Document:

FARMOUT AGREEMENT

Exhibit 10.26

FARMOUT AGREEMENT 

HELETZ-KOKHAV LICENSE

By and Among

AVENUE GROUP INC

And

AVENUE ENERGY ISRAEL LTD

And

TOMCO ENERGY PLC

And

LUTON - KENNEDY LTD

	
	V.1.03(E)

TABLE OF CONTENTS

ARTICLE 1  DEFINITIONS

4

ARTICLE 2  ASSIGNMENT OF INTEREST

6

ARTICLE 3  CLOSING

8

ARTICLE 4  CONSIDERATION

10

ARTICLE 5  OBLIGATIONS UNDER LICENSE AND JOA

14

ARTICLE 6  UNDERTAKING OF THE PARTIES

14

ARTICLE 7  REPRESENTATIONS AND WARRANTIES OF THE PARTIES

15

ARTICLE 8  AREA OF MUTUAL INTEREST

19

ARTICLE 9  TAXATION

19

ARTICLE 10  CONFIDENTIALITY AND NON-CIRCUMVENTION

20

ARTICLE 11  ASSIGNEMNTS

21

ARTICLE 12  NOTICES

23

ARTICLE 13  LAW AND DISPUTE RESOLUTION

25

ARTICLE 14  FORCE MAJEURE

26

ARTICLE 16  GENERAL PROVISIONS

27

EXHIBITS

A-1.

HELETZ LICENSE

A-2      IRIS LICENSE

B. 

LICENSE AREAS

C.

WORK PROGRAM 

D-1.

JOINT OPERATING AGREEMENT HELETZ LICENSE 

D-2      JOINT OPERATING AGREEMENT IRIS LICENSE

E.

ASSIGNMENTS

	
	F.

DOCUMENT LIST

G.

PREVIOUS EXPENDITURES AND EXISTING FACILITIES. 

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	H.

AREA OF MUTUAL INTEREST MAP       

I.         LIST OF APPROVED PETROLEUM ENGINEERING FIRMS

J.         WIRE TRANSFER INSTRUCTIONS

                                                                                                                                                                                                       

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FARMOUT AGREEMENT

THIS AGREEMENT is entered into as of this 1st day of April, 2008  by and among Avenue Group, Inc, a company existing under the laws of the State of Delaware, USA (“Avenue”) and Avenue Energy Israel, Ltd (“AEI”) a company existing under the laws of  the State of Israel and being a wholly owned subsidiary of Avenue  (hereinafter both sometimes referred to as “Farmor”) and TomCo Energy PLC (“TomCo”)  a company existing under the laws of the Isle of Man and Luton-Kennedy Ltd (“Luton”) a company existing under the laws of the State of Israel and being a wholly owned subsidiary of TomCo (hereinafter sometimes both  referred to as “Farmee”).  The companies named above, and their respective successors and assignees (if any), may sometimes individually be referred to as “Party” and collectively as the “Parties”.

WITNESSETH:

WHEREAS, the Heletz-Kokhav License (“Heletz License”) covering an area of approximately 229,600 dunams was awarded to Avenue Energy Israel, Ltd. on August 27, 2007 by the Israel Petroleum Commission (“IPC”) of the State of Israel, for the exploration, development and production of hydrocarbons in an area known as the Heletz-Kokhav block for a period of 3 years from the issuance of the Heletz License; 

WHEREAS, as of the date of this Agreement, AEI holds 100% of the rights and obligations in the Heletz License; 

WHEREAS, the Iris License (“Iris License”) covering an area of approximately 36,800 dunams was awarded to AEI and Lapidoth-Heletz LP (“Lapidoth”) on February 14, 2008 by the IPC for the exploration, development and production of hydrocarbons in an area known as the Iris block for a period of three years from the issuance of the Iris License;

WHEREAS, as of the date of this Agreement, AEI holds 50% of the rights and obligations in the Iris License;

