares (based upon the current per share market price of the Common Shares (determined
pursuant to Section 11(d)) at the time of redemption), or any other form of consideration deemed
appropriate by the Board of Directors of the Company (based upon the fair market value of such
other consideration, determined by the Board of Directors of the Company in good faith) or any
combination thereof. The Company may, at its option, combine the payment of the Redemption Price
with any other payment being made concurrently to holders of Common Shares and, to the extent that
any such other payment is discretionary, may reduce the amount thereof on account of the concurrent
payment of the Redemption Price. If legal or contractual restrictions prevent the Company from
paying the Redemption Price (in the form of consideration deemed appropriate by the Board of
Directors) at the time of

30

 

redemption, the Company will pay the Redemption Price, without interest,
promptly after such time as the Company ceases to be so prevented from paying the Redemption Price.

     24. Exchange. (a) The Board of Directors of the Company may, at its option, at any
time after the later of the Share Acquisition Date and the Distribution Date, exchange all or part
of the then-outstanding and exercisable Rights (which will not include Rights that have become null
and void pursuant to the provisions of Section 11(a)(ii)) 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 Record Date (such exchange ratio being hereinafter referred
to as the “Exchange Ratio”). Any such exchange will be effective immediately upon the action of
the Board of Directors of the Company ordering the same, unless such action of the Board of
Directors of the Company expressly provides that such exchange will be effective at a subsequent
time or upon the occurrence or nonoccurrence of one or more specified events (in which case such
exchange will be effective in accordance with the provisions of such action of the Board of
Directors of the Company). Notwithstanding the foregoing, the Board of Directors of the Company
will not be empowered to effect such exchange at any time after any Person (other than the Company
or any Related Person), who or which, together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the then-outstanding Common Shares.

     (b) Immediately upon the effectiveness of the exchange of any Rights as provided in Section
24(a), and without any further action and without any notice, the right to exercise such Rights
will terminate and the only right with respect to such Rights thereafter of the holder of such
Rights will be to receive that number of Common Shares equal to the number of such Rights held by
such holder multiplied by the Exchange Ratio. Promptly after the effectiveness of the exchange of
any Rights as provided in Section 24(a), the Company will publicly announce such exchange (with
prompt written notice thereof to the Rights Agent) and, within 10 calendar days thereafter, will
give notice of 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; provided, however, that the
failure to give, or any defect in, such notice will not affect the validity of such exchange. Any
notice that is mailed in the manner herein provided will 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 will 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)) held by each holder of Rights.

     (c) In any exchange pursuant to this Section 24, the Company, at its option, may substitute
for any Common Share exchangeable for a Right (i) equivalent common shares (as such term is used in
Section 11(a)(iii)), (ii) cash, (iii) debt securities of the Company, (iv) other assets, or (v) any
combination of the foregoing, in any event having an aggregate value, as determined in good faith
by the Board of Directors of the Company (whose determination will be described in a statement
filed with the Rights Agent), equal to the current market value of one Common Share (determined
pursuant to Section 11(d)) on the Trading Day immediately preceding the date of the effectiveness
of the exchange pursuant to this Section 24.

31

 

     25. Notice of Certain Events. (a) If, after the Distribution Date, the Company
proposes (i) to pay any dividend payable in stock of any class to the holders of Common Shares or
to make any other distribution to the holders of Common Shares (other than a regular periodic
cash dividend), (ii) to offer to the holders of Common Shares rights, options or warrants to
subscribe for or to purchase any additional Common Shares or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of its Common Shares
(other than a reclassification involving only the subdivision of outstanding Common 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 assets or earning power (including, without limitation, securities creating any
obligation on the part of the Company and/or any of its Subsidiaries) representing more than 50% of
the assets and earning power of the Company and its Subsidiaries, taken as a whole, to any other
Person or Persons other than the Company or one or more of its wholly owned Subsidiaries, or (v) to
effect the liquidation, dissolution or winding up of the Company, then, in each such case, the
Company will give to the Rights Agent and to each holder of a Right Certificate and in accordance
with Section 26, a notice of such proposed action, which specifies the record date for the purposes
of such stock dividend, distribution or offering of rights, options 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, if any such date is to be fixed, and such notice will be so given, in the case of any
action covered by clause (i) or (ii) above, at least 10 calendar days prior to the record date for
determining holders of the Common Shares for purposes of such action, and, in the case of any such
other action, at least 10 calendar 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, whichever is the earlier.

