Document:

Ex-4.1 Rights Agreement

 

THE CATO CORPORATION

a Delaware corporation

and

WACHOVIA BANK, NATIONAL ASSOCIATION

a national banking association

as Rights Agent

RIGHTS AGREEMENT

Dated as of December 18, 2003

 

 

Table of Contents

	 	 	 	 	 	 	 	 	 
	Section     	 	 	 	Page
	Section 1.	 	Certain Definitions
	 	 	1	 
	Section 2.	 	Appointment of Rights Agent
	 	 	6	 
	Section 3.	 	Issuance of Right Certificates
	 	 	6	 
	 	3.1	 	 	Rights Represented by Share Certificates
	 	 	6	 
	 	3.2	 	 	Summary of Rights
	 	 	7	 
	 	3.3	 	 	New Certificates After Record Date
	 	 	7	 
	Section 4.	 	Form of Right Certificates
	 	 	8	 
	Section 5.	 	Countersignature and Registration
	 	 	9	 
	Section 6.	 	Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates
	 	 	10	 
	Section 7.	 	Exercise of Rights; Purchase Price; Expiration Date of Rights
	 	 	11	 
	 	7.1	 	 	Exercise of Rights
	 	 	11	 
	 	7.2	 	 	Purchase
	 	 	11	 
	 	7.3	 	 	Payment Procedures
	 	 	11	 
	 	7.4	 	 	Partial Exercise
	 	 	12	 
	 	7.5	 	 	Rights held by an Acquiring Person
	 	 	12	 
	 	7.6	 	 	Full Information Concerning Ownership
	 	 	12	 
	Section 8.	 	Cancellation and Destruction of Right Certificates
	 	 	13	 
	Section 9.	 	Reservation and Availability of Stock
	 	 	13	 
	Section 10.	 	Preferred Shares Record Date
	 	 	14	 
	Section 11.	 	Adjustment of Purchase Price, Number of Shares or Number of Rights
	 	 	14	 
	 	11.1	 	 	Post-Execution Events
	 	 	15	 
	 	11.2	 	 	Dilutive Rights Offering
	 	 	17	 
	 	11.3	 	 	Distributions
	 	 	18	 

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	Section	 	 	 	Page
	 	11.4	 	 	Current Per Share Market Value
	 	 	19	 
	 	11.5	 	 	Insignificant Changes
	 	 	20	 
	 	11.6	 	 	Shares Other Than Preferred Shares
	 	 	20	 
	 	11.7	 	 	Rights Issued Prior to Adjustment
	 	 	20	 
	 	11.8	 	 	Effect of Adjustments
	 	 	21	 
	 	11.9	 	 	Adjustment in Number of Rights
	 	 	21	 
	 	11.10	 	 	Right Certificates Unchanged
	 	 	21	 
	 	11.11	 	 	Par Value Limitations
	 	 	22	 
	 	11.12	 	 	Deferred Issuance
	 	 	22	 
	 	11.13	 	 	Reduction in Purchase Price
	 	 	22	 
	 	11.14	 	 	Company Not to Diminish Benefits of Rights
	 	 	22	 
	 	11.15	 	 	Adjustment of Rights Associated with Common Shares
	 	 	22	 
	 	11.16	 	 	Company Agreements
	 	 	23	 
	Section 12.	 	Certificate of Adjusted Purchase Price or Number of Shares
	 	 	23	 
	Section 13.	 	Consolidation, Merger or Sale or Transfer of Assets or Earning Power
	 	 	23	 
	 	13.1	 	 	Certain Transactions
	 	 	23	 
	 	13.3	 	 	Principal Party
	 	 	26	 
	 	13.4	 	 	Approved Acquisitions
	 	 	27	 
	Section 14.	 	Fractional Rights and Fractional Shares
	 	 	27	 
	 	14.1	 	 	Cash in Lieu of Fractional Rights
	 	 	27	 
	 	14.2	 	 	Cash in Lieu of Fractional Preferred Shares
	 	 	27	 
	 	14.3	 	 	Cash in Lieu of Fractional Common Shares
	 	 	28	 
	 	14.4	 	 	Waiver of Right to Receive Fractional Rights or Shares
	 	 	28	 
	Section 15.	 	Rights of Action
	 	 	28	 
	Section 16.	 	Agreement of Right Holders
	 	 	28	 

ii

 

	 	 	 	 	 	 	 	 	 
	Section	 	 	 	Page
	Section 17.	 	Right Certificate Holder Not Deemed a Stockholder
	 	 	29	 
	Section 18.	 	Concerning the Rights Agent
	 	 	29	 
	Section 19.	 	Merger or Consolidation or Change of Name of Rights Agent
	 	 	30	 
	Section 20.	 	Duties of Rights Agent
	 	 	30	 
	 	20.1	 	 	Legal Counsel
	 	 	31	 
	 	20.2	 	 	Certificates as to Facts or Matters
	 	 	31	 
	 	20.3	 	 	Standard of Care
	 	 	31	 
	 	20.4	 	 	Reliance on Agreement and Right Certificates
	 	 	31	 
	 	20.5	 	 	No Responsibility as to Certain Matters
	 	 	31	 
	 	20.6	 	 	Further Assurance by Company
	 	 	32	 
	 	20.7	 	 	Authorized Company Officers
	 	 	32	 
	 	20.8	 	 	Freedom to Trade in Company Securities
	 	 	32	 
	 	20.9	 	 	Reliance on Attorneys and Agents
	 	 	32	 
	 	20.10	 	 	Incomplete Certificate
	 	 	32	 
	 	20.11	 	 	Rights Holders List
	 	 	32	 
	 	20.12	 	 	Use of Funds
	 	 	33	 
	Section 21.	 	Change of Rights Agent
	 	 	33	 
	Section 22.	 	Issuance of New Right Certificates
	 	 	34	 
	Section 23.	 	Redemption
	 	 	34	 
	 	23.1	 	 	Right to Redeem
	 	 	34	 
	 	23.2	 	 	Redemption Procedures
	 	 	34	 
	Section 24.	 	Notice of Certain Events
	 	 	35	 
	Section 25.	 	Notices
	 	 	36	 
	Section 26.	 	Supplements and Amendments
	 	 	36	 
	Section 27.	 	Exchange
	 	 	37	 

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	Section	 	 	 	Page
	 	27.1	 	 	Exchange of Common Shares for Rights
	 	 	37	 
	 	27.2	 	 	Exchange Procedures
	 	 	37	 
	 	27.3	 	 	Insufficient Shares
	 	 	37	 
	Section 28.	 	Successors
	 	 	38	 
	Section 29.	 	Beneficiaries of this Agreement
	 	 	38	 
	Section 30.	 	Determination and Actions by the Board of Directors
	 	 	38	 
	Section 31.	 	Severability
	 	 	38	 
	Section 32.	 	Governing Law
	 	 	38	 
	Section 33.	 	Counterparts
	 	 	39	 
	Section 34.	 	Descriptive Heading
	 	 	39	 

iv

 

THE CATO CORPORATION

a Delaware corporation

and

WACHOVIA BANK, NATIONAL ASSOCIATION

a national banking association

as Rights Agent

RIGHTS AGREEMENT

Dated as of December 18, 2003

     Rights Agreement, dated as of December 18, 2003, between The Cato
Corporation, a Delaware corporation (the “Company”), and Wachovia Bank,
National Association, a national banking association, as Rights Agent (the
“Rights Agent”).

RECITALS

     WHEREAS, on December 4, 2003, the Board of Directors adopted this
Agreement, and has authorized a dividend of one preferred share purchase right
(a “Right”) for each share of Class A Common Stock and Class B Common Stock of
the Company outstanding at the close of business on January 7, 2004 (the
“Record Date”) and has authorized and directed the issuance of one Right
(subject to adjustment as provided herein) with respect to each share of Class
A Common Stock and Class B Common Stock of the Company that shall become
outstanding between the Record Date and the earliest of the Distribution Date
and the Expiration Date, each Right initially representing the right to
purchase one one-thousandth (subject to adjustment) of a share of Series A
Junior Participating Preferred Stock (the “Preferred Shares”) of the Company
having the rights, powers and preferences set forth in the form of Certificate
of Designation, Preferences and Rights attached hereto as Exhibit A, upon the
terms and subject to the conditions hereinafter set forth; provided, however,
that Rights may be issued with respect to Common Shares that shall become
outstanding after the Distribution Date and prior to the Expiration Date in
accordance with Section 22.

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

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

		
	 	     1.1 “Acquiring Person” shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 20% or more of the Common Shares of the Company then
outstanding but shall not include an Exempt Person. Notwithstanding the
foregoing, no Person shall become an “Acquiring Person” due to such
Person becoming the Beneficial Owner of 20% or more of the Common Shares
as a result of the issuance by the Company of Common Shares to such
Person in consideration for the sale, contribution, conveyance, transfer,
assignment or delivery of property, services or other assets by such
Person to the Company. Notwithstanding the first sentence of this
Section 1.1,

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	 	     (i) no Person shall become an “Acquiring Person” as the result
of an acquisition of Common Shares by the Company which, by
reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to
20% or more of the Common Shares of the Company then outstanding,

		
	 	     (ii) no Person shall become an “Acquiring Person” as the
result of the acquisition of Common Shares from an individual who,
on the date of this Agreement, is the Beneficial Owner of 20% or
more of the Common Shares if such Common Shares are received upon
that individual’s death pursuant to that individual’s will or
pursuant to a charitable trust created by that individual for
estate planning purposes, and

		
	 	     (iii) no Person shall become an “Acquiring Person” as the
result of the beneficial ownership of (A) Common Shares
beneficially owned by such Person on the date hereof unless such
Person becomes, after the date hereof, the Beneficial Owner of an
additional 1% or more of the Common Shares outstanding or (B)
Common Shares beneficially owned as the result of stock dividends,
subdivisions or similar transactions with respect to Common Shares;

		
	 	provided, however, that if a Person shall become the Beneficial Owner of
20% or more of the Common Shares of the Company then outstanding solely
by reason of share purchases by the Company or by reason of shares
received upon an individual’s death as aforesaid and shall thereafter
become the Beneficial Owner of one or more additional Common Shares of
the Company (other than pursuant to a dividend or distribution paid or
made by the Company on the outstanding Common Shares in Common Shares or
pursuant to a split or subdivision of the outstanding Common Shares),
then such Person shall be deemed to be an “Acquiring Person” unless upon
becoming the Beneficial Owner of such additional Common Shares such
Person does not beneficially own 20% or more of the Common Shares then
outstanding.

		
	 	     1.1.1 Notwithstanding the foregoing, if the Board of Directors
determines in good faith that a Person who would otherwise be an
“Acquiring Person,” as defined pursuant to the foregoing provisions of
this Section 1.1, has become such inadvertently (including, without
limitation, because (A) such Person was unaware that it beneficially
owned a percentage of Common Shares that would otherwise cause such
Person to be an “Acquiring Person”, (B) such Person was aware of the
extent of its Beneficial Ownership of Common Shares but had no actual
knowledge of the consequences of such Beneficial Ownership under this
Agreement or (C) such Person became an “Acquiring Person” as the result
of the formation of a group (as that term is used in the definition of
“Person” in this Agreement) and such Person had no actual knowledge of
the consequences of the formation of such a group under this Agreement),
and without any intention of changing or influencing control of the
Company, and such Person, if requested by the Board of Directors, divests
itself as promptly as reasonably practicable of Beneficial Ownership of 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 1.1,

2

 

		
	 	then such Person shall not be deemed to be or have become an
“Acquiring Person” at any time for any purposes of this Agreement.

		
	 	     1.1.2 For all purposes of this Agreement, any calculation of the
number of Common Shares outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding
Common Shares of which any Person is the Beneficial Owner, shall be made
in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the
General Rules and Regulations under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), as in effect on the date of this
Agreement.

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

		
	 	     1.3 A Person shall be deemed the “Beneficial Owner” of and shall be
deemed to “beneficially own” any securities:

		
	 	     (i) which such Person or any of such Person’s Affiliates or
Associates beneficially owns, directly or indirectly (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under
the Exchange Act as in effect on the date of this Agreement,
subject to Section 1.1.2);

		
	 	     (ii) which such Person or any of such Person’s Affiliates or
Associates, directly or indirectly, has (A) the right to acquire
(whether such right is exercisable immediately, or only after the
passage of time, compliance with regulatory requirements,
fulfillment of a condition or otherwise) pursuant to any agreement,
arrangement or understanding, whether or not in writing (other than
customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of,
or to beneficially own, (w) 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, (x) securities
which such Person has a right to acquire upon the exercise of
Rights at any time prior to the time that any Person becomes an
Acquiring Person, (y) securities issuable upon the exercise of
Rights from and after the time that any Person becomes an Acquiring
Person if such Rights were acquired by such Person or any of such
Person’s Affiliates or Associates prior to the Distribution Date or
pursuant to Sections 3.1 or Section 22 (“Original Rights”) or
pursuant to Sections 11.9 or 11.15 with respect to an adjustment to
Original Rights or (z) securities which such Person or any of such
Person’s Affiliates or Associates may acquire, does or do acquire
or may be deemed to have the right to acquire, pursuant to any
merger or other acquisition agreement between the Company and such
Person (or one or more of his Affiliates or Associates) if such
agreement has been approved by the Board of Directors prior to such
Person’s becoming an Acquiring Person; or (B) the right to vote
pursuant to any agreement, arrangement or understanding

3

 

		
	 	(whether or not in writing); provided, however, that a Person
shall not be deemed the Beneficial Owner of, or to beneficially
own, any security under this clause (B) if the agreement,
arrangement or understanding to vote such security (1) arises
solely from a revocable proxy or consent given to such Person in
response to a public proxy or consent solicitation made pursuant
to, and in accordance with, the applicable rules and regulations of
the Exchange Act and (2) is not also then reportable on Schedule
13D under the Exchange Act (or any comparable or successor report);
or

		
	 	     (iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) and with
respect to which such Person or any of such Person’s Affiliates or
Associates has any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of
securities), whether or not in writing, for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy or
consent as described in the proviso to Section 1.3(ii)(B)) or
disposing of any securities of the Company; provided, however, that
no Person who is an officer, director, trustee or employee of an
Exempt Person shall be deemed, solely by reason of such Person’s
status or authority as such, to be the “Beneficial Owner” of, to
have “Beneficial Ownership” of or to “beneficially own” any
securities that are “beneficially owned”, including, without
limitation, in a fiduciary capacity, by an Exempt Person or by any
other such officer, director, trustee or employee of an Exempt
Person.

		
	 	     1.4 “Board of Directors” shall mean the Board of Directors of the
Company.

		
	 	     1.5 “Business Day” shall mean any day other than a Saturday, Sunday,
or a day on which banking institutions in the State of North Carolina are
authorized or obligated by law or executive order to close.

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

		
	 	     1.7 “Common Shares” shall mean the shares of Class A Common Stock,
par value $.03 1/3 per share, of the Company; provided, however, that
“Common Shares” when used with reference to any Person other than the
Company shall mean the capital stock with the greatest voting power, or
the equity securities or other equity interest having power to control or
direct the management, of such other Person or, if such Person is a
Subsidiary of another Person, the Person or Persons which ultimately
control such first-mentioned Person, and which has issued and outstanding
such capital stock, equity securities or equity interest.

		
	 	     1.8 “Exempt Person” shall mean (A) the Company, (B) any Subsidiary
of the Company, (C) any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity or trustee holding shares of
stock of the Company for or pursuant

4

 

		
	 	to the terms of any such plan, or for the purpose of funding other
employee benefits for employees of the Company or any Subsidiary of the
Company or (D) John P. Derham Cato, and any Affiliate or Associate of
John P. Derham Cato.

		
	 	     1.9 “Person” shall mean any individual, partnership, joint venture,
limited liability company, firm, corporation, unincorporated association,
trust, group (as such term is used in Rule 13d-5 of the General Rules and
Regulations under the Exchange Act) or other entity, and shall include
any successor (by merger or otherwise) of such entity.