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WHEREAS, Farmor is willing to assign and transfer an undivided fifty percent (50%) participating interest taken out of its rights and obligations under the Heletz License and an undivided twenty five percent (25%) participating interest taken out of its rights and obligations under the Iris Licence to Farmee in accordance with the terms set forth herein and Farmee wishes to acquire such interests; and

WHEREAS, an Application will be made as quickly as possible following the date of this Agreement  by Farmor and Farmee for the Approval of the Government of the State of Israel to the Assignments of such Participating Interests as contemplated by this Agreement;

NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations set out below and to be performed, the Farmor and Farmee agree as follows:

ARTICLE 1

DEFINITIONS

As used in this Agreement, the following capitalized words and terms shall have the meaning ascribed to them below.  Any capitalized term used in this Agreement and not specifically defined in this Agreement shall have the same meaning as in the Licenses or the JOA to be entered into pursuant to this Agreement.

1.1

Agreement means this Farmout Agreement together with the Exhibits, and any extension, renewal or amendment hereof agreed to in writing by the Parties.

1.2

Application means a formal application in writing by the parties to the Government for Approval.

1.3

Approval means the formal approval in writing by the Government of the Assignment of the Participating Interests transferred hereunder.

1.4

Approval Date means the date on which the Government notifies Farmor and Farmee of its Approval.

1.5

Assignments means either or both of the documents, attached as Exhibit E, by which the interests in the Licenses are  transferred and conveyed to the Farmee by the Farmor   as provided hereunder.   

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1.6

Block means the areas  covered by the Licenses.

1.7

Closing means the execution of this Agreement and delivery of the items contemplated in Article 3.1. 

1.8

Closing Date means the actual date of Closing.

1.9

Consideration means the payments by TomCo of cash and shares as set forth in Article 4.1(C) and (D)

1.10

Documents means the Licenses, the Applications, the JOA, and the agreements listed in the attached Exhibit F.

1.11

Effective Date means the date set out in Article 2.5.

1.12

Government means the government of the State of Israel and any political subdivision, agency or instrumentality thereof.

1.13

Interim Period means the period commencing from the date of the execution of this Agreement until the Approval.  

1.14

JOA means the Joint Operating Agreements attached as Exhibit  D.     

1.15

Lapidoth means Lapidoth Oil Prospectors, Ltd, an Israeli corporation.  

1.16

Lapidoth Service Agreement means the services agreement dated December 27,2007 and made between Lapidoth and the Farmor.

1.17

Laws/Regulations means those laws, statutes, rules and regulations governing activities under the License.

1.18

Licenses mean the Heletz License and/or the Iris License (attached as Exhibits A-1 and A-2) and any extension, renewal or amendment thereto or any conversion thereof into a Production Lease or any license issued in exchange for, in replacement of or in substitution for either.    

1.19

License Area means the area or blocks more particularly described in the map and set of coordinates  attached Exhibit B. 

1.20

Natural Resources Licensing Administration or NRLA means that branch of the Israeli Ministry of Natural Infrastructures which is responsible for approving the Assignments. 

1.21

Operator  means the entity designated to conduct operations in the License Area in accordance with the terms of the JOA.

1.22

Participating Interest

  means as to any party to the License, the undivided interest of such party expressed as a percentage of the total interest of all parties in the rights and obligations derived from the License.

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1.23

Preferential Rights  means a right held by any third party under the terms of the License, JOA, Documents or under applicable law rule or regulation to pre-empt the transaction contemplated by this Agreement or affect its terms in any way. 

1.24

Production Lease means a 30 years oil production lease granted by the Government.

1.25

Work Program means the description of work attached hereto as Exhibit C.

ARTICLE 2

ASSIGNMENT OF INTEREST

2.1

Grant

  Subject to the satisfaction of the terms and conditions required of the Farmor, as set out in Article 3 herein, and in exchange for the Consideration as set out in Article 4 herein, Farmor shall assign and transfer to Farmee, and Farmee agrees to accept, a 50% Participating Interest in the Heletz License and a 25% Participating Interest in the Iris License and the Parties shall execute and deliver the Assignments and any other documents necessary to perfect the said Assignments.   In the event Farmee does not fulfill all or part of the earning obligations of Article 4, Farmee shall immediately upon notice sent by Farmor, reassign all or that portion of the interest not earned, and Farmee shall take all steps and sign all documents necessary to carry out the reassignment to Farmor.  In this event, Farmee authorizes Avenue Group, Inc. to make such application for reassignment on its behalf if necessary.