     (b) In case any Triggering Event occurs, then, in any such case, the Company will as soon as
practicable thereafter give to the Rights Agent and to each holder of a Right Certificate, in
accordance with Section 26, a notice of the occurrence of such event, which specifies the event and
the consequences of the event to holders of Rights.

     26. Notices. (a) 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 will 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:

Peerless Mfg. Co.

2819 Walnut Hill Lane

Dallas, Texas 75229

Attention: Chief Executive Officer

     (b) Subject to the provisions of Section 21, any notice or demand authorized by this Agreement
to be given or made by the Company or by the holder of any Right Certificate to or on the Rights
Agent will 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:

32

 

Mellon Investor Services LLC

Suite 1010

600 North Pearl Street

Dallas, Texas 75201

Attention: Relationship Manager

with a copy to:

Mellon Investor Services LLC

85 Challenger Road

Ridgefield Park, New Jersey 07660

Attention: General Counsel

     (c) 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 (or, if prior the Distribution Date, to the
holder of any Common Shares) will 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.

     27. Supplements and Amendments. Prior to the time at which the Rights cease to be
redeemable pursuant to Section 23, and subject to the penultimate sentence of this Section 27, the
Company may in its sole and absolute discretion, and the Rights Agent will if the Company so
directs, supplement or amend any provision of this Agreement in any respect without the approval of
any holders of Rights or Common Shares. From and after the time at which the Rights cease to be
redeemable pursuant to Section 23, and subject to the penultimate sentence of this Section 27, the
Company may, and the Rights Agent will if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Rights or Common Shares in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) to shorten or lengthen any time period
hereunder, or (iv) to supplement or amend the provisions hereunder in any manner which the Company
may deem desirable; provided, however, that no such supplement or amendment shall
adversely affect the interests of the holders of Rights as such (other than an Acquiring Person or
an Affiliate or Associate of an Acquiring Person), and no such supplement or amendment shall cause
the Rights again to become redeemable or cause this Agreement again to become supplementable or
amendable otherwise than in accordance with the provisions of this sentence. Without limiting the
generality or effect of the foregoing, this Agreement may be supplemented or amended to provide for
such voting powers for the Rights and such procedures for the exercise thereof, if any, as the
Board of Directors of the Company may determine to be appropriate. Upon the delivery of a
certificate from an officer of the Company which states that the proposed supplement or amendment
is in compliance with the terms of this Section 27, the Rights Agent will subject to the
penultimate sentence of this Section 27 execute such supplement or amendment. Notwithstanding
anything in this Agreement to the contrary, no supplement or amendment may be made which decreases
the stated Redemption Price to an amount less than $0.001 per Right and the Rights Agent may, but
shall not be obligated to, enter into any supplement or amendment that affects the Rights Agent’s
own rights, duties, obligations or immunities under this Agreement. Notwithstanding anything in
this

33

 

Agreement to the contrary, the limitations on the ability of the Board of Directors to amend
this Agreement set forth in this Section 27 shall not affect the power or ability of the Board of
Directors to take any other action that is consistent with its fiduciary duties under Texas law,
including without limitation accelerating or extending the Expiration Date or making any other
amendment to this Agreement that is permitted by this Section 27 or adopting a new stockholder
rights plan with such terms as the Board of Directors determines in its sole discretion to be
appropriate.

     28. Successors; Certain Covenants. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent will be binding on and inure to the
benefit of their respective successors and assigns hereunder.