		
	 	     1.10 “Shares Acquisition Date” shall mean the first date of public
announcement (which, for purposes of this definition, shall include,
without limitation, the filing of a report pursuant to Section 13(d) of
the Exchange Act or pursuant to a comparable successor statute) by the
Company or an Acquiring Person that an Acquiring Person has become such
or that discloses information which reveals the existence of an Acquiring
Person or any earlier date on which a majority of the Board of Directors
shall become aware of the existence of an Acquiring Person.

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

		
	 	     1.12 “Transaction” shall mean (A) the Company’s consolidation with,
or merger with or into, any other Person, as a result of which the
Company is not the continuing or surviving corporation, (B) any Person’s
consolidation with, or merger with or into the Company, as a result of
which the Company is the continuing or surviving corporation and, in
connection with such consolidation or merger, all or part of the
outstanding Common Shares is changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (C) the
Company’s sale or other transfer (or one or more of its Subsidiaries’
sale or other transfer), in one transaction or a series of related
transactions, of assets or earning power aggregating more than 50% of the
assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any Person or Persons (other than the Company or one or more
wholly-owned Subsidiaries of the Company in one or more transactions each
of which complies with Section 11.14).

		
	 	     1.13 A “Trigger Event” shall be deemed to have occurred upon any
Person becoming an Acquiring Person.

     The following terms shall have the meanings defined for such terms in the
Sections set forth below:

	 	 	 	 	 
	Term	 	Section
	
	 	

	Adjustment Shares	 	 	
11.1.2	 
	Beneficial Owner	 	 	
1.3	 
	Preferred Shares	 	 	
Recitals	 
	Common Stock Equivalent	 	 	
11.1.3	 
	Company	 	 	
Recitals	 

5

 

	 	 	 	 	 
	Term	 	Section
	
	 	

	Current Per Share Market Price	 	 	
11.4.1	 
	Current Value	 	 	
11.1.3	 
	Distribution Date	 	 	
3.1	 
	Equivalent Preferred Stock	 	 	
11.2	 
	Exchange Act	 	 	
1.1.2	 
	Exchange Consideration	 	 	
27.1	 
	Expiration Date	 	 	
7.1	 
	Final Expiration Date	 	 	
7.1	 
	Original Rights	 	 	
1.3	 
	Principal Party	 	 	
13.2	 
	Purchase Price	 	 	
4.1	 
	Record Date	 	 	
Recitals	 
	Redemption Date	 	 	
7.1	 
	Redemption Price	 	 	
23.1	 
	Right	 	 	
Recitals	 
	Right Certificate	 	 	
3.1	 
	Rights Agent	 	 	
Recitals	 
	Security	 	 	
11.4.1	 
	Spread	 	 	
11.1.3	 
	Substitution Period	 	 	
11.1.3	 
	Summary of Rights	 	 	
3.2	 
	Trading Day	 	 	
11.4.1	 

     Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable upon ten (10) days’ prior written notice to the Rights
Agent. The Rights Agent shall have no duty to supervise, and shall in no event
be liable for, the acts or omissions of any such co-Rights Agent. In the event
the Company appoints one or more co-Rights Agents, the respective duties of the
Rights Agent and any co-Rights Agent shall be as the Company shall determine.
Contemporaneously with such appointment, if any, the Company shall notify the
Rights Agent thereof.

     Section 3. Issuance of Right Certificates.

		
	 	     3.1 Rights Represented by Share Certificates. Until the earlier of
(i) the tenth day after the Shares Acquisition Date (or if the tenth day
after the Shares Acquisition Date occurs before the Record Date, the
Close of Business on the Record Date) or (ii) the tenth Business Day
after the date of the commencement of, or first public announcement of
the intent of any Person (other than an Exempt Person) to commence, a
tender or exchange offer the consummation of which would result in any
Person (other than an Exempt Person) becoming the Beneficial Owner of
Common Shares aggregating 20% or more of the then outstanding Common
Shares of the Company (the earlier of (i) and (ii) being herein referred
to as the
“Distribution Date”), (x) the Rights (unless earlier expired,
redeemed or terminated) will be represented (subject to the provisions of
Section 3.2) by the certificates for Common Shares, or for shares of
Class B Common Stock, as the case may be, registered in the names of the
holders thereof (which certificates for

6

 

		
	 	Common Shares, or Class B Common
Stock, shall also be deemed to be Right Certificates) and not by separate
certificates, and (y) the Rights (and the right to receive certificates
therefor) will be transferable only in connection with the transfer of
the underlying Common Shares, or Class B Common Stock. The preceding
sentence notwithstanding, prior to the occurrence of a Distribution Date
as a result of an event described in clause (ii) (or such later
Distribution Date as the Board of Directors may select pursuant to this
sentence), the Board of Directors may postpone, one or more times, the
Distribution Date which would occur as a result of an event described in
clause (ii) beyond the date set forth in such clause (ii). Nothing
herein shall permit such a postponement of a Distribution Date after a
Person becomes an Acquiring Person, except as a result of the operation
of Section 1.1.1. As soon as practicable after the Distribution Date,
the Company will prepare and execute, the Rights Agent will countersign
and the Company (or, if requested and provided with a list of
stockholders of Common Shares, or Class B Common Stock, the Rights Agent)
will send, by first-class, postage-prepaid mail, to each record holder of
Common Shares, and Class B Common Stock, as of the close of business on
the Distribution Date (other than any Acquiring Person or any Associate
or Affiliate of an Acquiring Person), at the address of such holder shown
on the records of the Company, one or more certificates for Rights, in
substantially the form of Exhibit B hereto (a “Right Certificate”),
representing one Right (subject to adjustment as provided herein) for
each Common Share, or Class B Common Stock. As of the Distribution Date,
the Rights will be represented solely by such Right Certificates. In the
event that an adjustment in the number of Rights per Common Share has
been made pursuant to Section 11.15 hereof, at the time of distribution
of the Rights Certificates the Company shall make the necessary and
appropriate rounding adjustments (in accordance with Section 14.1 hereof)
so that Rights Certificates evidencing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights.

		
	 	     3.2 Summary of Rights. On the Record Date or as soon as practicable
thereafter, the Company will send or cause to be sent a copy of a Summary
of Rights to Purchase Preferred Shares, in substantially the form
attached hereto as Exhibit C (the “Summary of Rights”), by first-class,
postage-prepaid mail, to each record holder of Common Shares, and Class B
Common Stock, as of the close of business on the Record Date at the
address of such holder shown on the records of the Company. With respect
to certificates for Common Shares, and Class B Common Stock, outstanding
as of the close of business on the Record Date, until the Distribution
Date (or the earlier Expiration Date), the Rights will be represented by
such certificates for Common Shares, and Class B Common Stock, registered
in the names of the holders thereof and the registered holders of the
Common Shares, and Class B Common Stock, shall also be registered holders
of the associated Rights. Until the Distribution Date (or the earlier
Expiration Date), the surrender for transfer of any certificate for
Common Shares, and Class B Common Stock, outstanding at the close of
business on the Record Date, with or without a copy of the Summary of
Rights, shall also constitute the transfer of the Rights associated
with the Common Shares, or Class B Common Stock, represented thereby.

		
	 	     3.3 New Certificates After Record Date. Certificates for Common
Shares and Class B Common Stock which become outstanding (whether upon
issuance out of authorized but unissued Common Shares or Class B Common
Stock or transfer or

7

 

		
	 	exchange of outstanding Common Shares or Class B
Common Stock) after the Record Date, but prior to the earlier of the
Distribution Date or the Expiration Date, shall have impressed, printed,
stamped, written or otherwise affixed onto them the following legend:

	 	 	 	This certificate also represents and entitles the holder
hereof to certain rights (“Rights”) as set forth in an
agreement between The Cato Corporation (the “Company”) and
Wachovia Bank, National Association, as Rights Agent, dated
as of December 18, 2003, as the same may be amended from
time to time (the “Agreement”), the terms of which are
hereby incorporated herein by reference and a copy of which
is on file at the principal executive offices of the
Company. Under certain circumstances, as set forth in the
Agreement, such Rights will be represented by separate
certificates and will no longer be represented by this
certificate. The Company will mail to the holder of this
certificate a copy of the Agreement without charge after
receipt of a written request therefor. As described in the
Agreement, Rights which are owned by, transferred to or have
been owned by Acquiring Persons or Associates or Affiliates
thereof (as defined in the Agreement) shall become null and
void and will no longer be transferable.

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

		
	 	     Notwithstanding this Section 3.3, the omission of a legend shall not
affect the enforceability of any part of this Agreement or the rights of
any holder of the Rights.

     Section 4. Form of Right Certificates.

		
	 	     4.1 The Right Certificates (and the forms of election to purchase
shares, certification and assignment to be printed on the reverse
thereof) shall be substantially in the form of Exhibit B hereto and may
have such marks of identification or designation and such legends,
summaries or endorsements printed thereon as the Company may deem
appropriate, 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 trading system on which the Rights
may from time to time be listed or quoted, or to conform to usage.
Subject to the

8

 

		
	 	terms and conditions hereof, the Right Certificates,
whenever issued, shall be dated as of the Record Date, and shall show the
date of countersignature by the Rights Agent, and on their face shall
entitle the holders thereof to purchase such number of one-thousandths of
a Preferred Share as shall be set forth therein at the price per
one-thousandth of a Preferred Share set forth therein (the “Purchase
Price”), but the number of such one-thousandths of a Preferred Share and
the Purchase Price shall be subject to adjustment as provided herein.

		
	 	     4.2 Any Rights Certificate issued pursuant to Sections 3.1 or
Section 22 hereof that evidences Rights beneficially owned by any Person
known to be (i) an Acquiring Person or any Associate or Affiliate of an
Acquiring Person, (ii) a transferee of any Person (or of any Associate or
Affiliate of any Person) who becomes a transferee after such Person
becomes an Acquiring Person, or (iii) a transferee of any Person (or of
any Associate or Affiliate of any Person) who becomes a transferee prior
to or concurrently with such Person becoming an Acquiring Person and
receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from such Acquiring Person to holders of equity
interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights, or (B) a transfer that
the Board of Directors of the Company has determined is part of a plan,
arrangement or understanding that has as a primary purpose or effect
avoidance of Section 7.5 hereof, and any Rights Certificate issued
pursuant to Section 6 or Section 11 hereof upon transfer, exchange,
replacement or adjustment of any other Rights Certificate referred to in
this sentence, shall contain (to the extent feasible) the following
legend:

	The Rights evidenced by this Rights Certificate are or were
beneficially owned by a Person who was or became an
Acquiring Person or an Affiliate or Associate of an
Acquiring Person (as such terms are defined in the Rights
Agreement between the Company and the Rights Agent and its
successors (the “Rights Agreement”)). Accordingly, this
Rights Certificate and the Rights evidenced hereby may
become null and void in the circumstances specified in
Section 7.5 of the Rights Agreement.

     Section 5. Countersignature and Registration.
The Right Certificates shall be executed on behalf of the Company by
its Chairman of the Board of Directors, Chief Executive Officer, President or
any Vice President, either manually or by facsimile signature, and shall have
affixed thereto the Company’s seal or a facsimile thereof which shall be
attested by the Secretary, or any Assistant Secretary, of the Company, either
manually or by facsimile signature. The Right Certificates shall be
countersigned, either manually or by facsimile signature, by an authorized
signatory of the Rights Agent, but it shall not be necessary for the same
signatory to countersign all of the Right Certificates hereunder. No Right
Certificate shall be valid for any purpose unless so countersigned. In case
any officer of the Company who shall have signed any of the Right Certificates
shall cease to be such officer of the Company before countersignature by the
Rights Agent and issuance and delivery by the Company, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent, and issued and
delivered by the Company with the same force and effect as though the person
who signed such Right Certificates had not ceased to be such officer of the
Company; and any Right Certificate may be signed on

9

 

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

     Following the Distribution Date and receipt by the Rights Agent of all
relevant information, the Rights Agent will keep or cause to be kept, at its
office, designated to the Company for such purposes, books for registration and
transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right Certificates, the
number of Rights represented on its face by each of the Right Certificates, the
certificate number of each of the Right Certificates and the date of each of
the Right Certificates.

     Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Sections 7.5, 11.1.2 and Section 14, at any time after the
Close of Business on the Distribution Date, and at or prior to the Close of
Business on the Expiration Date, any Right Certificate or Right Certificates
(other than Right Certificates representing Rights that have become void
pursuant to Section 11.1.2 or that have been exchanged pursuant to Section 27)
may be transferred, split up or combined or exchanged for another Right
Certificate or Right Certificates, entitling the registered holder to purchase
the same number of one-thousandths of a Preferred Share as the Right
Certificate or Right Certificates surrendered then entitled such holder to
purchase. Any registered holder desiring to transfer, split up or combine or
exchange any Right Certificate shall make such request in writing delivered to
the Rights Agent, and shall surrender, together with any required form of
assignment and certificate duly completed, the Right Certificate or Right
Certificates to be transferred, split up or combined or exchanged at the office
of the Rights Agent designated for such purpose. Neither the Rights Agent nor
the Company shall be obligated to take any action whatsoever with respect to
the transfer of any such surrendered Right Certificate or Right Certificates
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 or Right Certificates and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner)
or Affiliates or Associates thereof as the Company shall reasonably request.
Thereupon
the Rights Agent shall countersign and deliver to the person entitled
thereto a Right Certificate or Right Certificates, as the case may be, as so
requested. The Company may require payment from the holders of Right
Certificates of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up or combination or
exchange of such Right Certificates. The Rights Agent shall have no duty or
obligation under this Section 6 unless and until it is satisfied that all such
taxes and/or charges have been paid in full.

     Subject to the provisions of Section 11.1.2, at any time after the
Distribution Date and prior to the Expiration Date, upon receipt by the Company
and the Rights Agent of evidence reasonably satisfactory to them of the loss,
theft, destruction or mutilation of a Right Certificate, and, in case of loss,
theft or destruction, of indemnity or security satisfactory to them, and, at
the Company’s request, reimbursement to the Company and the Rights Agent of all
reasonable expenses incidental thereto, and upon surrender to the Rights Agent
and cancellation of the Right Certificate if mutilated, the Company will make
and deliver a new Right Certificate of like tenor

10

 

to the Rights Agent for
countersignature and delivery to the registered owner in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.

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

		
	 	     7.1 Exercise of Rights. Subject to Section 11.1.2 and except as
otherwise provided herein, the registered holder of any Right Certificate
may exercise the Rights represented thereby in whole or in part at any
time after the Distribution Date upon surrender of the Right Certificate,
with the form of election to purchase and certification on the reverse
side thereof duly executed, to the Rights Agent at the office of the
Rights Agent designated for such purpose, together with payment of the
aggregate Purchase Price for the total number of one-thousandths of a
Preferred Share (or other securities, cash or other assets) as to which
the Rights are exercised, at or prior to the time (the “Expiration Date”)
that is the earliest of (i) the Close of Business on January 7, 2014 (the
“Final Expiration Date”), (ii) the time at which the Rights are redeemed
as provided in Section 23 (the “Redemption Date”), (iii) the closing of
any merger or other acquisition transaction involving the Company
pursuant to an agreement of the type described in Sections 1.3(ii)(A)(z)
and 13.3, at which time the Rights are terminated, or (iv) the time at
which the Rights are exchanged as provided in Section 27.

		
	 	     7.2 Purchase. The Purchase Price for each one-thousandth of a
Preferred Share pursuant to the exercise of a Right shall be initially
$75.00, shall be subject to adjustment from time to time as provided in
Section 11, Section 13 and Section 26 and shall be payable in lawful
money of the United States of America in accordance with Section 7.3.