2.2

Approval

An application for Approval shall be made by Israeli counsel for AEI to the NRLA within 10 days of the date hereof.  Such application is to be completed in consultation with Israeli counsel for Luton and is subject to the advice of Luton’s legal and professional advisors.

2.3

Joint Operating Agreement  

Contemporaneously with the execution and delivery of the Assignment the Parties    

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agree to execute the appropriate documentation to become parties to the Joint Operating Agreements attached as Exhibit D-1 and D-2.   

2.4

Binding Effect

Farmor and Farmee shall be bound by this Agreement as of the date hereof and shall fully perform all of their respective obligations under this Agreement.  

2.5

Ownership

After the Assignment of the full interest to be earned as contemplated under this Article 2, the Participating Interests in the Licenses shall be as set out below subject however to adjustment downward if Farmee does not earn its full interest:

					
	 
	 
	Heletz License

	 
	Iris License

	AEI:

	 
	50%

	 
	25%

	Luton         

	 
	50%

	 
	25%

	Lapidoth

	 
	0%

	 
	50%

	Total: 

	 
	100%

	 
	100%

The Parties acknowledge that the Heletz and Iris Licenses are each  burdened by two overriding royalties granted to unrelated parties and aggregating 7% in their entirety for each License  and that the Government of the State of Israel has reserved a 12.5 % royalty in each of the Licenses.  The Parties shall bear their respective share of the royalties in proportion to their Participating interests.         

2.6

Effective Date

Notwithstanding the date of this Agreement or the date on which the Assignment is executed, the effective date of this Agreement as between the Parties (hereafter the "Effective Date") shall be deemed to be the first day of the first full month preceding the Closing Date.  By way of example only, if the Closing Date occurs on March 18, 2008, then the Effective Date for payment of either party’s share of production or all other matters shall be deemed to be February 1, 2008. The 

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consideration payable by Farmee reflects this Effective Date.  Farmor and Farmee agree that they shall make whatever adjustments and payments from one to the other to reflect the Assignment as of the Effective Date, notwithstanding any cost recovery allocations, tax deductions or other benefits or payments received from the Government thereafter as a result of the application of the License or any applicable laws of the Government which reflect the Approval Date and not the Effective Date.

ARTICLE 3

CLOSING

3.1

Closing

The assignment and transfer of the Participating Interest by the Farmor to the Farmee as provided in Article 2.1 shall be closed on the date of this Agreement when the following shall take place:-

A.

The Farmor shall deliver to the Farmee the duly executed Assignments.

B.

The Farmor shall deliver to the Farmee a certificate in respect of 50% of the issued and fully diluted share capital of AEI (in case shares in AEI are to be delivered to Farmee as an alternative way of achieving the parties’ intent under Article 3.4)

C.

The Farmee shall deliver to the Farmor the cash consideration stated in Article 4.1(C) and (D) and the share consideration stated in Article 4.1 (C).  

3.2

Approval

A.

Within the period of  ten days commencing on the Approval Date (“Notice Period”), either the Farmor or the Farmee (“Notifying Party”) may notify the other (“Notice”) in writing that any conditions imposed by the Government in giving Approval are, in its reasonable opinion, unusual or 

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onerous to it in which case the parties shall for a period of twenty        days commencing ten days after the date of Approval (“Negotiation Period”) use commercially reasonable efforts to secure the removal or relaxation of such conditions.  In order to maintain momentum necessary to diligently carry out the work program of the License, during this same thirty day period the Parties shall also determine and prepare for implementation if necessary the alternative method of transferring the interest to Farmee referred to in Paragraph 3.4 herein below.

B.