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

     30. Governing Law. This Agreement, each Right and each Right Certificate issued
hereunder will be deemed to be a contract made under the internal substantive laws of the State of
Texas and for all purposes will be governed by and construed in accordance with the internal
substantive laws of such State applicable to contracts to be made and performed entirely within
such State; provided, however, that the rights, duties and obligations of the
Rights Agent shall be governed by the laws of the State of New York, without regard to the
principles or rules concerning conflicts of laws which might otherwise require application of the
substantive laws of another jurisdiction.

     31. Severability. If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction or other authority to be invalid, null and void or
unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement
will remain in full force and effect and will in no way be affected, impaired or invalidated;
provided, however, that nothing contained in this Section 31 will affect the
ability of the Company under the provisions of Section 27 to supplement or amend this Agreement to
replace such invalid, null and void or unenforceable term, provision, covenant or restriction with
a legal, valid and enforceable term, provision, covenant or restriction.

     32. Descriptive Headings, Etc. Descriptive headings of the several Sections of this
Agreement are inserted for convenience only and will not control or affect the meaning or
construction of any of the provisions hereof. Unless otherwise expressly provided, references
herein to Articles, Sections and Exhibits are to Articles, Sections and Exhibits of or to this
Agreement.

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

34

 

Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The Board of
Directors of the Company will have the exclusive power and authority to administer this Agreement
and to exercise all rights and powers specifically granted to the Board of Directors of the Company
or to the Company, or as may be necessary or advisable in the administration of this Agreement,
including without limitation the right and power to (i) interpret the provisions of this Agreement
(including without limitation Section 27, this Section 33 and other provisions hereof relating to
its powers or authority hereunder) and (ii) make all determinations and calculations deemed
necessary or advisable for the administration of this Agreement (including without limitation any
determination contemplated by Section 1(a) or any determination as to whether particular Rights
shall have become null and void). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, any omission with respect to any of
the foregoing) which are done or made by the Board of Directors of the Company in good faith will
(x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights
and all other parties and (y) not subject the Board of Directors of the Company to any liability to
any Person, including without limitation the Rights Agent and the holders of the Rights. The
Rights Agent shall always be entitled to assume that the Company’s Board of Directors acted in good
faith and shall be fully protected and incur no liability in reliance thereon.

     34. Effective Time. Notwithstanding anything in this Agreement to the contrary, this
Agreement will not be effective until the Close of Business on May 22, 2007.

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

35

 

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

	 	 	 	 	 
	 	PEERLESS MFG. CO.

 	 
	 	By:  	/s/ Peter J. Burlage
 	 
	 	 	Name:  	Peter J. Burlage 	 
	 	 	Title:  	President and Chief Executive Officer 	 
	 
	 	MELLON INVESTOR SERVICES LLC

 	 
	 	By:  	/s/ Patricia Hodson
 	 
	 	 	Name:  	Patricia Hodson 	 
	 	 	Title:  	Client Relationship Executive 	 
	 

36

 

EXHIBIT A

FORM OF RIGHT CERTIFICATE

			
	Certificate No. R-                    
	 	                     Rights

NOT EXERCISABLE AFTER MAY 22, 2017 OR EARLIER IF REDEEMED, EXCHANGED OR AMENDED. THE RIGHTS ARE
SUBJECT TO REDEMPTION, EXCHANGE AND AMENDMENT AT THE OPTION OF THE COMPANY, ON THE TERMS SET FORTH
IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES SPECIFIED IN THE RIGHTS AGREEMENT, RIGHTS
THAT ARE OR WERE BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR AN ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR A TRANSFEREE THEREOF MAY
BECOME NULL AND VOID.

Right Certificate

PEERLESS MFG. CO.

     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 May 4, 2007 (the “Rights
Agreement”), between Peerless Mfg. Co., a Texas corporation (the “Company”), and Mellon Investor
Services LLC, a New Jersey limited liability company (the “Rights Agent”), to purchase from the
Company at any time after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 p.m. (Dallas, Texas time) on the Expiration Date (as such term is defined in the
Rights Agreement) at the office or offices of the Rights Agent designated for such purpose, one
hundredth of a share of Common Stock, par value $1.00 per share, of the Company (the “Common
Shares”), at a purchase price of $[l ] per Common Share (equivalent to $[l ] per one
hundredth of a Common Share) (the “Purchase Price”), upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase and related Certificate duly executed. If this
Right Certificate is exercised in part, the holder will be entitled to receive upon surrender
hereof another Right Certificate or Right Certificates for the number of whole Rights not
exercised. The number of Rights evidenced by this Right Certificate (and the number of Common
Shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price set
forth above, are the number and Purchase Price as of the date of the Rights Agreement, based on the
Common Shares as constituted at such date.