		
	 	     7.3 Payment Procedures. Upon receipt of a Right Certificate
representing exercisable Rights, with the form of election to purchase
and certification duly executed, accompanied by payment of the aggregate
Purchase Price for the total number of one-thousandths of a Preferred
Share
to be purchased and an amount equal to any applicable transfer tax
required to be paid by the holder of such Right Certificate in accordance
with Section 9, in cash or by certified or cashier’s check or money order
payable to the order of the Company, the Rights Agent shall thereupon
promptly (i)(A) requisition from any transfer agent of the Preferred
Shares (or make available, if the Rights Agent is the transfer agent)
certificates for the number of Preferred Shares to be purchased and the
Company hereby irrevocably authorizes its transfer agent to comply with
all such requests, or (B) if the Company shall have elected to deposit
the total number of Preferred Shares issuable upon exercise of the Rights
hereunder with a depositary agent, requisition from the depositary agent
depositary receipts representing interests in such number of
one-thousandths of a Preferred Share as are to be purchased (in which
case certificates for the Preferred Shares represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and
the Company hereby directs the depositary agent to comply with all such
requests, (ii) when appropriate, requisition from the Company the amount
of cash to be paid in lieu of the issuance of fractional shares in
accordance with Section 11.14 or otherwise in accordance with Section
11.1.3, (iii) promptly after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the
registered holder of such Right Certificate,

11

 

		
	 	registered in such name or
names as may be designated by such holder and (iv) when appropriate,
after receipt, promptly deliver such cash to or upon the order of the
registered holder of such Right Certificate. In the event that the
Company is obligated to issue other securities of the Company, pay cash
and/or distribute other property pursuant to Section 11.1.3, the Company
will make all arrangements necessary so that such other securities, cash
and/or other property are available for distribution by the Rights Agent,
if and when necessary to comply with this Agreement.

		
	 	     7.4 Partial Exercise. In case the registered holder of any Right
Certificate shall exercise less than all the Rights represented thereby,
a new Right Certificate representing Rights equivalent to the Rights
remaining unexercised shall be issued by the Rights Agent and delivered
to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 6 and Section
14.

		
	 	     7.5 Rights held by an Acquiring Person. Notwithstanding anything in
this Agreement to the contrary, from and after the first occurrence of a
Trigger Event, any Rights beneficially owned by (i) an Acquiring Person
or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of
any Person (or of any Associate or Affiliate of any Person) who becomes a
transferee after such Person becomes an Acquiring Person, or (iii) a
transferee of any Person (or of any Associate or Affiliate of any Person)
who becomes a transferee prior to or concurrently with such Person
becoming an Acquiring Person and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from such Acquiring
Person (or any Affiliate or Associate thereof) to holders of equity
interests in such Acquiring Person (or any Affiliate or Associate
thereof) or to any Person with whom such Acquiring Person (or any
Affiliate or Associate thereof) has any continuing agreement, arrangement
or understanding regarding the transferred Rights or (B) a transfer
that the Board of Directors of the Company has determined is part of a
plan, agreement, arrangement or understanding that has as a primary
purpose or effect the avoidance of this Section 7.5, shall become null
and void without any further action and no holder of such Rights shall
have any rights whatsoever with respect to such Rights, whether under any
provision of this Agreement or otherwise. The Company shall notify the
Rights Agent when this Section 7.5 applies and shall use all reasonable
efforts to ensure that the provisions of Sections 7.5 and 4.2 hereof are
complied with, but neither the Company nor the Rights Agent shall have,
any liability to any holder of Rights Certificates or other Person as a
result of the Company’s failure to make any determinations with respect
to an Acquiring Person or any of its Affiliates, Associates or
transferees hereunder.

		
	 	     7.6 Full Information Concerning Ownership. Notwithstanding anything
in this Agreement to the contrary, neither the Rights Agent nor the
Company shall be obligated to undertake any action with respect to a
registered holder of Rights upon the occurrence of any purported exercise
as set forth in this Section 7 unless the certificate contained in the
form of election to purchase set forth on the reverse side of the Right
Certificate surrendered for such exercise shall have been duly completed
and signed by the registered holder thereof and the Company shall have
been provided with such additional evidence of the identity of the
Beneficial Owner (or former Beneficial

12

 

		
	 	Owner) or Affiliates or Associates
thereof as the Company or the Rights Agent shall reasonably request.

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

     Section 9. Reservation and Availability of Stock. The Company covenants
and agrees that from and after the Distribution Date it will cause to be
reserved and kept available out of its authorized and unissued Preferred Shares
(and, following the occurrence of a Trigger Event, out of its authorized and
unissued Common Shares or other securities) the number of Preferred Shares
(and, following the occurrence of a Trigger Event, Common Shares and/or other
securities) that will be sufficient to permit the exercise in full of all
outstanding Rights.

     So long as the Preferred Shares (and, following the occurrence of a
Trigger Event, Common Shares and/or other securities) issuable upon the
exercise of Rights may be listed on any stock exchange or traded in the
over-the-counter market and quoted on NASDAQ, the Company shall use its best
efforts to cause, from and after such time as the Rights become exercisable,
all shares reserved for such issuance to be listed or admitted to trading on
such exchange or quoted on NASDAQ upon official notice of issuance upon such
exercise.

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

     From and after such time as the Rights become exercisable, the Company
shall use its best efforts, if then necessary to permit the issuance of
Preferred Shares upon the exercise of Rights, to register and qualify such
Preferred Shares under the Securities Act and any applicable state securities
or “Blue Sky” laws (to the extent exemptions therefrom are not available),
cause such registration statement and qualifications to become effective as
soon as possible after such filing and keep such registration and
qualifications effective until the earlier of the date as of which the Rights
are no longer exercisable for such securities and the Expiration Date. The
Company may temporarily suspend, for a period of time not to exceed ninety (90)
days, the exercisability of the Rights in order to prepare and file a
registration statement under the Securities Act and permit it to become
effective. Upon any such suspension, the Company shall promptly notify the
Rights Agent thereof and issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement

13

 

(with prompt notice thereof to the Rights Agent) at such
time as the suspension is no longer in effect. In addition, if the Company
shall determine that a registration statement is required following the
Distribution Date, and a Trigger Event has not occurred, the Company may
temporarily suspend (and shall give the Rights Agent prompt notice thereof) the
exercisability of Rights until such time as a registration statement has been
declared effective. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction unless the
requisite qualification in such jurisdiction shall have been obtained and until
a registration statement under the Securities Act (if required) shall have been
declared effective.

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

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

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

14

 

		
	 	     11.1 Post-Execution Events.

		
	 	     11.1.1 Corporate Dividends, Reclassifications, Etc. In the event
the Company shall at any time after the date of this Agreement (A)
declare and pay a dividend on the Preferred Shares payable in Preferred
Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the
outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this Section
11.1, the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, combination
or reclassification, and the number and kind of shares of stock issuable
on such date, shall be proportionately adjusted so that the holder of any
Right exercised after such time shall be entitled to receive the
aggregate number and kind of shares of stock which, if such Right had
been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, such person
would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification;
provided, however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par
value of the shares of stock of the Company issuable upon exercise
of one Right. If an event occurs which would require an adjustment under
both Sections 11.1.1 and 11.1.2, the adjustment provided for in this
Section 11.1.1 shall be in addition to, and shall be made prior to, the
adjustment required pursuant to, Section 11.1.2.

		
	 	     11.1.2 Acquiring Person Events; Trigger Events. Subject to Sections
23.1 and Section 27, in the event that a Trigger Event occurs, then, from
and after the first occurrence of such event, each holder of a Right,
except as provided below, shall thereafter have a right to receive, upon
exercise thereof at a price per Right equal to the then-current Purchase
Price multiplied by the number of one-thousandths of a Preferred Share
for which a Right is then exercisable (without giving effect to this
Section 11.1.2), in accordance with the terms of this Agreement and in
lieu of Preferred Shares, such number of Common Shares per Right as shall
equal the result obtained by (x) multiplying the then-current Purchase
Price by the number of one-thousandths of a Preferred Share for which a
Right is then exercisable (without giving effect to this Section 11.1.2)
and (y) dividing that product by 50% of the Current Per Share Market
Price of the Common Shares on the first of the date of the occurrence of,
or the date of the first public announcement of, a Trigger Event (the
“Adjustment Shares”); provided that the Purchase Price and the number of
Adjustment Shares shall thereafter be subject to further adjustment as
appropriate in accordance with Section 11.6. Notwithstanding the
foregoing, upon the occurrence of a Trigger Event, any Rights that are or
have been acquired or beneficially owned by (1) any Acquiring Person or
any Associate or Affiliate thereof, (2) a transferee of any Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee
after the Acquiring Person becomes such, or (3) a transferee of any
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether
or not for consideration) from the Acquiring Person to holders of equity
interests in such Acquiring Person or to any Person

15

 

		
	 	with whom the
Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which
the Board of Directors determines or has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect
avoidance of this Section 11.1.2, and subsequent transferees, shall
become null and void without any further action, and any holder (whether
or not such holder is an Acquiring Person or an Associate or Affiliate of
an Acquiring Person) of such Rights shall thereafter have no right to
exercise such Rights under any provision of this Agreement or otherwise.
The Company shall not enter into any transaction of the type described in
this Section 11.1.2 if at the time of such transaction there are any
rights, warrants, instruments or securities outstanding or any
arrangements which, as a result of the consummation of such transaction,
would eliminate or substantially diminish the benefits intended to be
afforded by the Rights. From and after the Trigger Event, no Right
Certificate shall be issued pursuant to Section 3 or Section 6 that
represents Rights that are or have become void pursuant to the provisions
of this paragraph, and any Right Certificate delivered to the Rights
Agent that represents Rights that are or have become void pursuant to the
provisions of this paragraph shall be cancelled.

		
	 	     The Company shall use all reasonable efforts to ensure that the
provisions of this Section 11.1.2 are complied with, but shall have no
liability to any holder of Right Certificates or other Person as a result
of its failure to make any determinations with respect to any Acquiring
Person or its Affiliates, Associates or transferees hereunder.

		
	 	     From and after the occurrence of an event specified in Section 13.1,
any Rights that theretofore have not been exercised pursuant to this
Section 11.1.2 shall thereafter be exercisable only in accordance with
Section 13 and not pursuant to this Section 11.1.2.

		
	 	     11.1.3 Insufficient Shares. The Company may at its option
substitute for a Common Share issuable upon the exercise of Rights in
accordance with the foregoing Section 11.1.2 a number of Preferred Shares
or fraction thereof such that the Current Per Share Market Price of one
Preferred Share multiplied by such number or fraction is equal to the
Current Per Share Market Price of one Common Share. In the event that
upon the occurrence of one or more of the events listed in Section 11.1.2
above there shall not be sufficient Common Shares authorized but unissued
to permit the exercise in full of the Rights in accordance with the
foregoing Section 11.1.2, the Company shall take all such action as may
be necessary to authorize additional Common Shares for issuance upon
exercise of the Rights, provided, however, that if the Company determines
that it is unable to cause the authorization of a sufficient number of
additional Common Shares, then, in the event the Rights become
exercisable, the Company, with respect to each Right and to the extent
necessary and permitted by applicable law and any agreements or
instruments in effect on the date hereof to which it is a party, shall:
(A) determine the excess of (1) the value of the Adjustment Shares
issuable upon the exercise of a Right (the “Current Value”), over (2) the
Purchase Price (such excess, the “Spread”) and (B) with respect to each
Right (other than Rights which have become void pursuant to Section
11.1.2), make adequate provision to substitute for the Adjustment Shares,
upon payment of the applicable Purchase Price, (1) cash, (2) a reduction
in the Purchase Price, (3) Preferred Shares or other equity securities of
the Company (including, without

16

 

		
	 	limitation, shares, or fractions of
shares, of preferred stock which, by virtue of having dividend, voting
and liquidation rights substantially comparable to those of the Common
Shares, the Board of Directors has deemed in good faith to have
substantially the same value as Common Shares) (each such share of
preferred stock or fractions of shares of preferred stock constituting a
“Common Stock Equivalent”)), (4) debt securities of the Company, (5)
other assets or (6) any combination of the foregoing having an aggregate
value equal to the Current Value, where such aggregate value has been
determined by the Board of Directors based upon the advice of a
nationally recognized investment banking firm selected in good faith by
the Board of Directors; provided, however, that if the Company shall not
have made adequate provision to deliver value pursuant to clause (B)
above within thirty (30) days following the first occurrence of a Trigger
Event, then the Company shall be obligated to deliver, to the extent
necessary and permitted by applicable law and any agreements or
instruments in effect on the date hereof to which it is a party, upon the
surrender for exercise of a Right and without requiring payment of the
Purchase Price, Common Shares (to the extent available) and then, if
necessary, such number or fractions of Preferred Shares (to the extent
available) and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread. If the Board of Directors shall
determine in good faith that it is unlikely that sufficient additional
Common Shares could be authorized for issuance upon exercise in full
of the Rights, the thirty (30) day period set forth above may be extended
and reextended to the extent necessary, but not more than ninety (90)
days following the first occurrence of one of the events listed in
Section 11.1.2 above, in order that the Company may seek stockholder
approval for the authorization of such additional shares (such period as
may be extended, the “Substitution Period”). To the extent that the
Company determines that some action need be taken pursuant to the second
and/or third sentences of this Section 11.1.3, the Company (x) shall
provide that such action shall apply uniformly to all outstanding Rights,
and (y) may suspend the exercisability of the Rights until the expiration
of the Substitution Period in order to seek any authorization of
additional shares and/or to decide the appropriate form of distribution
to be made pursuant to such first sentence and to determine the value
thereof. In the event of any such suspension, the Company shall promptly
notify the Rights Agent thereof and issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended as
well as a public announcement (with prompt notice thereof to the Rights
Agent) at such time as the suspension is no longer in effect. For
purposes of this Section 11.1.3, the value of a Common Share shall be the
Current Per Share Market Price on the date of the occurrence of a Trigger
Event and the value of any “Common Stock Equivalent” shall be deemed to
have the same value as the Common Shares on such date. The Board of
Directors may, but shall not be required to, establish procedures to
allocate the right to receive Common Shares upon the exercise of the
Rights among holders of Rights pursuant to this Section 11.1.3.

		
	 	     11.2 Dilutive Rights Offering. In case the Company shall fix a
record date for the issuance of rights, options or warrants to all
holders of Preferred Shares entitling them (for a period expiring within
45 calendar days after such record date) to subscribe for or purchase
Preferred Shares (or securities having the same rights, privileges and
preferences as the Preferred Shares (“Equivalent Preferred Stock”)) or
securities convertible into Preferred Shares or Equivalent Preferred
Stock at a price per Preferred

17

 

		
	 	Share or per share of Equivalent Preferred
Stock (or having a conversion or exercise price per share, if a security
convertible into or exercisable for Preferred Shares or Equivalent
Preferred Stock) less than the Current Per Share Market Price of the
Preferred Shares on such record date, the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of Preferred Shares and shares of
Equivalent Preferred Stock outstanding on such record date plus the
number of Preferred Shares and shares of Equivalent Preferred Stock which
the aggregate offering price of the total number of Preferred Shares
and/or shares of Equivalent Preferred Stock to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such Current Per Share Market Price and the
denominator of which shall be the number of Preferred Shares and shares
of Equivalent Preferred Stock outstanding on such record date plus the
number of additional Preferred Shares and/or shares of Equivalent
Preferred Stock 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 stock of
the Company issuable upon exercise of one Right. In case such
subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall
be as determined in good faith by the Board of Directors, whose
determination shall be described in a statement filed with the Rights
Agent and shall be conclusive and binding on the Rights Agent and the
holders of the Rights for all purposes. Preferred Shares and shares of
Equivalent Preferred Stock owned by or held for the account of the
Company or any Subsidiary of the Company shall not be deemed outstanding
for the purpose of any such computation. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that
such rights or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.

		
	 	     11.3 Distributions. In case the Company shall fix a record date for
the making of a distribution to all holders of the Preferred Shares
(including any such distribution made in connection with a consolidation
or merger in which the Company is the continuing or surviving
corporation) of evidences of indebtedness, cash, securities or assets or
convertible securities, or subscription rights or warrants (excluding
those referred to in Section 11.2), the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the Current Per Share Market Price of the
Preferred Shares on such record date, less the fair market value (as
determined in good faith by the Board of Directors, whose determination
shall be described in a statement filed with the Rights Agent and shall
be conclusive for all purposes) of the portion of the cash, assets,
securities or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to one Preferred Share and the
denominator of which shall be such Current Per Share Market Price of the
Preferred Shares; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of stock of the Company to be issued
upon exercise of one Right. Such adjustments shall be made successively
whenever such a record date is fixed; and in the event that such
distribution

18

 

		
	 	is not so made, the Purchase Price shall again be adjusted
to be the Purchase Price which would then be in effect if such record
date had not been fixed.