If Approval is not given (which includes the situation where Approval is given to the Assignment of a Participating Interest in one License, but not the other) within three months from the date of this Agreement or if Approval is given but any onerous or unusual condition imposed by the Government have not been removed or relaxed to the reasonable satisfaction of the Notifying Party by the expiry of the Negotiation Period, the Parties shall endeavor to enter into the arrangements contemplated in Paragraph 3.4 herein below.  

3.3

Acts to be Performed:

Each party shall use commercially reasonable efforts to execute all documents, and do and procure to be done all such acts and things as are reasonably within its power to ensure that Approval is obtained as soon as is reasonably practicable after execution of this Agreement. 

3.4

Alternative Way

If the Government has not approved the Assignments to the Farmee within three months from the date of this Agreement, or otherwise imposes conditions for approval of the Assignments in excess of those which are usually imposed in similar circumstances or which approval contains unusual and onerous conditions which either Party is not reasonably willing to accept, then the Parties commit to find and devise a legally permissible alternative way (whether by means of a trust, 

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agency or corporate transaction i.e. where both Licenses are affected,  the transfer to Farmee of 50% of the shares of AEI) to enable the Farmee to enjoy the same interest in the Licenses as would have been acquired by a direct assignment. However, in the event Farmee is not willing to accept any of the alternative ways referred to herein, Farmee shall then upon notice to Farmor given within thirty days from the aforesaid three month period, be entitled to withdraw from this Agreement.   Upon such notice of withdrawal, Farmee shall forfeit any amounts previously advanced to Farmor whether by advance payments, work obligation payments, security deposit payments,  loan arrangements or any other manner of payment.  The Consideration paid by Farmee shall however be returned forthwith to Farmee. Notwithstanding the implementation of an alternative way to convey the interest contemplated herein to Farmee, the Parties upon mutual agreement  shall continue to endeavor for a period of nine additional months from the date of implementation of the alternative way to obtain the Approval of the Government.  If such Approval is obtained within this period, the Parties shall cancel whatever alternative way of transferring the economic interest to the Farmee had been implemented and shall thereupon immediately carry out the original assignments of interest contemplated by this Agreement.

3.5

Loan Arrangements

Recognizing that Farmor must commence work obligations under the Licenses before such time as the Approval is obtained or alternative arrangements for transferring the interest are reached, TomCo agrees to provide a loan to Avenue in the amount of $500,000 to be used to satisfy various obligations under the License.   This loan shall bear interest at the rate of 2% per annum and shall be due on a date no later than three months from Closing.  At such time, the loan amount together with interest shall be applied towards Farmee’s financial obligations under this Agreement and the JOA. If Farmee elects pursuant to Paragraph 3.4 neither to accept an interest in the License nor a shareholding in AEI, then the Loan shall be deemed cancelled and Farmor shall have no obligation to repay the loan. 

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ARTICLE 4

CONSIDERATION 

4.1

Earning Obligations

In consideration for receiving the assignment of the Participating Interest hereunder, or the transfer of an equivalent economic interest by an alternative way as contemplated by Paragraph 3.4, Farmee agrees to perform or cause to be performed the following obligations:    

A.

TomCo shall transfer to Avenue a Security Deposit in the amount of $75,000 which shall be applied against the financial obligations described in Article 4.1(C) below. It is acknowledged that TomCo has fulfilled this obligation.

B.

TomCo shall assume one hundred percent (100%) of the expenditure of the first $3,500,000 of the costs associated with implementing the Three Year Work Program required by the Heletz License or b) the costs associated with implementing the Three Year Work Program required by the License, a description of which is attached hereto and made a part hereof as Exhibit C., whichever is greater. It is understood that the expenditure includes only expenditure incurred by the operator in accordance with the work program (excluding Farmee’s own internal G & A expenditures) and that there shall be a cap of $4,500,000 in the event that the minimum work program is not completed by the expenditure of $3,500,000.   Upon total expenditure of $3,500,000 by TomCo and assuming that the minimum work program has been fulfilled, the parties shall bear further expenditures equally, but TomCo shall pay the first $500,000 of expenditures beyond $3,500,000 and Avenue the next $500,000 thereafter.   Upon the cumulative expenditure of $4,500,000,and assuming the minimum work program has been fulfilled,  the Parties shall thereafter pay their proportionate participating interest share of all future 

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expenditures in conformity with the JOA.