     As provided in the Rights Agreement, the Purchase Price and/or the number and/or kind of
securities issuable upon the exercise of the Rights evidenced by this Right Certificate are subject
to adjustment upon the occurrence of certain events.

     This Right Certificate is subject to all of the terms, provisions and conditions of the Rights
Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and
made a part hereof and to which Rights Agreement reference is hereby made for a

A-1 

 

full description of the rights, limitations of rights, obligations, duties and immunities of
the Rights Agent, the Company and the holders of the Right Certificates, which limitations of
rights include the temporary suspension of the exercisability of the Rights under the circumstances
specified in the Rights Agreement. Copies of the Rights Agreement are on file at the
above-mentioned office of the Rights Agent and can be obtained from the Company without charge upon
written request therefor. Terms used herein with initial capital letters and not defined herein
are used herein with the meanings ascribed thereto in the Rights Agreement.

     Pursuant to the Rights Agreement, from and after the occurrence of a Flip-in Event, any Rights
that are Beneficially Owned by (i) any Acquiring Person (or any Affiliate or Associate of any
Acquiring Person), (ii) a transferee of any Acquiring Person (or any such Affiliate or Associate)
who becomes a transferee after the occurrence of a Flip-in Event, or (iii) a transferee of any
Acquiring Person (or any such Affiliate or Associate) who became a transferee prior to or
concurrently with the Flip-in Event pursuant to either (a) a transfer from an Acquiring Person to
holders of its equity securities or to any Person with whom it has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (b) a transfer which the Board of
Directors of the Company has determined is part of a plan, arrangement or understanding which has
the purpose or effect of avoiding certain provisions of the Rights Agreement, and subsequent
transferees of any of such Persons, will be null and void without any further action and any holder
of such Rights will thereafter have no rights whatsoever with respect to such Rights under any
provision of the Rights Agreement. From and after the occurrence of a Flip-in Event, no Right
Certificate will be issued that represents Rights that are or have become null and void pursuant to
the provisions of the Rights Agreement, and any Right Certificate delivered to the Rights Agent
that represents Rights that are or have become null and void pursuant to the provisions of the
Rights Agreement will be canceled.

     This Right Certificate, with or without other Right Certificates, may be transferred, split
up, combined or exchanged for another Right Certificate or Right Certificates entitling the holder
to purchase a like number of Common Shares (or other securities, as the case may be) as the Right
Certificate or Right Certificates surrendered entitled such holder (or former holder in the case of
a transfer) to purchase, upon presentation and surrender hereof at the office of the Rights Agent
designated for such purpose, with the Form of Assignment (if appropriate) and the related
Certificate duly executed.

     Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate
may be redeemed by the Company at its option at a redemption price of $0.001 per Right or may be
exchanged in whole or in part. The Rights Agreement may be supplemented and amended by the
Company, as provided therein.

     The Company is not required to issue fractions of Common Shares or other securities issuable
upon the exercise of any Right or Rights evidenced hereby. In lieu of issuing such fractional
Common Shares or other securities, the Company may make a cash payment, as provided in the Rights
Agreement.

     No holder of this Right Certificate, as such, will be entitled to vote or receive dividends or
be deemed for any purpose the holder of the Common Shares or of any other securities of the Company
which may at any time be issuable upon the exercise of the Right or Rights represented

A-2 

 

hereby, nor will anything contained herein or in the Rights Agreement 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 have been exercised in accordance with the provisions of the Rights Agreement.