		
	 	     11.4 Current Per Share Market Value.

		
	 	     11.4.1 General. For the purpose of any computation hereunder, the
“Current Per Share Market Price” of any security (a “Security” for the
purpose of this Section 11.4.1) on any date shall be deemed to be the
average of the daily closing prices per share of such Security for the
thirty (30) consecutive Trading Days immediately prior to such date;
provided, however, that in the event that the Current Per Share Market
Price of the Security is determined during any period following the
announcement by the issuer of such Security of (i) a dividend or
distribution on such Security payable in shares of such Security or
securities convertible into such shares or (ii) any subdivision,
combination or reclassification of such Security, and prior to the
expiration of thirty (30) consecutive
Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the “Current Per Share
Market Price” shall be appropriately adjusted to reflect the current
market price per share equivalent of such Security. The closing price
for each day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the
Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to
trading or, if the Security is not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use, or, if on
any such date the Security is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Security selected by the
Board of Directors. If on any such date no such market maker is making a
market in the Security, the fair value of the Security on such date as
determined in good faith by the Board of Directors shall be used. The
term “Trading Day” shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is
not listed or admitted to trading on any national securities exchange, a
Business Day. If the Security is not publicly held or not so listed or
traded, or if on any such date the Security is not so quoted and no such
market maker is making a market in the Security, “Current Per Share
Market Price” shall mean the fair value per share as determined in good
faith by the Board of Directors or, if at the time of such determination
there is an Acquiring Person, by a nationally recognized investment
banking firm selected by the Board of Directors, which shall have the
duty to make such determination in a reasonable and objective manner,
whose determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes.

		
	 	     11.4.2 Preferred Shares. Notwithstanding Section 11.4.1, for the
purpose of any computation hereunder, the “Current Per Share Market
Price” of the Preferred Shares

19

 

		
	 	shall be determined in the same manner as
set forth above in Section 11.4.1 (other than the last sentence thereof).
If the Current Per Share Market Price of the Preferred Shares cannot be
determined in the manner described in Section 11.4.1, the “Current Per
Share Market Price” of the Preferred Shares shall be conclusively deemed
to be an amount equal to 1000 (as such number may be appropriately
adjusted for such events as stock splits, stock dividends and
recapitalizations with respect to the Common Shares occurring after the
date of this Agreement) multiplied by the Current Per Share Market Price
of the Common Shares. If neither the Common Shares nor the Preferred
Shares are publicly held or so listed or traded, or if on any such date
neither the Common Shares nor the Preferred Shares are so quoted and no
such market maker is making a market in either the Common Shares or the
Preferred Shares, “Current Per Share Market Price” of the Preferred
Shares shall mean the fair value per share as determined in good faith by
the Board of Directors, or, if at the time of such determination there is
an Acquiring Person, by a nationally recognized investment banking firm
selected by the Board of Directors,
which shall have the duty to make such determination in a reasonable
and objective manner, which determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all
purposes. For purposes of this Agreement, the “Current Per Share Market
Price” of one one-thousandth of a Preferred Share shall be equal to the
“Current Per Share Market Price” of one Preferred Share divided by 1000.

		
	 	     11.5 Insignificant Changes. No adjustment in the Purchase Price
shall be required unless such adjustment would require an increase or
decrease of at least 1% in the Purchase Price. Any adjustments which by
reason of this Section 11.5 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 11 shall be made to the nearest cent or
to the nearest one-millionth of a Preferred Share or the nearest one
ten-thousandth of a Common Share or other share or security, as the case
may be. Notwithstanding the first sentence of this Section 11.5, any
adjustment required by this Section 11 shall be made no later than the
earlier of (i) three years from the date of the transaction that mandate
such adjustment, or (ii) the Expiration Date.

		
	 	     11.6 Shares Other Than Preferred Shares. If as a result of an
adjustment made pursuant to Section 11.1, the holder of any Right
thereafter exercised shall become entitled to receive any shares of stock
of the Company other than Preferred Shares, thereafter the number of such
other shares so receivable upon exercise of any Right shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Preferred
Shares contained in Sections 11.1, 11.2, 11.3, 11.5, 11.8, 11.9 and
11.13, and the provisions of Section 7, Section 9, Section 10, Section 13
and Section 14 with respect to the Preferred Shares shall apply on like
terms to any such other shares.

		
	 	     11.7 Rights Issued Prior to Adjustment. All Rights originally
issued by the Company subsequent to any adjustment made to the Purchase
Price hereunder shall include the right to purchase, at the adjusted
Purchase Price, the number of one-thousandths of a Preferred Share
purchasable from time to time hereunder upon exercise of the Rights, all
subject to further adjustment as provided herein.

20

 

		
	 	     11.8 Effect of Adjustments. Unless the Company shall have exercised
its election as provided in Section 11.9, upon each adjustment of the
Purchase Price as a result of the calculations made in Sections 11.2 and
11.3, each Right outstanding immediately prior to the making of such
adjustment shall thereafter include the right to purchase, at the
adjusted Purchase Price, that number of one-thousandths of a Preferred
Share (calculated to the nearest one-hundred thousandth of a Preferred
Share) obtained by (i) multiplying (x) the number of one-thousandths of a
Preferred Share covered by a Right immediately prior to this adjustment
by (y) the Purchase Price in effect immediately prior to such adjustment
of the
Purchase Price and (ii) dividing the product so obtained by the
Purchase Price in effect immediately after such adjustment of the
Purchase Price.

		
	 	     11.9 Adjustment in Number of Rights. The Company may elect on or
after the date of any adjustment of the Purchase Price to adjust the
number of Rights, in substitution for any adjustment in the number of
one-thousandths of a Preferred Share issuable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of one-thousandths
of a Preferred Share for which a Right was exercisable immediately prior
to such adjustment. Each Right held of record prior to such adjustment
of the number of Rights shall become that number of Rights (calculated to
the nearest one-thousandth) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement and promptly notify
the Rights Agent of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time,
the amount of the adjustment to be made. This record date may be the
date on which the Purchase Price is adjusted or any day thereafter, but,
if the Right Certificates have been issued, shall be at least ten (10)
days later than the date of the public announcement. If Right
Certificates have been issued, upon each adjustment of the number of
Rights pursuant to this Section 11.9, the Company may, as promptly as
practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates representing, subject
to Section 14, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the
Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Right Certificates held by such
holders prior to the date of adjustment, and upon surrender thereof, if
required by the Company, new Right Certificates representing all the
Rights to which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein (and may bear, at the
option of the Company, the adjusted Purchase Price) and shall be
registered in the names of the holders of record of Right Certificates on
the record date specified in the public announcement.

		
	 	     11.10 Right Certificates Unchanged. Irrespective of any adjustment
or change in the Purchase Price or the number of one-thousandths of a
Preferred Share issuable upon the exercise of the Rights, the Right
Certificates theretofore and thereafter issued may continue to express
the Purchase Price per share and the number of one-thousandths of a
Preferred Share which were expressed in the initial Right Certificates
issued hereunder.

21

 

		
	 	     11.11 Par Value Limitations. Before taking any action that would
cause an adjustment reducing the Purchase Price below one one-thousandth
of the then par value, if any, of the Preferred Shares or other shares of
stock issuable upon exercise of the Rights, the Company shall take any
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 Preferred Shares or other such shares at such adjusted
Purchase Price.

		
	 	     11.12 Deferred Issuance. In any case in which this Section 11 shall
require that an adjustment in the Purchase Price be made effective as of
a record date for a specified event, the Company may elect to defer (and
shall promptly notify the Rights Agent of any such election) until the
occurrence of such event the issuance to the holder of any Right
exercised after such record date of that number of Preferred Shares and
shares of other stock or securities of the Company, if any, issuable upon
such exercise over and above the Preferred Shares and shares of other
stock or other securities, assets or cash of the Company, if any,
issuable upon such exercise on the basis of the Purchase Price in effect
prior to such adjustment; provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument
representing such holder’s right to receive such additional shares upon
the occurrence of the event requiring such adjustment.

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

		
	 	     11.14 Company Not to Diminish Benefits of Rights. The Company
covenants and agrees that after the earlier of the Shares Acquisition
Date or Distribution Date it will not, except as permitted by Section 23,
Section 26 or Section 27, 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 substantially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights.

		
	 	     11.15 Adjustment of Rights Associated with Common Shares.
Notwithstanding anything contained in this Agreement to the contrary, in
the event that the Company shall at any time after the date hereof and
prior to the Distribution Date (i) declare or pay any dividend on the
outstanding Common Shares payable in Common Shares, (ii) effect a
subdivision or consolidation of the outstanding Common Shares (by
reclassification or otherwise than by the payment of dividends payable in
Common Shares), or (iii) combine the outstanding Common Shares into a
greater or lesser number of Common Shares, then in any such case, the
number of Rights associated with each Common Share then

22

 

		
	 	outstanding, or issued
or delivered thereafter but prior to the Distribution Date or in
accordance with Section 22 shall be proportionately adjusted so that the
number of Rights thereafter associated with each Common Share following
any such event shall equal 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 shall be the total number of
Common Shares outstanding immediately prior to the occurrence of the
event and the denominator of which shall be the total number of Common
Shares outstanding immediately following the occurrence of such event.
The adjustment provided for in this Section 11.15 shall be made
successively whenever a dividend referred to in this Section 11.15 is
declared or paid or a subdivision, combination or consolidation referred
to in this Section 11.15 is effected.

		
	 	     11.16 Company Agreements. The Company covenants and agrees that it
shall not, at any time after the Distribution Date engage in a
Transaction if (x) at the time of or immediately after such Transaction
there are any rights, warrants or other instruments or securities
outstanding or agreements in effect that would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights or
(y) prior to, simultaneously with or immediately after such Transaction,
the stockholders of the Person who constitutes, or would constitute, the
“Principal Party” for purposes of Section 13.1 hereof shall have received
a distribution of Rights previously owned by such Person or any of its
Affiliates and Associates.

     Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 or Section 13, the
Company shall (a) promptly prepare a certificate setting forth such adjustment,
and a brief statement of the facts and computations accounting for such
adjustment, (b) promptly file with the Rights Agent and with each transfer
agent for the Common Shares or the Preferred Shares a copy of such certificate
and (c) mail a brief summary thereof to each holder of a Right Certificate in
accordance with Section 25. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment therein contained and
shall have no duty with respect to and shall not be deemed to have knowledge of
any such adjustment unless and until it shall have received such certificate.

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

		
	 	     13.1 Certain Transactions. In the event that, from and after the
first occurrence of a Trigger Event, directly or indirectly, the Company
consummates a Transaction, then, and in each such case, proper provision
shall be made so that

		
	 	     (i) each holder of a Right (other than Rights which have
become void pursuant to Section 11.1.2) shall thereafter have the
right to receive, upon the exercise thereof at a price per Right
equal to the then-current Purchase Price
multiplied by the number of one-thousandths of a Preferred
Share for which a Right was exercisable immediately prior to the
first occurrence of a Trigger Event (as subsequently adjusted
pursuant to Sections 11.1.1, 11.2, 11.3, 11.8, 11.9 and 11.12), in
accordance with the terms of this Agreement and in lieu of
Preferred Shares or Common Shares, such number of validly
authorized and issued, fully paid, non-assessable and freely
tradable Common Shares of the Principal 

23

 

		
	 	Party not subject to any
liens, encumbrances, rights of first refusal or other adverse
claims, as shall be equal to the result obtained by (x) multiplying
the then-current Purchase Price by the number of one-thousandths of
a Preferred Share for which a Right was exercisable immediately
prior to the first occurrence of a Trigger Event (as subsequently
adjusted pursuant to Sections 11.1.1, 11.2, 11.3, 11.8, 11.9 and
11.12) and (y) dividing that product by 50% of the then Current Per
Share Market Price of the Common Shares of such Principal Party on
the date of consummation of the Transaction; provided, that the
price per Right so payable and the number of Common Shares of such
Principal Party so receivable upon exercise of a Right shall
thereafter be subject to further adjustment as appropriate in
accordance with Section 11.6 to reflect any events covered thereby
occurring in respect of the Common Shares of such Principal Party
after the occurrence of such consolidation, merger, sale or
transfer;

		
	 	     (ii) such Principal Party shall thereafter be liable for, and
shall assume, by virtue of such consolidation, merger, sale or
transfer, all the obligations and duties of the Company pursuant to
this Agreement;
	 
	 	     (iii) the term “Company” shall thereafter be deemed to refer
to such Principal Party; and
	 
	 	     (iv) such Principal Party shall take such steps (including,
but not limited to, the authorization and reservation of a
sufficient number of its Common Shares in accordance with Section
9) in connection with such consummation as may be necessary to
assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights; provided
that, upon the subsequent occurrence of any consolidation, merger,
sale or transfer of assets or other extraordinary transaction in
respect of such Principal Party, each holder of a Right shall
thereupon be entitled to receive, upon exercise of a Right and
payment of the Purchase Price as provided in this Section 13.1,
such cash, shares, rights, warrants and other property which such
holder would have been entitled to receive had such holder, at the
time of such transaction, owned the Common Shares of the Principal
Party receivable upon the exercise of a Right pursuant to this
Section 13.1, and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as
may be necessary to permit the subsequent exercise of the Rights in
accordance with the terms hereof for such cash, shares, rights,
warrants and other property.

		
	 	     The Company shall not consummate any Transaction unless prior
thereto the Company and such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement confirming that
the requirements of this Sections 13.1 and 13.2 shall promptly be
performed in accordance with their terms and that such Transaction shall
not result in a default by the Principal Party under this Agreement as
the same shall have been assumed by the Principal Party pursuant to this
Section 13.1 and Section 13.2 and providing that, as soon as practicable
after executing such agreement pursuant to this Section 13, the Principal
Party, at its own expense, shall

24

 

		
	 	     (i) prepare and file a registration statement under the
Securities Act, if necessary, with respect to the Rights and the
securities purchasable upon exercise of the Rights on an
appropriate form, use its best efforts to cause such registration
statement to become effective as soon as practicable after such
filing and use its best efforts to cause such registration
statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the
Expiration Date and similarly comply with applicable state
securities laws;
	 
	 	     (ii) use its best efforts, if the Common Shares of the
Principal Party shall be listed or admitted to trading on the New
York Stock Exchange or on another national securities exchange, to
list or admit to trading (or continue the listing of) the Rights
and the securities purchasable upon exercise of the Rights on the
New York Stock Exchange or such securities exchange, or, if the
Common Shares of the Principal Party shall not be listed or
admitted to trading on the New York Stock Exchange or a national
securities exchange, to cause the Rights and the securities
receivable upon exercise of the Rights to be authorized for
quotation on NASDAQ or on such other system then in use;
	 
	 	     (iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects
with the requirements for registration on Form 10 (or any successor
form) under the Exchange Act; and
	 
	 	     (iv) obtain waivers of any rights of first refusal or
preemptive rights in respect of the Common Shares of the Principal
Party subject to purchase upon exercise of outstanding Rights.

		
	 	     In case the Principal Party has provision in any of its authorized
securities or in its charter or bylaws or other instrument governing its
corporate affairs, which provision would have the effect of (i) causing
such Principal Party to issue (other than to holders of Rights pursuant
to this Section 13), in connection with, or as a consequence of, the
consummation of a transaction referred to in this Section 13, Common
Shares or Common Stock Equivalents of such Principal Party at less than
the then-current market price per share thereof (determined pursuant to
Section 11.4) or securities exercisable for, or convertible into, Common
Shares or Common Stock Equivalents of such Principal Party at less than
such then-current market price (other than to holders of Rights pursuant
to this Section 13), or (ii) providing for any special payment, taxes or
similar provision in connection with the issuance of the Common Shares of
such Principal Party pursuant to the provision of Section 13, then, in
such event, the Company hereby agrees with each
holder of Rights that it shall not consummate any such transaction
unless prior thereto the Company and such Principal Party shall have
executed and delivered to the Rights Agent a supplemental agreement
providing that the provision in question of such Principal Party shall
have been cancelled, waived or amended, or that the authorized securities
shall be redeemed, so that the applicable provision will have no effect
in connection with, or as a consequence of, the consummation of the
proposed transaction.

		
	 	     The Company covenants and agrees that it shall not, at any time
after the Trigger Event, enter into any Transaction if (i) at the time of
or immediately after such

25

 

		
	 	Transaction there are any rights, warrants or
other instruments or securities outstanding or agreements in effect which
would substantially diminish or otherwise eliminate the benefits intended
to be afforded by the Rights, (ii) prior to, simultaneously with or
immediately after such Transaction, the stockholders of the Person who
constitutes, or would constitute, the Principal Party for purposes of
Section 13.3 shall have received a distribution of Rights previously
owned by such Person or any of its Affiliates or Associates or (iii) the
form or nature of organization of the Principal Party would preclude or
limit the exercisability of the Rights. The provisions of this Section
13 shall similarly apply to successive Transactions.

		
	 	     13.3 Principal Party. “Principal Party” shall mean:

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

		
	 	     (ii) in the case of any Transaction, the Person that is the
party receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions, or, if
each Person that is a party to such Transaction receives the same
portion of the assets or earning power so transferred or if the
Person receiving the greatest portion of the assets or earning
power cannot be determined, whichever of such Persons is the issuer
of Common Shares having the greatest aggregate market value of
shares outstanding; provided, however, that in any Transaction, if
the Common Shares of such Person are not at such time or have not
been continuously over the preceding twelve month period registered
under Section 12 of the Exchange Act, then (1) if such Person is a
direct or indirect Subsidiary of another Person the Common Shares
of which are and have been so registered, the term “Principal
Party” shall refer to such other Person, or (2) if such Person is a
Subsidiary, directly or indirectly, of
more than one Person, the Common Shares of all of which are
and have been so registered, the term “Principal Party” shall refer
to whichever of such Persons is the issuer of Common Shares having
the greatest aggregate market value of shares outstanding, or (3)
if such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in clauses (1)
and (2) above shall apply to each of the owners having an interest
in the venture as if the Person owned by the joint venture was a
Subsidiary of both or all of such joint venturers, and the
Principal Party in each such case shall bear the obligations set
forth in this Section 13 in the same ratio as its interest in such
Person bears to the total of such interests.

26

 

		
	 	     13.4 Approved Acquisitions. Notwithstanding anything contained
herein to the contrary, in the event of any merger or other acquisition
transaction involving the Company pursuant to a merger or other
acquisition agreement between the Company and any Person (or one or more
of such Person’s Affiliates or Associates) which agreement has been
approved by the Board of Directors prior to any Person becoming an
Acquiring Person, this Agreement and the rights of holders of Rights
hereunder shall be terminated in accordance with Section 7.1.

     Section 14. Fractional Rights and Fractional Shares.

		
	 	     14.1 Cash in Lieu of Fractional Rights. The Company shall not be
required to issue fractions of Rights or to distribute Right Certificates
which represent fractional Rights (except prior to the Distribution Date
in accordance with Section 11.15). In lieu of such fractional Rights,
there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable
an amount in cash equal to the same fraction of the current market value
of a whole Right. For the purposes of this Section 14.1, the current
market value of a whole Right shall be the closing price of the Rights
for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price
for any day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the
Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading
or, if the Rights are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use or, if on
any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the
Board of Directors. If on any such date no such market maker is making a
market in the
Rights, the current market value of the Rights on such date shall be
the fair value of the Rights as determined in good faith by the Board of
Directors, or, if at the time of such determination there is an Acquiring
Person, by a nationally recognized investment banking firm selected by
the Board of Directors, which shall have the duty to make such
determination in a reasonable and objective manner, which determination
shall be described in a statement filed with the Rights Agent and shall
be conclusive for all purposes.

		
	 	     14.2 Cash in Lieu of Fractional Preferred Shares. The Company shall
not be required to issue fractions of Preferred Shares (other than
fractions which are integral multiples of one one-thousandth of a
Preferred Share) upon exercise or exchange of the Rights or to distribute
certificates which represent fractional Preferred Shares (other than
fractions which are integral multiples of one one-thousandth of a Preferred Share). Interests in fractions of Preferred Shares in integral
multiples of one one-thousandth of a

27

 

		
	 	Preferred Share may, at the election
of the Company, be represented by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by
it; provided, that such agreement shall provide that the holders of such
depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the Preferred Shares
represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-thousandth of a
Preferred Share, the Company shall pay to the registered holders of Right
Certificates at the time such Rights are exercised or exchanged as herein
provided an amount in cash equal to the same fraction of the Current Per
Share Market Price of one Preferred Share for the Trading Day immediately
prior to the date of such exercise or exchange.

		
	 	     14.3 Cash in Lieu of Fractional Common Shares. The Company shall
not be required to issue fractions of Common Shares or to distribute
certificates which represent fractional Common Shares upon the exercise
or exchange of Rights. In lieu of such fractional Common Shares, the
Company shall pay to the registered holders of the Right Certificates
with regard to which such fractional Common Shares would otherwise be
issuable an amount in cash equal to the same fraction of the current
market value of a whole Common Share (as determined in accordance with
Section 14.1) for the Trading Day immediately prior to the date of such
exercise or exchange.

		
	 	     14.4 Waiver of Right to Receive Fractional Rights or Shares. The
holder of a Right by the acceptance of the Rights expressly waives his
right to receive any fractional Rights or any fractional shares upon
exercise or exchange of a Right, except as permitted by this Section 14.

     Section 15. Rights of Action. All rights of action in respect of this
Agreement, except the rights of action given to the Rights Agent hereunder, 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 Class B Common Stock); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Shares and Class
B Common Stock), without the consent of the Rights Agent or of the holder of
any other Right Certificate (or, prior to the Distribution Date, of the Common
Shares and Class B Common Stock), may, on his own behalf and for his own
benefit, enforce this Agreement, and may institute and maintain any suit,
action or proceeding against the Company to enforce this Agreement, or
otherwise enforce or act in respect of his right to exercise the Rights
represented by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened
violations of, the obligations of any Person (including, without limitation,
the Company) subject to this Agreement.

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

28

 

		
	 	     (i) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares and Class B
Common Stock;
	 
	 	     (ii) as of and 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
with all required certifications completed; and
	 
	 	     (iii) the Company and the Rights Agent may deem and treat the Person
in whose name the Right Certificate (or, prior to the Distribution Date,
the associated Common Shares certificate or Class B Common Stock
certificate) is registered as the absolute owner thereof and of the
Rights represented hereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the associated Common Shares
certificate or Class B Common Stock certificate made by anyone other than
the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary.

     Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 24), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
represented by such Right Certificate shall have been exercised in accordance
with the provisions hereof.

     Section 18. Concerning the Rights Agent. The Company agrees to pay to the
Rights Agent reasonable compensation for all services rendered by it hereunder
in accordance with the fee schedule attached hereto as Exhibit D and, from time
to time, on demand of the Rights Agent, its reasonable expenses and counsel
fees and other disbursements incurred in the preparation, execution, delivery,
administration and amendment of this Agreement and the exercise and performance
of its duties hereunder. The Company also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability, damage, judgment,
fine, penalty, claim, demand, settlement, cost, or expense, incurred without
gross negligence, bad faith or willful misconduct on the part of the Rights
Agent, as finally determined by a court of competent jurisdiction, for any
action taken, suffered, or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability arising therefrom,
directly or indirectly. The costs and expenses incurred by the Rights Agent in
enforcing this right of indemnification shall be paid by the Company unless it
is finally determined by a court of competent jurisdiction that the Rights
Agent is not entitled to indemnification due to the Rights Agent’s gross
negligence, bad faith or willful misconduct, in which event, the Rights Agent
shall repay all such costs and expenses. The indemnity and compensation
provided herein shall survive the termination of this Agreement, the
termination and the expiration of the Rights and the resignation or removal of
the

29

 

Rights Agent. 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 Rights
Agreement will be limited to the amount of fees paid by the Company to the
Rights Agent pursuant to this Agreement.

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

     Section 19. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation, limited liability company or other Person into which the
Rights Agent or any successor Rights Agent may be merged or with which it may
be consolidated, or any corporation, limited liability company or other Person
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation, limited liability
company or other Person succeeding to the business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on
the part of any of the parties hereto, provided that such corporation, limited
liability company or other Person
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of the predecessor Rights
Agent and deliver such Right Certificates so countersigned; and in case at that
time any of the Right Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Right Certificates either in the
name of the predecessor Rights Agent or in the name of the successor Rights
Agent; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.

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

     Section 20. Duties of Rights Agent. The Rights Agent undertakes only the
duties and obligations expressly imposed by this Agreement (and no implied
duties or obligations) upon the terms and conditions set forth in this Section
20, by all of which the Company and the holders of Right Certificates, by their
acceptance thereof, shall be bound.

30

 

		
	 	     20.1 Legal Counsel. The Rights Agent may consult with legal counsel
selected by it (who may be legal counsel for the Company), and the
written advice or opinion of such counsel shall be full and complete
authorization and protection to the Rights Agent, and the Rights Agent
shall incur no liability for or the respect of any action taken,
suffered, or omitted by it in good faith and in accordance with such
written advice or opinion.
	 
	 	     20.2 Certificates as to Facts or Matters. Whenever in the
performance of its duties under this Agreement the Rights Agent shall
deem it necessary or desirable that any fact or matter be proved or
established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other representation 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 of Directors, the Chief Executive Officer, the
Chief Financial Officer, any Vice President, the Treasurer, the Secretary
or any Assistant Treasurer or Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full
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 in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
	 
	 	     20.3 Standard of Care. The Rights Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct as finally determined by a
court of competent jurisdiction.
	 
	 	     20.4 Reliance on Agreement and Right Certificates. The Rights Agent
shall not be liable for or by reason of any of the statements of fact or
recitals contained in this Agreement or in the Right Certificates (except
as to its countersignature thereof) or be required to verify the same,
but all such statements and recitals are and shall be deemed to have been
made by the Company only.
	 
	 	     20.5 No Responsibility as to Certain Matters. The Rights Agent
shall not have any liability for, nor be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be liable or responsible for any
breach by the Company of any covenant or condition contained in this
Agreement or in any Right Certificate; nor shall it be liable or
responsible for any change in the exercisability of the Rights (including
the Rights becoming void pursuant to Section 11.1.2) or any adjustment
required under the provisions of Section 3, Section 11, Section 13,
Section 23 or Section 27 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 represented by Right Certificates after actual notice of any such
change or adjustment); nor shall it by any act hereunder be deemed to
make any representation or warranty as to the authorization or
reservation of any Preferred Shares or other securities to be issued
pursuant to this Agreement or any Right Certificate or as to whether any
Preferred Shares will, when so issued, be validly authorized and issued,
fully paid and nonassessable.

31

 

		
	 	     20.6 Further Assurance by Company. The Company agrees that it will
perform, execute, acknowledge and deliver or cause to be performed,
executed, acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by the Rights
Agent for the carrying out or performing by the Rights Agent of the
provisions of this Agreement.
	 
	 	     20.7 Authorized Company Officers. The Rights Agent is hereby
authorized and directed to accept instructions (whether written or oral)
with respect to the performance of its duties hereunder from, or on
behalf of, any one of the Chief
Executive Officer, the Chief Financial Officer, and the
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties under this Agreement, and such
advice or instructions (whether written or oral) shall be full
authorization and protection to the Rights Agent and the Rights Agent
shall incur no liability for or the respect of any action taken or
suffered to be taken or omitted by it in good faith in
accordance with the advice or instructions of any such officer or
for any delay in acting while waiting for these instructions.

		
	 	     20.8 Freedom to Trade in Company Securities. The Rights Agent and
any stockholder, Affiliate, director, officer or employee of the Rights
Agent may buy, sell or deal in any of the Rights or other securities of
the Company or become pecuniarily interested in any transaction in which
the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights
Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other
Person.
	 
	 	     20.9 Reliance on Attorneys and Agents. The Rights Agent may execute
and exercise any of the rights or powers hereby vested in it or perform
any duty hereunder either itself or by or through its attorneys or
agents, and the Rights Agent shall not be answerable or accountable for
any act, omission, default, neglect or misconduct of any such attorneys
or agents or for any loss to the Company, any holder of Rights or any
other Person resulting from any such act, omission, default, neglect or
misconduct, provided that reasonable care was exercised in the selection
and continued employment thereof.
	 
	 	     20.10 Incomplete Certificate. If, with respect to any Rights
Certificate surrendered to the Rights Agent for exercise or transfer, the
certificate contained in the form of assignment or the form of election
to purchase set forth on the reverse thereof, as the case may be, has not
been completed to certify the holder is not an Acquiring Person (or an
Affiliate or Associate thereof), the Rights Agent shall not take any
further action with respect to such requested exercise or transfer
without first consulting with the Company.
	 
	 	     20.11 Rights Holders List. At any time and from time to time after
the Distribution Date, upon the request of the Company, the Rights Agent
shall promptly deliver to the Company a list, as of the most recent
practicable date (or as of such earlier date as may be specified by the
Company), of the holders of record of Rights.

32

 

		
	 	     20.12 Use of Funds. 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 it believes that repayment of such funds
or adequate indemnification against such risk or liability is not assured
to it.

     Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Agreement upon thirty (30) days’ notice
in writing mailed to the Company and to each transfer agent of the Common
Shares and/or Preferred Shares, as applicable, by registered or certified mail.
Following the Distribution Date, the Company shall promptly notify the holders
of the Right Certificates by first-class mail of any such resignation. The
Company may remove the Rights Agent or any successor Rights Agent upon thirty
(30) days’ notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares
and/or Preferred Shares, as applicable, by registered or certified mail, and to
the holders of the Right Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
resigning, removed, or incapacitated Rights Agent shall remit to the Company,
or to any successor Rights Agent designated by the Company, all books, records,
funds, certificates or other documents or instruments of any kind then in its
possession which were acquired by such resigning, removed or incapacitated
Rights Agent in connection with its services as Rights Agent hereunder, and
shall thereafter be discharged from all duties and obligations hereunder.
Following notice of such removal, resignation or incapacity, the Company shall
appoint a successor to such Rights Agent. If the Company shall fail to make
such appointment within a period of thirty (30) days after giving notice of
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his Right Certificate
for inspection by the Company), then the registered holder of any Right
Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be a Person organized and
doing business under the laws of the United States or of the States North
Carolina or Delaware (or any other state of the United States so long as such
Person is authorized to do business in the States of North Carolina or
Delaware) in good standing, having an office in the States of North Carolina or
Delaware, which is authorized under such laws to exercise stockholder services
and is subject to supervision or examination by Federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment the Company shall file
notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Common Shares and/or Preferred Shares, as applicable, and,
following the Distribution Date, mail a notice thereof in writing to the
registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.

33

 

     Section 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates representing Rights in such
form as may be approved by its Board of Directors to reflect any adjustment or
change in the Purchase Price and the number or kind or class of shares or other
securities or property
purchasable under the Right Certificates made in accordance with the
provisions of this Agreement. In addition, in connection with the issuance or
sale of Common Shares following the Distribution Date and prior to the
Expiration Date, the Company shall, with respect to Common Shares so issued or
sold pursuant to the exercise of stock options or under any employee plan or
arrangement, granted or awarded, or upon exercise, conversion or exchange of
securities (other than Common Shares) hereinafter issued by the Company, in
each case existing prior to the Distribution Date, issue Right Certificates
representing the appropriate number of Rights in connection with such issuance
or sale; provided, however, that (i) no such Right Certificate shall be issued
if, and to the extent that, the Company shall be advised by counsel that such
issuance would create a significant risk of material adverse tax consequences
to the Company or the Person to whom such Right Certificate would be issued,
and (ii) no such Right Certificate shall be issued if, and to the extent that,

appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.

     Section 23. Redemption.

		
	 	     23.1 Right to Redeem. The Company may, at its option, at any time
prior to earlier of the Trigger Event and the Expiration Date, redeem all
but not less than all of the then outstanding Rights at a redemption
price of $.001 per Right, appropriately adjusted to reflect any stock
split, stock dividend, recapitalization or similar transaction occurring
after the date hereof (such redemption price being hereinafter referred
to as the “Redemption Price”), and the Company may, at its option, pay
the Redemption Price in Common Shares (based on the Current Per Share
Market Price of the Common Shares at the time of redemption), cash or any
other form of consideration deemed appropriate by the Board of Directors.
The redemption of the Rights by the Company may be made effective at
such time, on such basis and subject to such conditions as the Board of
Directors in its sole discretion may establish.