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

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

	 	 	 	 	 	 	 	 	 	 	 
	ATTEST:	 	 	 	PEERLESS MFG. CO.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Countersigned:	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	MELLON INVESTOR SERVICES LLC	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 

Authorized Signature
	 	 	 	 	 	 	 	 

A-3 

 

Form of Reverse Side of Right Certificate

FORM OF ASSIGNMENT

(To be executed by the registered holder if such

holder desires to transfer the Right Certificate)

     FOR
VALUE RECEIVED,                                          hereby sells, assigns and transfers unto

 

(Please print name and address of transferee)

 

this 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:

     Signatures must be guaranteed by a participant in the Securities Transfer Agent Medallion Program, the
Stock Exchanges Medallion Program or the New York Stock Exchange, Inc. Medallion Signature Program.

A-4 

 

CERTIFICATE

     The undersigned hereby certifies by checking the appropriate boxes that:

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

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

Dated:                     ,                     

	 	 	 	 	 
	 

	 	 

Signature
	 	 

NOTICE

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

A-5 

 

FORM OF ELECTION TO PURCHASE

(To be executed if holder desires to

exercise the Right Certificate)

To Peerless Mfg. Co.:

     The undersigned hereby irrevocably elects to exercise                      Rights represented by this
Right Certificate to purchase the Common Shares or other securities issuable upon the exercise of
such Rights and requests that certificates for such securities be issued in the name of and
delivered to:

	 	 	 
	Please insert social security
	 	 
	or other identifying number:
	 	 
	 

	 	 
	 
	 	 
	 

	(Please print name and address)

	 
	 	 
	 

	 
	 	 
	If such number of Rights is not all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights will be registered in the name of and delivered to:
	 
	 	 
	Please insert social security
	 	 
	or other identifying number:
	 	 
	 

	 	 
	 
	 	 
	 

	(Please print name and address)

	 
	 	 
	 

Dated:                     ,                     

	 	 	 	 	 
	 

	 	 

Signature
	 	 

	 	 	 	 	 
	Signature Guaranteed:
	 	 	 	 
	 

	 	 

	 	 

A-6 

 

CERTIFICATE

     The undersigned hereby certifies by checking the appropriate boxes that:

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

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

Dated:                     ,                     

	 	 	 	 	 
	 

	 	 

Signature
	 	 

Signature Guaranteed:

     Signatures must be guaranteed by a participant in the Securities Transfer Agent Medallion
Program, the Stock Exchanges Medallion Program or the New York Stock Exchange, Inc. Medallion
Signature Program.

NOTICE

     Signatures on the foregoing Form of Assignment and Form of Election to Purchase and in the
related Certificates must correspond to the name as written upon the face of this Right Certificate
in every particular, without alteration or enlargement or any change whatsoever.

     Signatures must be guaranteed by an eligible guarantor institution (banks, stockbrokers,
savings and loan associations and credit unions with membership in an approved medallion signature
program) pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended.

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

A-7 

 

EXHIBIT B

SUMMARY OF COMMON STOCK PURCHASE RIGHTS

     On May 4, 2007, the Board of Directors of Peerless Mfg. Co. adopted a rights plan and declared
a dividend of one common share purchase right for each outstanding share of Peerless Mfg. Co.’s
common stock. The new rights plan will replace Peerless’s current rights plan, which will expire
on May 22, 2007. The dividend is payable on May 22, 2007 to our stockholders of record on that
date. The terms of the rights and the rights plan are set forth in a Rights Agreement, dated as of
May 4, 2007, by and between Peerless Mfg. Co. and Mellon Investor Services LLC, as rights agent.

     Our Board adopted the rights plan to protect our stockholders from coercive takeover practices
or takeover bids that are inconsistent with their best interests. In general terms, the rights
plan imposes a significant penalty upon any person or group (other than the Company, certain
related persons and certain institutional investors) that acquires 20% or more of our outstanding
common stock without the prior approval of our Board. A person or group that acquires a percentage
of our common stock in excess of that threshold is called an “acquiring person.” Any rights held
by an acquiring person are null and void and may not be exercised.