		
	 	     23.2 Redemption Procedures. Immediately upon the action of the
Board of Directors ordering the redemption of the Rights (or at such
later time as the Board of Directors may establish for the effectiveness
of such redemption), and without any further action and without any
notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the
Redemption Price for each Right so held. The Company shall promptly give
the Rights Agent prompt notice thereof and public notice of such
redemption; provided, however, that the failure to give, or any defect
in, any such notice shall not affect the validity of such redemption.
The Company shall promptly give, or cause the Rights Agent to 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 Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice.
Each such notice of redemption shall state the method by which the
payment of the Redemption Price will be 

34

 

		
	 	made. Neither the Company nor
any of its
Affiliates or Associates may redeem, acquire or purchase for value
any Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 27, and other than in connection
with the purchase, acquisition or redemption of Common Shares prior to
the Distribution Date.

     Section 24. Notice of Certain Events. In case the Company shall propose
at any time after the earlier of the Shares Acquisition Date and the
Distribution Date (a) to pay any dividend payable in stock of any class to the
holders of Preferred Shares or to make any other distribution to the holders of
Preferred Shares, or (b) to offer to the holders of Preferred Shares rights or
warrants to subscribe for or to purchase any additional Preferred Shares or
shares of stock of any class or any other securities, rights or options, or (c)
to effect any reclassification of its Preferred Shares (other than a
reclassification involving only the subdivision of outstanding Preferred
Shares), or (d) to effect any consolidation or merger into or with, or to
effect any sale or other transfer (or to permit one or more of its Subsidiaries
to effect any sale or other transfer), in one or more transactions, of 50% or
more of the assets or earning power of the Company and its Subsidiaries (taken
as a whole) to, any other Person (other than pursuant to a merger or other
acquisition agreement of the type described in Section 1.3(ii)(A)(z)), or (e)
to effect the liquidation, dissolution or winding up of the Company, or (f) to
declare or pay any dividend on the Common Shares payable in Common Shares or to
effect a subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to the Rights Agent and to each
holder of a Right Certificate, in accordance with Section 25, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Preferred Shares and/or Common Shares, if any
such date is to be fixed, and such notice shall be so given in the case of any
action covered by clause (a) or (b) above at least ten (10) days prior to the
record date for determining holders of the Preferred Shares for purposes of
such action, and in the case of any such other action, at least ten (10) days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Preferred Shares and/or Common
Shares, whichever shall be the earlier.

     In case any event set forth in Section 11.1.2 or Section 13 shall occur,
then, in any such case, (i) the Company shall as soon as practicable thereafter
give to the Rights Agent and to each holder of a Right Certificate, in
accordance with Section 25, a notice of the occurrence of such event, which
notice shall describe the event and the consequences of the event to holders of
Rights under Section 11.1.2 and Section 13, and (ii) all references in this
Section 24 to Preferred Shares shall be deemed thereafter to refer to Common
Shares and/or, if appropriate, other securities.

     Notwithstanding anything in this Agreement to the contrary, prior to the
Distribution Date a filing by the Company with the Securities and Exchange
Commission shall constitute sufficient notice to the holders of securities of
the Company, including the Rights, for purposes of this Agreement and no other
notice need be given.

35

 

     Section 25. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing
with the Rights Agent) as follows:

	 
	The Cato Corporation
	8100 Denmark Road
	Charlotte, North Carolina 28273-5975
	Attention: Secretary

     Subject to the provisions of Section 21 and Section 24, any notice or
demand authorized by this Agreement to be given or made by the Company or by
the holder of any Right Certificate to or on the Rights Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) as
follows:

	 
	Wachovia Bank, National Association
	1525 West W.T. Harris Boulevard, 3C3
	Charlotte, North Carolina 28288-1153
	Attention: Delores Ann Harris

     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, prior
to the Distribution Date, to the holder of any certificate representing Common
Shares or Class B Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.

     Any notices or demands given or made under this section shall be deemed
given or made five (5) Business Days after having been deposited in the mail
with postage prepaid. If a notice or demand is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.

     Section 26. Supplements and Amendments. For so long as the Rights are
redeemable, the Company may in its sole and absolute discretion, and the Rights
Agent shall, if the Company so directs, supplement or amend any provision of
this Agreement in any respect without the approval of any holders of Rights or
Common Shares. From and after the time that the Rights are no longer
redeemable, the Company may, and the Rights Agent shall, if the Company so
directs, from time to time supplement or amend this Agreement without the
approval of any holders of Rights (i) to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, or (ii) to make any other
changes or provisions in regard to matters or questions arising hereunder which
the Company may deem necessary or desirable, including but not limited to
extending the Final Expiration Date; 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 may cause the Rights
again to
become redeemable or cause this Agreement again to become amendable other
than in accordance with this sentence; provided further, that the right of the
Board of Directors to extend the Distribution Date shall not require any
amendment or

36

 

supplement hereunder. Upon the delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 26 and provided such
supplement or amendment does not change or increase the Rights Agent’s duties,
liabilities or obligations hereunder, the Rights Agent shall execute such
supplement or amendment. Without limiting the foregoing, at any time prior to
such time as any Person becomes an Acquiring Person, the Company and the Rights
Agent may amend this Agreement to lower the thresholds set forth in Sections
1.1 and 3.1 to not less than the greater of (i) any percentage greater than the
largest percentage of the outstanding Common Shares then known by the Company
to be beneficially owned by any Person (other than an Exempt Person) and (ii)
10%.

     Section 27. Exchange.

		
	 	     27.1 Exchange of Common Shares for Rights. The Company may, at its
option, at any time after the occurrence of a Trigger Event, exchange all
or part of the then outstanding and exercisable Rights (which shall not
include Rights that have become void pursuant to the provisions of
Section 11.1.2) for Common Shares at an exchange ratio of one Common
Share per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such
amount per Right being hereinafter referred to as the “Exchange
Consideration”). Notwithstanding the foregoing, the Company shall not be
empowered to effect such exchange (A) at any time after any Acquiring
Person shall have become the Beneficial Owner of 50% or more of the
Common Shares then outstanding and (B) from and after the occurrence of a
Transaction. The exchange of the Rights by the Company may be made
effective at such time, on such basis and with such conditions as the
Board of Directors in its sole discretion may establish.

		
	 	     27.2 Exchange Procedures. Immediately upon the action of the Board
of Directors ordering the exchange for any Rights pursuant to Section
27.1 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive the Exchange Consideration.
The Company shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the holders
of such Rights at their last addresses as they appear upon the registry
books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of exchange shall state the method by which
the exchange of the Common Shares for Rights will be effected and, in the
event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than
the Rights that have become null and void pursuant to the provisions
of Section 11.1.2) held by each holder of Rights.

		
	 	     27.3 Insufficient Shares. The Company may at its option substitute,
and, in the event that there shall not be sufficient Common Shares issued
but not outstanding or authorized but unissued to permit an exchange of
Rights for Common Shares as contemplated in accordance with this Section
27, the Company shall substitute to the 

37

 

		
	 	extent of such insufficiency, for
each Common Share that would otherwise be issuable upon exchange of a
Right, a number of Preferred Shares or fraction thereof (or Equivalent
Preferred Stock, as such term is defined in Section 11.2) such that the
Current Per Share Market Price (determined pursuant to Section 11.4) of
one Preferred Share (or equivalent preferred share) multiplied by such
number or fraction is equal to the Current Per Share Market Price of one
Common Share (determined pursuant to Section 11.4) as of the date of such
exchange.

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

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

     Section 30. Determination and Actions by the Board of Directors. For all
purposes of this Agreement, any calculation of the number of Common Shares
outstanding at any particular time, including for purposes of determining the
particular percentage of such outstanding Common Shares of which any Person is
the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange
Act. The Board of Directors shall have the exclusive power and authority to
administer this Agreement and to exercise the rights and powers specifically
granted to the Board of Directors or to the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including, without limitation, a
determination to redeem or not redeem the Rights or amend this Agreement). All
such actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) that
are done or made by the Board of Directors in good faith shall (x) be final,
conclusive and binding on the Company, the Rights Agent, the holders of
the Rights, as such, and all other parties, and (y) not subject the Board
of Directors to any liability to the holders of the Rights.

     Section 31. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be in-valid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.

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

38

 

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

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

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

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

	 	 	 	 	 
	 	 	The Cato Corporation
	 	 	 	 	 
	 	 	
By:	 	/s/ John P. Derham
Cato
	 	 	 	

	 	 	
Name:
	 	John P. Derham Cato
	 	 	
Title:
	 	President, Vice Chairman of the Board
	 	 	 	 	and Chief Executive Officer
	 	 	 	 	 
	 	 	Wachovia Bank, National Association
	 	 	 	 	 
	 	 	
By:	 	/s/ Delores Ann
Harris
	 	 	 	

	 	 	
Name:
	 	Delores Ann Harris
	 	 	
Title:
	 	Corporate Trust Officer

39

 

Exhibit A

THE CATO CORPORATION

Form of

Certificate Of Designation, Preferences And Rights

of

Series A Junior Participating Preferred Stock

of

The Cato Corporation

     The undersigned officer of The Cato Corporation (the “Corporation”), a
corporation organized and existing under the Delaware General Corporation Law
(the “DGCL”), does hereby certify that, pursuant to the authority conferred
upon the Board of Directors of the Corporation (the “Board of Directors”) by
Article IV of the Restated Certificate of Incorporation of the Corporation (the
“Restated Certificate of Incorporation”), the Board of Directors on December 4,
2003 adopted the following resolution creating a series of 50,000 shares of
preferred stock designated as Series A Junior Participating Preferred Stock:

     RESOLVED, that pursuant to the authority vested in the Board of Directors
by Article IV of the Restated Certificate of Incorporation of the Corporation,
a series of preferred stock of the Corporation be, and it hereby is, created,
and that the designation and amount thereof and the voting powers, preferences
and relative, participating, optional and other special rights of the shares of
such series, and the qualifications, limitations or restrictions thereof are as
follows:

SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

     Section 1. Designation and Amount. The shares of such series shall be
designated as Series A Junior Participating Preferred Stock, $100.00 par value
per share (the “Series A Preferred Stock”), and the number of shares
constituting the Series A Preferred Stock shall be fifty thousand (50,000).
Such number of shares may be increased or decreased by resolution of the Board
of Directors; provided, that no decrease shall reduce the number of shares of
Series A Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise
of outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Series A
Preferred Stock.

     Section 2. Dividends and Distributions.

     (A) Subject to the prior and superior rights of the holders of any shares
of any class or series of stock of this Corporation ranking prior and superior
to the Series A Preferred Stock with respect to dividends, the holders of
shares of Series A Preferred Stock, in preference to the holders of Class A
Commons Stock and Class B Common Stock, each par value $.03 1/3 per share (the
“Common Stock”), of the Corporation, and of any other stock ranking junior to
the Series A Preferred Stock, shall be entitled to receive, when, as and if
authorized by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the fifteenth day of January,
April, July and October of each year (each such date being referred to herein
as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly
Dividend

1

 

Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1.00 or (b) an amount, subject to the provision
for adjustment hereinafter set forth, equal to 1000 times the aggregate per
share amount of all cash dividends, and 1000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions,
other than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Preferred Stock.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Series A Preferred Stock
were entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

     (B)  The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section 2 immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during
the period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $10.00 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.

     (C)  Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue from
the date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either
of which events such dividends shall begin to accrue and be cumulative from
such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not
bear interest. Dividends paid on the shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.

     (D)  In determining whether a distribution (other than upon voluntary or
involuntary liquidation), by dividend, redemption or other acquisition of
shares of stock of the Corporation or otherwise, is permitted under the DGCL,
amounts that would be needed, if the Corporation were

2

 

to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of holders of the Series A Preferred Stock
shall not be added to the Corporation’s total liabilities.

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

     (A)  Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 1000
votes on all matters submitted to a vote of the holders of Common Stock. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

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

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

     Section 4. Certain Restrictions.

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

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

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

3

 

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

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

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

     Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock subject to the conditions
and restrictions on issuance set forth herein, in the Certificate of
Incorporation, or in any other Certificate of Designation, Preferences and
Rights creating a series of Preferred Stock or any similar stock or as
otherwise required by law.

     Section 6. Liquidation, Dissolution or Winding Up.

     (A)  Upon any liquidation, dissolution or winding up of the Corporation,
voluntary or otherwise no distribution shall be made (1) to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall have received
an amount per share (the “Series A Liquidation Preference”) equal to $100.00
per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 1000 times the aggregate amount to
be distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding up. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a

4

 

greater or lesser number of shares of Common Stock, then in each such case
the aggregate amount to which holders of shares of Series A Preferred Stock
were entitled immediately prior to such event under the proviso in clause (1)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that are outstanding immediately prior to such
event.

     (B)  In the event, however, that there are not sufficient assets available

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

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

     Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

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

     Section 9. Rank. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up, junior to all other series of any other class of the
Corporation’s Preferred Stock, except to the extent that any such other series
specifically provides that it shall rank on a parity with or junior to the
Series A Preferred Stock.

5

 

     Section 10. Amendment. At any time any shares of Series A Preferred
Stock are outstanding, neither the Restated Certificate of Incorporation nor
this Certificate of Designation, Preferences and Rights shall be amended in any
manner which would materially alter or change the powers, preferences or
special rights of the Series A Preferred Stock, as set forth herein, so as to
affect them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
separately as a single class.

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

     Second. The shares of Series A Preferred Stock have been classified and
designated by the Board of Directors under the authority contained in the
Restated Certificate of Incorporation.

     Third. This Certificate of Designation, Preferences and Rights has been
approved by the Board of Directors in the manner and by the vote required by
law.

     Fourth. The undersigned officer acknowledges this Certificate of
Designation, Preferences and Rights to be the corporate act of the Corporation
and, as to all matters of fact required to be verified under oath, the
undersigned officer acknowledges that to the best of his knowledge, information
and belief, these matters and facts are true in all material respects and that
this statement is made under the penalties for perjury.

     IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Designation, Preferences and Rights on December     , 2003.

	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	 	 	John P. Derham Cato
	 	 	 	 	President, Vice Chairman of the Board and
	 	 	 	 	Chief Executive Officer
	 	 	 	 	of The Cato Corporation

6

 

Exhibit B

Form of Right Certificate

	 	 	 	 	 
	Certificate
No. R-	 	
                    
	 	                    Rights

     NOT EXERCISABLE AFTER JANUARY 7, 2014 OR EARLIER IF NOTICE OF REDEMPTION
OR EXCHANGE IS GIVEN OR IF THE COMPANY IS MERGED OR ACQUIRED PURSUANT TO AN
AGREEMENT OF THE TYPE DESCRIBED IN SECTION 1.3(ii)(A)(z) OF THE AGREEMENT. THE
RIGHTS ARE SUBJECT TO REDEMPTION AT $.001 PER RIGHT, AND TO EXCHANGE ON THE
TERMS SET FORTH IN THE AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN
SECTION 11.1.2 OF THE AGREEMENT), RIGHTS BENEFICIALLY OWNED BY OR TRANSFERRED
TO AN ACQUIRING PERSON (AS DEFINED IN THE AGREEMENT), OR ANY SUBSEQUENT HOLDER
OF SUCH RIGHTS WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.

Right Certificate

THE CATO CORPORATION

     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 December 18, 2003 as the same may be amended
from time to time (the “Agreement”), between The Cato Corporation, a Delaware
corporation (the “Company”), and Wachovia Bank, National Association, a
national banking association, as Rights Agent (the “Rights Agent”), to purchase
from the Company at any time after the Distribution Date and prior to 5:00 p.m.
(Eastern time) on January 7, 2014, at the offices of the Rights Agent, or its
successors as Rights Agent, designated for such purpose, one one-thousandth of
a fully paid, nonassessable share of Series A Junior Participating Preferred
Stock, $100.00 par value per share (the “Preferred Shares”) of the Company, at
a purchase price of $75.00 per one-thousandth of a Preferred Share, subject to
adjustment (the “Purchase Price”), upon presentation and surrender of this
Right Certificate with the Form of Election to Purchase and certification duly
executed. The number of Rights represented by this Right Certificate (and the
number of one-thousandths of a Preferred Share 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 January 7, 2004 based on the Preferred
Shares as constituted at such date. Capitalized terms used in this Right
Certificate without definition shall have the meanings ascribed to them in the
Agreement. As provided in the Agreement, the Purchase Price and the number of
Preferred Shares which may be purchased upon the exercise of the Rights
represented by this Right Certificate are subject to modification and
adjustment upon the happening of certain events. The Company reserves the
right to require prior to the occurrence of a Trigger Event (as such term is
defined in the Agreement) that, upon any exercise of Rights, a number of Rights
be exercised so that only whole shares of Preferred Stock will be issued.

     This Right Certificate is subject to all of the terms, provisions and
conditions of the Agreement, which terms, provisions and conditions are hereby
incorporated herein by reference

1

 

and made a part hereof and to which Agreement reference is hereby made for
a full description of the rights, limitations of rights, obligations, duties
and immunities hereunder of the Rights Agent, the Company and the holders of
the Right Certificates. Copies of the Agreement are on file at the principal
offices of the Company and the office of the Rights Agent designated to the
Company for such purposes.

     This Right Certificate, with or without other Right Certificates, upon
surrender at the offices of the Rights Agent designated for such purpose, may
be exchanged for another Right Certificate or Right Certificates of like tenor
and date representing Rights entitling the holder to purchase the same
aggregate number of one-thousandths of a Preferred Share as the Rights
represented by the Right Certificate or Right Certificates surrendered shall
have entitled such holder to purchase. If this Right Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender
hereof another Right Certificate or Right Certificates for the number of whole
Rights not exercised.

     Subject to the provisions of the Agreement, the Board of Directors may, at
its option, (i) redeem the Rights represented by this Right Certificate at a
redemption price of $.001 per Right or (ii) exchange Common Shares for the
Rights represented by this Certificate, in whole or in part. Immediately upon
the action of the Board of Directors authorizing redemption, the Rights will
terminate and the only right of the holders of Rights will be to receive the
redemption price.

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

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

     If any term, provision, covenant or restriction of the Agreement is held
by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of the Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.

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

2

 

     WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of                          , 20            .

	 	 	 	 	 
	Attest:	 	THE CATO CORPORATION
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	Title:	 	
Title:	 	 
	 	 	 	 	 
	Countersigned:	 	 	 	 
	 	 	WACHOVIA BANK, NATIONAL
	 	 	ASSOCIATION, as Rights Agent
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	Authorized Signature

3

 

Form of Reverse Side of Right Certificate

FORM OF ASSIGNMENT

(To be executed by the registered holder if such holder desires to transfer the
Right Certificate.)

	 	 	 
	FOR VALUE RECEIVED	

	hereby sells, assigns and transfers unto	

	
	

	(Please print name and address of transferee)

     Rights represented by this Right Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
Attorney, to transfer 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 an “eligible guarantor institution” as
defined in Rule l7Ad-15 promulgated under the Securities Exchange Act of 1934,
as amended.

     The undersigned hereby certifies that:

     (1)  the Rights represented by this Right Certificate are not beneficially
owned by and are not being assigned to an Acquiring Person or an Affiliate or
an Associate thereof; and

     (2)  after due inquiry and to the best knowledge of the undersigned, the
undersigned did not acquire the Rights represented by this Right Certificate
from any person who is, was, had been or subsequently became an Acquiring
Person or an Affiliate or Associate thereof.

	 	 
	Dated:	 
	 	

	 	 
	 	

	 	Signature

1

 

FORM OF ELECTION TO PURCHASE

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

To:   The Cato Corporation

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

		
	

	 	 
(Please print name and address)
	

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

		
	

	 	 
(Please print name and address)
	

	 	 
	Dated:	 
	 	

	 	 
	 	

	 	Signature

Signature Guaranteed:

     Signatures must be guaranteed by an “eligible guarantor institution” as
defined in Rule l7Ad-15 promulgated under the Securities Exchange Act of 1934,
as amended. The undersigned hereby certifies that:

     (1)  the Rights represented by this Right Certificate are not beneficially
owned by and are not being assigned to an Acquiring Person or an Affiliate or
an Associate thereof, and

     (2)  after due inquiry and to the best knowledge of the undersigned, the
undersigned did not acquire the Rights represented by this Right Certificate
from any person who is, was, had been or subsequently became an Acquiring
Person or an Affiliate or Associate thereof.

	 	 
	Dated:	 
	 	

	 	 
	 	

	 	Signature

1

 

NOTICE

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

     In the event the certification set forth above in the Form of Assignment
or Form of Election to Purchase is not completed, the Company will deem the
beneficial owner of the Rights represented by this Right Certificate to be an
Acquiring Person or an Affiliate or Associate hereof and such Assignment or
Election to Purchase will not be honored.

1

 

Exhibit C

     As described in the Rights Agreement, as defined below, Rights which are
held by or have been held by an Acquiring Person or Associates or Affiliates
thereof (as defined in the Rights Agreement) and certain transferees thereof
are null and void and are not transferable.

SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES

     On December 4, 2003, the Board of Directors of The Cato Corporation (the
“Company”) authorized a dividend of one preferred share purchase right (a
“Right”) for each share of Class A Common Stock and Class B Common Stock, each
par value $.03 1/3 per share (“Common Shares”) of the Company outstanding at
the close of business on January 7, 2004 (the “Record Date”). As long as the
Rights are attached to the Common Shares, the Company will issue one Right
(subject to adjustment) with each new Common Share so that all such shares will
have attached Rights. When exercisable, each Right will entitle the registered
holder to purchase from the Company one one-thousandth of a share of Series A
Junior Participating Preferred Stock (the “Preferred Shares”) at a price of
$75.00 per one-thousandth of a Preferred Share, subject to adjustment (the
“Purchase Price”). The description and terms of the Rights are set forth in a
Rights Agreement, dated as of December 18, 2003, as the same may be amended
from time to time (the “Rights Agreement”), between the Company and Wachovia
Bank, National Association, a North Carolina corporation, as Rights Agent (the
“Rights Agent”).

     Initially, the Rights will be attached to all certificates evidencing
Common Shares then outstanding, and no separate Rights certificates will be
distributed. Until the earlier to occur of (i) ten (10) days following a
public announcement that a person or group of affiliated or associated persons
has acquired, or obtained the right to acquire, beneficial ownership of 20% or
more of the Class A Common Shares (an “Acquiring Person”) or (ii) ten (10)
business days (or such later date as may be determined by action of the Board
of Directors prior to such time as any person or group of affiliated persons
becomes an Acquiring Person) following the commencement or announcement of an
intention to make a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 20% or more of
the Class A Common Shares (the earlier of (i) and (ii) being called the
“Distribution Date”), the Rights will be represented, with respect to any of
the Common Share certificates outstanding as of the Record Date, by such Common
Share certificate.

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

1

 

the Common Shares as of the close of business on the Distribution Date and
such separate Right Certificates alone will represent the Rights.

     The Rights are not exercisable until the Distribution Date. The Rights
will expire on January 7, 2014, subject to the Company’s right to extend such
date (the “Final Expiration Date”), unless earlier redeemed or exchanged by the
Company or terminated.

     Each Preferred Share purchasable upon exercise of the Rights will be
entitled, when, as and if declared, to a minimum preferential quarterly
dividend payment of $1.00 per share but will be entitled to an aggregate
dividend of 1000 times the dividend, if any, declared per Common Share. In the
event of liquidation, dissolution or winding up of the Company, the holders of
the Preferred Shares will be entitled to a minimum preferential liquidation
payment of $100.00 per share (plus any accrued but unpaid dividends) but will
be entitled to an aggregate payment of 1000 times the payment made per Common
Share. Each Preferred Share will have 1000 votes and will vote together with
the Common Shares. Finally, in the event of any merger, consolidation or other
transaction in which Common Shares are exchanged, each Preferred Share will be
entitled to receive 1000 times the amount received per Common Share. Preferred
Shares will not be redeemable. These rights are protected by customary
antidilution provisions. Because of the nature of the Preferred Share’s
dividend, liquidation and voting rights, the value of one one-thousandth of a
Preferred Share purchasable upon exercise of each Right should approximate the
value of one Common Share.

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

     In the event that a person becomes an Acquiring Person (a “Trigger Event”)
or if the Company is the surviving corporation in a merger with an Acquiring
Person or any affiliate or associate of an Acquiring Person and the Class A
Common Shares were not changed or exchanged, each holder of a Right, other than
Rights that are or were acquired or beneficially owned by the Acquiring Person
(which Rights will be void), will hereafter have the right to receive, upon
exercise thereof, that number of Class A Common Shares having a market value of
two times the then-current Purchase Price of the Right. In the event that,
after a person has become an Acquiring Person, (i) the Company is acquired in a
merger or other business combination transaction or (ii) more than 50% of the
Company’s assets or earning power are sold (in either case, a “Transaction”),
proper provision shall be made so that each holder of a Right shall thereafter
have the right to receive, upon the exercise thereof at the then-current
Purchase Price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction would have a market
value of two times the then-current Purchase Price of the Right.

2

 

     For example, at an exercise price of $75.00 per Right, each Right not
owned by an Acquiring Person (or by certain related parties) following a
Trigger Event would entitle its holder to purchase $150.00 worth of Class A
Common Shares (or other consideration, as noted above) for $75.00. Assuming
that the Class A Common Shares had a per share value of $25.00 at such time,
the holder of each valid Right would be entitled to purchase six shares of
Class A Common Shares for $75.00.

     At any time after a person becomes an Acquiring Person and prior to the
earlier of (i) a Transaction or (ii) the acquisition by such Acquiring Person
of 50% or more of the outstanding Class A Common Shares, the Board of Directors
may cause the Company to exchange all or part of the then outstanding and
exercisable Rights (other than Rights owned by an Acquiring Person, which will
be void) for Class A Common Shares at an exchange ratio of one Class A Common
Share per Right (subject to adjustment).

     No adjustment in the Purchase Price will be required until cumulative
adjustments require an adjustment of at least 1% in the Purchase Price. No
fractional Preferred Shares or Class A Common Shares will be issued (other than
fractions of Preferred Shares which are integral multiples of one
one-thousandth of a Preferred Share, which may, at the election of the Company,
be represented by depository receipts), and in lieu thereof, a payment in cash
will be made based on the market price of the Preferred Shares or Class A
Common Shares on the last trading date prior to the date of exercise.

     The Rights may be redeemed in whole, but not in part, at a price of $.001
per Right (the “Redemption Price”) by the Board of Directors at any time prior
to a Trigger Event. The redemption of the Rights may be made effective at such
time, on such basis and with such conditions as the Board of Directors in its
sole discretion may establish. Immediately upon any redemption of the Rights,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.

     Until a Right is exercised, it will not entitle its holder to any rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends. Any of the provisions of the Rights Agreement
may be amended by the Board of Directors for so long as the Rights are then
redeemable, and after the Rights are no longer redeemable, the Company may
amend or supplement the Rights Agreement in any manner that does not adversely
affect the interests of the holders of the Rights.

     The Rights are designed to assure that all of the Company’s stockholders
receive fair and equal treatment in the event of any proposed takeover of the
Company and to guard against partial tender offers, open market accumulations
and other abusive tactics to gain control of the Company without paying all
stockholders a control premium. The Rights will cause substantial dilution to
a person or group that acquires 20% or more of the Company’s stock on terms not
approved by the Company’s Board of Directors. The Rights should not interfere
with any merger or other business combination approved by the Board of
Directors at any time before a person or group has become an Acquiring Person.

     A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Current Report on Form 8-K. A copy of
the Rights Agreement is

3

 

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

4

 

Exhibit D

RIGHTS AGENT FEES

The following schedule is intended to be a comprehensive summary of the fees
associated with this proposal. The pricing as listed below is valid for ninety
days from the date of submission.

	 	 	 	 	 
	One-time Acceptance
Fee
	 	$	1,500.00	 
	 
	 	 	 	 
	Annual
Administration
	 	$	1,200.00	 

	 	 	 	For performing out duties as described in the Rights Agreement.

	 	 	 	 	 
	Out-Of-Pocket
Expenses
	 	As Incurred	 

	 	 	 	All out-of-pocket expenses, including postage, insurance, telephone,
courier expenses, check stock, stationery, fees and reasonable expenses
of counsel, brokerage fees, FDIC assessments, special programming and
overtime, will be billed in addition to the fees listed herein. We do
not add a service or handling charge to these items.

	 	 	 	 	 
	Special
Services
	 	As Incurred	 

	 	 	 	Services not included in this fee schedule, but deemed necessary or
desirable by the corporate issuer, may be subject to additional charges
based upon an appraisal with the company before services are to be
performed.

1<PAGE>

                              EMPLOYMENT AGREEMENT

         AGREEMENT, made as of September 3, 2003 by and between MEDCATH
CORPORATION, a Delaware corporation (the "Company") and JOHN T. CASEY
("Executive").

                                    RECITALS

         In order to induce Executive to serve as the President and Chief
Executive Officer of the Company, the Company desires to provide Executive with
compensation and other benefits on the terms and conditions set forth in this
Agreement.

         Executive is willing to accept such employment and perform services for
the Company, on the terms and conditions hereinafter set forth.

         NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

         1. Employment.

         1.1 Subject to the terms and conditions of this Agreement, the Company
agrees to employ Executive during the term hereof as its President and Chief
Executive Officer. In his capacity as the President and Chief Executive Officer
of the Company, Executive shall report to the board of directors of the Company
(the "Board") and shall have the customary powers, responsibilities and
authorities of a president and chief executive officer for corporations of the
size and character of the Company, as it exists from time to time, and as are
assigned by the Board.

         1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment with the Company commencing on September 3, 2003 (the
"Commencement Date") and agrees to devote his full working time and efforts, to
the best of his ability, experience and talent, to the performance of services,
duties and responsibilities in connection therewith. Executive shall perform
such duties and exercise such powers, commensurate with his position, as the
Board shall from time to time delegate to him on such

<PAGE>

terms and conditions and subject to such restrictions as the Board may
reasonably from time to time impose.

         1.3 Nothing in this Agreement shall preclude Executive from engaging,
so long as, upon prior notice to the Board and in the reasonable determination
of the Board, such activities do not interfere with his duties and
responsibilities hereunder, (a) in charitable and community affairs, from
managing any passive investment made by him in publicly traded equity securities
or other property (provided that no such investment may exceed 5% of the equity
of any entity) or, (b) subject to Section 12(b) hereof, from serving as a member
of boards of directors or as a trustee of any other corporation, association or
entity.

         1.4 It is acknowledged that Executive may maintain his primary
residence in Florida during the term of this Agreement as long as Executive
spends as much time in Charlotte, North Carolina as is reasonably necessary to
fully perform the responsibilities of Chief Executive Officer of the Company.

         2. Term of Employment. Executive's term of employment under this
Agreement shall commence on the Commencement Date and, subject to the terms
hereof, shall terminate on the earlier of (i) the fifth anniversary of the
Commencement Date (the "Termination Date") or (ii) termination of Executive's
employment pursuant to this Agreement; provided, however, that, unless earlier
terminated as a result of Executive's termination of employment, this Agreement
shall automatically renew for one additional year following the Termination Date
unless, at least 90 days prior to the Termination Date, Executive provides
written notice to the Company of his intention not to continue his employment
with the Company for such additional year; provided, further, that (A) any other
termination of employment by Executive (other than for death, Permanent
Disability or Good Reason) may only be made upon 90 days prior written notice to
the Company and any termination of employment by Executive for Good Reason may
only be made upon 30 days prior written notice to the Company and (B) any
termination of employment by the Company for any reason may only be made upon 30
days prior written notice to Executive.