     This summary of rights provides a general description of the rights plan. Because it is only
a summary, this description should be read together with the entire rights plan, which we
incorporate in this summary by reference. We have filed the rights plan with the Securities and
Exchange Commission as an exhibit to our registration statement on Form 8-A. Upon written request,
we will provide a copy of the rights plan free of charge to any stockholder.

The Rights. Our Board of Directors authorized the issuance of one right per each outstanding share
of our common stock on May 22, 2007. If the rights become exercisable, each right initially would
allow its holder to purchase from us one hundredth of a share of common stock for a purchase price
of $120.00 per share of common stock (equivalent to $1.20 per one hundredth of a share of common
stock), subject to adjustment as provided in the Rights Agreement. Prior to exercise, however, a
right does not give its holder any dividend, voting or liquidation rights.

Exercisability. The rights will not be exercisable until the earlier of:

	•	 	10 days after a public announcement by Peerless that a person or group has become an
acquiring person; and
	 
	•	 	10 business days (or a later date determined by our Board) after a person or group begins a
tender or exchange offer that, if completed, would result in that person or group becoming an
acquiring person.

We refer to the date that the rights become exercisable as the “distribution date.” Until the
distribution date, our common stock certificates will also evidence the rights and will contain a
notation to that effect. Any transfer of shares of common stock prior to the distribution date
will constitute a transfer of the associated rights. After the distribution date, the rights will
separate from the common stock and be evidenced by right certificates, which we will mail to all
holders of rights that have not become null and void.

B-1 

 

     Flip-in Event. After the distribution date, if a person or group already is or becomes an
acquiring person, all holders of rights, except the acquiring person, may exercise their rights
upon payment of the purchase price to purchase shares of our common stock (or other securities or
assets as determined by the Board) with a market value of two times the purchase price.

     Flip-over Event. After the distribution date, if a flip-in event has already occurred and
Peerless is acquired in a merger or similar transaction, all holders of rights except the acquiring
person may exercise their rights upon payment of the purchase price, to purchase shares of the
acquiring corporation with a market value of two times the purchase price of the rights.

Expiration. The rights will expire on May 22, 2017 unless earlier redeemed or exchanged.

Redemption. Our Board may redeem all (but not less than all) of the rights for a redemption price
of $0.001 per right at any time before the later of the distribution date and the date of the first
public announcement or disclosure by Peerless that a person or group has become an acquiring
person. Once the rights are redeemed, the right to exercise rights will terminate, and the only
right of the holders of rights will be to receive the redemption price. The redemption price will
be adjusted if we declare a stock split or issue a stock dividend on our common stock.

Exchange. After the later of the distribution date and the date of the first public announcement
by Peerless that a person or group has become an acquiring person, but before an acquiring person
owns 50% or more of our outstanding common stock, our Board may exchange each right (other than
rights that have become null and void) for one share of common stock or an equivalent security.

Anti-Dilution Provisions. Our Board may adjust the purchase price of the rights, the number of
common shares issuable upon exercise of each right and the number of outstanding rights to prevent
dilution that may occur as a result of certain events, including among others, a stock dividend, a
stock split or a reclassification of our common stock. No adjustments to the purchase price of
less than 1% will be made.

Amendments. Before the time rights cease to be redeemable, our Board may amend or supplement the
rights plan without the consent of the holders of the rights, except that no amendment may decrease
the redemption price below $0.001 per right. At any time thereafter, our Board may amend or
supplement the rights plan only to cure an ambiguity, to alter time period provisions, to correct
inconsistent provisions or to make any additional changes to the rights plan, but only to the
extent that those changes do not impair or adversely affect any rights holder and do not result in
the rights again becoming redeemable. The limitations on our Board’s ability to amend the rights
plan does not affect our Board’s power or ability to take any other action that is consistent with
its fiduciary duties, including without limitation accelerating or extending the expiration date of
the rights, making any amendment to the rights plan that is permitted by the rights plan or
adopting a new rights plan with such terms as our Board determines in its sole discretion to be
appropriate.

*      *      *

B-2

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