                                       2
<PAGE>

         3. Compensation.

         3.1 Salary. The Company shall pay Executive a base salary ("Base
Salary") at the rate of $550,000 per annum for the year commencing on the
beginning of Executive's term of employment hereunder. Base Salary shall be
reduced from time to time by the costs related to the Company providing
Executive with an apartment in the Charlotte, North Carolina area. Base Salary
shall be adjusted annually at the discretion of the Board but in no event shall
Base Salary be reduced nor be less than the median base salary for a comparable
position at corporations of similar size and character as the Company, as it
exists from time to time, and, as increased, shall constitute "Base Salary"
hereunder. Base Salary shall be payable in accordance with the ordinary payroll
practices of the Company.

         3.2 Annual Bonus. In addition to his Base Salary, the Company shall pay
to Executive an annual cash bonus (the "Bonus") during the term of his
employment hereunder equal to a percentage of Executive's Base Salary (the
"Target Bonus"). The Bonus for each fiscal year of the Company will be tied to
either the Company's earnings per share as reported in its annual financial
statements excluding any extraordinary or nonrecurring items set forth therein
(the "EPS") and the annual EPS target for that year (the "EPS Target"), or such
other applicable performance targets (such as EBITDA less interest) as are
established by the Board (or a committee thereof). On or before the beginning of
each fiscal year, the Board (or a committee thereof) shall establish an EPS
Target or other applicable performance target (the "Target") for that year. At
the end of each fiscal year, Executive shall be paid a Target Bonus based upon
the following formula:

                  If the Company's actual performance results equal 80% of the
         Target or greater (e.g., actual EPS is 80% of the EPS Target or
         greater) (the comparative percentage of the actual performance results
         to the Target is referred to herein as the "Bonus Growth Percentage"),
         then Executive's Target Bonus shall be the Bonus Growth Percentage
         multiplied by 50% of Executive's Base Salary for the fiscal year then
         ended, subject to a maximum Bonus Growth Percentage of 200%. If the
         Bonus Growth Percentage is less than 80%, no Bonus will be earned or
         paid.

                                       3

<PAGE>

         3.3 Compensation Plans and Programs. Executive shall be eligible to
participate in any compensation plan or program maintained by the Company from
time to time, which compensation plans and programs are intended to be
comparable to those currently maintained by the Company, in which other senior
executives of the Company participate on terms that are intended to be
comparable to those applicable to such other senior executives.

         4. Employee Benefits.

         4.1 Employee Benefit Programs, Plans and Practices. The Company shall
provide Executive during the term of his employment hereunder with coverage
under all employee pension and welfare benefit programs, plans and practices
(commensurate with his positions in the Company from time to time and to the
extent permitted under any employee benefit plan) in accordance with the terms
thereof, which the Company makes available to its senior executives and which
employee pension and welfare benefit programs, plans and practices that are
intended to be comparable to those currently maintained by the Company.

         4.2 Vacation and Fringe Benefits. Executive shall be entitled to no
less than the number of business days paid vacation in each calendar year which
have historically been provided to the Company's Chief Executive Officer, which
shall be taken at such times as are consistent with Executive's responsibilities
hereunder. In addition, Executive shall be entitled to the perquisites and other
fringe benefits currently made available to senior executives of the Company,
commensurate with his position with the Company.

         5. Expenses. Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such duties
and responsibilities. The Company will reimburse Executive for all such expenses
upon presentation by Executive from time to time of appropriately itemized and
approved (consistent with the Company's policy) accounts of such expenditures.

                                       4

<PAGE>

         6. Termination of Employment.

         6.1 Termination By the Company Without Cause or By Executive for Good
Reason. (a) The Company may terminate Executive's employment at any time for any
reason. If Executive's employment is terminated by the Company without Cause (as
defined in Section 6.4 hereof) (other than as a result of Executive's death or
Permanent Disability (as defined in Section 6.2 hereof)) or if Executive
terminates his employment for Good Reason (as defined in Section 6.1 (c) hereof)
prior to the Termination Date, Executive shall receive such payments, if any,
under applicable plans or programs, including but not limited to those referred
to in Section 3.3 hereof, to which he is entitled pursuant to the terms of such
plans or programs. In addition, in connection with such termination Executive
shall be entitled to receive the following: (i) an amount equal to (A) one times
Executive's Base Salary if such termination occurs prior to the first
anniversary of the Commencement Date or (B) two times Executive's Base Salary if
such termination occurs on or after the first anniversary of the Commencement
Date, in either case at the annual rate as of the date of termination under this
Section 6.1(a), payable over the twelve month period following the Termination
Date in substantially equal installment payments and in accordance with the
normal payroll practices of the Company; (ii) a cash lump sum payment in respect
of (x) accrued but unused vacation days (the "Vacation Payment"), (y)
compensation earned but not yet paid (including any awarded but deferred Bonus
payments) (the "Compensation Payment") and (z) reasonable expenses incurred
under Section 5 but not yet reimbursed (the "Expense Payment"); and (iii)
continued coverage under any employee medical, disability and life insurance
plans in accordance with the respective terms thereof for a period ending on the
earlier of (A) the second anniversary of the date of termination under this
Section 6.1(a) or (B) the date on which Executive becomes covered under
comparable benefit plans of a new employer.

         (b) The Vacation Payment, the Compensation Payment, and the Expense
Payment shall be paid by the Company to Executive within 30 days after the
termination of

                                       5

<PAGE>

Executive's employment by check payable to the order of Executive or by wire
transfer to an account specified by Executive.

         (c) For purposes of this Agreement, "Good Reason" shall mean any of the
following (without Executive's express prior written consent):

                  (i) A substantial reduction by the Company of Executive's
         duties or responsibilities, other than in connection with the
         termination of Executive's employment by the Company for Cause, by
         Executive without Good Reason or as a result of Permanent Disability or
         Executive's death;

                  (ii) A reduction by the Company in Executive's Base Salary or
         an amendment to the terms of the bonus plan in effect for senior
         executives and in which Executive participates on the date hereof which
         would adversely effect the ability of Executive to receive a Bonus
         (except that the establishment of the EPS or other performance targets
         to be set by the Board annually shall be deemed not to constitute such
         an amendment); or

                  (iii) A reduction or elimination of Executive's eligibility to
         participate in any of the Company's employee benefit plans that is
         inconsistent with the eligibility of similarly situated executives of
         the Company to participate therein.

         6.2 Permanent Disability. If Executive becomes totally and permanently
disabled (as defined in the Company's Long-Term Disability Benefit Plan
applicable to senior executive officers as in effect on the date hereof)
("Permanent Disability"), the Company or Executive may terminate Executive's
employment on written notice thereof, and Executive shall receive or commence
receiving, as soon as practicable:

                  (i) amounts payable pursuant to the terms of a disability
         insurance policy or similar arrangement which the Company maintains
         during the term hereof;

                  (ii) the Target Bonus in respect of the fiscal year in which
         his termination occurs, prorated by a fraction, the numerator of which
         is the number of days of the fiscal year until termination and the
         denominator of which is 365;

                  (iii) the Vacation Payment, the Compensation Payment, and the
         Expense Payment; and

                  (iv) such payments under applicable plans or programs,
         including but not limited to those referred to in Section 3.3 hereof,
         to which he is entitled pursuant to the terms of such plans or
         programs.

                                       6

<PAGE>

         6.3 Death. In the event of Executive's death during the term of his
employment hereunder, Executive's estate or designated beneficiaries shall
receive or commence receiving, as soon as practicable:

                  (i) the Target Bonus in respect of the fiscal year in which
         his death occurs, prorated by a fraction, the numerator of which is the
         number of days of the fiscal year until his death and the denominator
         of which is 365;

                  (ii) any death benefits provided under the employee benefit
         programs, plans and practices referred to in Section 4.1 hereof, in
         accordance with their terms;

                  (iii) the Vacation Payment, the Compensation Payment, and the
         Expense Payment; and

                  (iv) such payments under applicable plans or programs,
         including but not limited to those referred to in Section 3.3 hereof,
         to which Executive's estate or designated beneficiaries are entitled
         pursuant to the terms of such plans or programs.

         6.4 Termination By the Company for Cause or By Executive without Good
Reason. (a) The Company shall have the right to terminate the employment of
Executive for Cause. In the event that Executive's employment is terminated by
the Company for Cause, as hereinafter defined, or by Executive without Good
Reason (other than as a result of Executive's Permanent Disability or death),
prior to the Termination Date, notwithstanding any other provision in this
Agreement, Executive shall be entitled only to the Compensation Payment, the
Vacation Payment, and the Expense Payment, and shall not be entitled to any
further compensation or benefits hereunder including, without limitation, the
payment of any Bonus in respect of all or any portion of the fiscal year in
which such termination occurs.

         (b) As used herein, the term "Cause" shall be limited to (i) willful
misconduct by Executive which results in a demonstrable injury (which is other
than de minimis or insignificant) to the Company, (ii) willful and continued
failure by Executive to perform his material duties with respect to the Company
or its subsidiaries, which failure continues beyond 10 days after a written
demand for substantial performance of such duties was given to Executive

                                       7

<PAGE>

by the Company, or (iii) Executive's conviction of, or plea of nolo contendere
to, a felony or to a misdemeanor involving moral turpitude. Termination of
Executive pursuant to this Section 6.4 shall be made by delivery to Executive of
written notice that, in the reasonable judgment of the Board, Executive was
guilty of conduct set forth in any of clauses (i) through (iii) above and
specifying the particulars thereof.

         7. Mitigation of Damages. Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise after the termination of his employment
hereunder.

         8. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:

         To the Company:

                  MedCath Corporation
                  10720 Sikes Place, Suite 300
                  Charlotte, North Carolina 28277
                  Attn:  Stephen R. Puckett, Chairman

         with a copy to:

                  MedCath Corporation
                  c/o Kohlberg Kravis
                  Roberts & Co.
                  2800 Sand Hill Road
                  Suite 200
                  Menlo Park, California 94025
                  (Attn:  Edward A. Gilhuly)

         with a copy to:

                  Hal A. Levinson, Esq.
                  Moore & Van Allen, PLLC
                  100 N. Tryon Street, Floor 47
                  Charlotte, North Carolina  28202-4003

                                       8

<PAGE>

         To Executive:

                  John T. Casey
                  6270 Highlands Court
                  Ponte Vedra Beach, FL  32082

Any such notice or communication shall be delivered by hand, by telecopy (with
machine confirmation) or by courier or sent certified or registered mail, return
receipt requested, postage prepaid, addressed as above (or to such other address
as such party may designate in a notice duly delivered as described above), and
the third business day after the actual date of mailing shall constitute the
time at which notice was given.

         9. Separability; Legal Fees. If any provision of this Agreement shall
be declared to be invalid or unenforceable, in whole or in part, such invalidity
or unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect. Each party shall bear the costs of any legal
fees and other fees and expenses which may be incurred in respect of enforcing
its respective rights under this Agreement.

         10. Assignment. This contract shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this Agreement
to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company, if such
successor expressly agrees to assume the obligations of the Company hereunder.

         11. Amendment. This Agreement may only be amended by written agreement
of the parties hereto.

         12. Nondisclosure of Confidential Information; Non-Competition. (a) At
any time during or after Executive's employment with the Company, Executive
shall not, without the prior written consent of the Company, use, divulge,
disclose or make accessible to any other person, firm, partnership, corporation
or other entity any Confidential Information (as hereinafter

                                       9

<PAGE>

defined) pertaining to the business of the Company or any of its subsidiaries,
except (i) while employed by the Company, in the business of and for the benefit
of the Company, or (ii) when required to do so by a court of competent
jurisdiction, by any governmental agency having supervisory authority over the
business of the Company, or by any administrative body or legislative body
(including a committee thereof) with jurisdiction to order Executive to divulge,
disclose or make accessible such information. For purposes of this Section
12(a), "Confidential Information" shall mean non-public information concerning
the financial data, strategic business plans, and other non-public, proprietary
and confidential information of the Company, its subsidiaries, Kohlberg Kravis
Roberts & Co., Welsh, Carson, Anderson & Stowe VII, L.P., or their respective
affiliates as in existence as of the date of Executive's termination of
employment (collectively, the "Restricted Group") that, in any case, is not
otherwise available to the public (other than by Executive's breach of the terms
hereof). Confidential Information further includes without limitation customer
information, vendors, operations and operating procedures, pricing, financial
information, technology, marketing strategies, design of facilities, employment
practices, contractual agreements, and trade secrets.

         Executive agrees that both while employed by the Company and following
termination of Executive's employment with the Company at any time in the
future:

                  (i) Executive will take all reasonable precautions to
         safeguard all Confidential Information at all times so that it is not
         communicated to, exposed to, available to, or taken by any unauthorized
         person and will personally use or disclose such information; and

                  (ii) Executive will exercise Executive's best efforts to
         assure the safekeeping of the Company's Confidential Information.

         Upon termination of Executive's employment with the Company, Executive
agrees to immediately return to the Company all Confidential Information and
other Company property, including without limitation all originals, copies,
computer data, or other records or information. It is understood and agreed that
Confidential Information and other property of the Company shall remain at all
times the property of the Company.

                                       10
<PAGE>

         (b) Non-Competition Agreement. Recognizing the fact that Executive will
be given or have access to the Confidential Information described in this
Section 12 above, and that Executive owes a duty of full loyalty to the Company
and it's name, reputation and operational interests, Executive agrees that
during the period of Executive's employment with the Company, Executive will not
engage in or have an interest in, either directly or indirectly, in any manner,
whether as a shareholder, partner, owner, investor, officer, director, advisor,
employee, consultant, or in any other capacity, any Competitive Business other
than an ownership position of less than 5 percent in any company whose shares
are publicly traded.

         Executive agrees that in the event that Executive's employment with the
Company is terminated for any reason by either party, for a period of one (1)
year from the date of termination of employment, Executive will not engage in or
have an interest in, either directly or indirectly, in any manner, whether as a
shareholder, partner, owner, investor, officer, director, advisor, employee,
consultant, or in any other capacity, any Competitive Business (other than an
ownership position of less than 5 percent in any company whose shares are
publicly traded) which:

                  (i) is located or operates within fifty (50) miles of:

                           (A) any one of the Company's or its affiliates'
                  facilities or a location where the Company or one of its
                  affiliates has provided services during the term of
                  Executive's employment with the Company, or

                           (B) any location where the Company was actively
                  developing a facility or service before the termination of
                  Executive's employment with the Company; or

                  (ii) is located in the United States.

         Executive further agrees that in the event that Executive's employment
with the Company is terminated for any reason by either party, for a period of
one (1) year from the date of termination of employment, Executive shall not, on
his own behalf or on behalf of any person, firm or company, directly or
indirectly, solicit or offer employment to any person who has been

                                       11
<PAGE>

employed by the Company or its subsidiaries at any time during the twelve (12)
months immediately preceding such solicitation.

         For purposes of this Section 12, "Competitive Business" shall be
defined as a hospital or any other health care employer, facility, or service
providing cardiology related facilities or services.

         (c) Executive and the Company agree that this covenant not to compete
is a reasonable covenant under the circumstances, and further agree that if in
the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authority
to excise or modify such provision or provisions of this covenant as to the
court shall appear not reasonable and to enforce the remainder of the covenant
as so amended. Executive agrees that any breach of the covenants contained in
this Section 12 would irreparably injure the Company. Accordingly, Executive
agrees that the Company may, in addition to pursuing any other remedies it may
have in law or in equity, cease making any payments otherwise required by this
Agreement and obtain an injunction against Executive from any court having
jurisdiction over the matter restraining any further violation of this Agreement
by Executive.

         13. Beneficiaries; References. Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.

         14. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations, including
the provisions of Section 12 herein. The

                                       12

<PAGE>

provisions of this Section 14 are in addition to the survivorship provisions of
any other section of this Agreement.

         15. Governing Law. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the State of North Carolina without
reference to rules relating to conflicts of law.

         16. Effect on Prior Agreements. This Agreement contains the entire
understanding between the parties hereto and supersedes in all respects any
prior or other agreement or understanding between the Company or any affiliate
of the Company and Executive.

         17. Withholding. The Company shall be entitled to withhold from payment
any amount of withholding required by law.

         18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.

                                               MEDCATH CORPORATION

                                               By     /s/ Stephen R. Puckett
                                                  ------------------------------
                                                  Stephen R. Puckett, Chairman

                                                      /s/ John T. Casey
                                               ---------------------------------
                                                  John T. Casey

                                       13

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