C.

On the Closing Date, TomCo shall pay to Avenue the sum of $1,000,000 (less the Security Deposit) and an additional equivalent of $500,000 in ordinary TomCo shares as quoted on the AIM market in London (with restricted sale conditions) Each share shall be valued at the average middle market price of the shares for the seven days prior to the Closing Date.   

D.

TomCo shall pay its proportionate share, in this case fifty percent (50%) of all costs already incurred by Avenue in connection with the Heletz and if applicable, the Iris License, including but not limited to all bona fide costs related to the use of production equipment,  installation costs and lease fees. A definitive list of these costs and of the facilities is attached hereto and made a part hereof as Exhibit G. 

E.

TomCo shall if requested by the Government provide proof of its ability to fund its obligations under the License and its proportionate share of a $100,000 Plugging and Abandonment bond.   

4.2

License Conversion Bonuses

In addition to those amounts to be paid or obligations to be fulfilled by Luton, Luton shall pay the following license conversion bonuses to Avenue:

A.

If at any time during the life of the Heletz or Iris License, the Israel Petroleum Commission agrees to convert either License to a Production Lease, then Luton shall pay Avenue within ninety (90) days following such determination, the cash sum of $1,500,000.

B.

If at any time it is determined that the Block contains petroleum reserves greater than ten (10) million barrels of proven producing (“PDP”) proven developed non producing (“PDNP”) or proven undeveloped (“PUD”) oil reserves as confirmed by an internationally recognized United States or United Kingdom based reservoir engineering firm, Luton shall pay to Avenue within ninety (90) days following such determination, the cash 

13

sum of $5,000,000. The definitions of PUD, PDP and PDNP reserves shall be as recognized by the Society of Petroleum Engineers.   Those engineering firms set out in Exhibit I hereof shall be deemed approved by the Parties.  Any other firm may be deemed acceptable to the parties if mutually agreed in writing at the time.

4.3

Payment Terms and Certain Remedies

All payments called for by this Agreement shall be made by wire transfer to Avenue’s account pursuant to the wiring instructions attached hereto as Exhibit J.  In the event that Farmee fails to make any payments as required in this Article, or otherwise fails to fully perform any of its obligations set forth in this Article and has not remedied such breach of its obligations within 45 days of receipt of written notice from Farmor then the following shall apply:

A.

It is the intent of this Agreement that Farmee will spend at least $3,500,000 or such sum as necessary to fulfill the minimum obligations of the Heletz and Iris License subject to a cap of $4,500,000  to earn a full fifty percent (50%) interest in the Heletz License and a full twenty five percent (25%) interest in the Iris License but that if Farmee has expended at least $2,000,000 within the required terms of the License and in accordance with cash calls made by the Operator it will earn at least a minimum twenty five percent (25%) interest in the Heletz License and a minimum twelve and a half percent (12.5%) interest in the Iris License. If Farmee should spend in excess of $2,750,000 but not the full $3,500,000, it shall earn 37.5% and 18.75% respectively.  

B.

If Farmee shall have expended anything less than $2,000,000 and has indicated that it will not expend anything further or otherwise cured this breach within 45 days of notice by the Operator, then Farmee shall earn no interest whatsoever in the Licenses.

C.

These provisions shall not affect the normal rights of the parties to make non consent elections under the terms of the JOA and if work obligations 

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under the License remain to be fulfilled, the interest of the Farmee in the JOA shall be adjusted accordingly to the interest it has earned under this Farmout Agreement and it shall be deemed to be a non consenting party under the JOA for all future operations.

ARTICLE 5

OBLIGATIONS UNDER LICENSE AND JOA

Acceptance of Prior Terms

Farmee hereby ratifies, confirms and accepts the terms of the Licenses, the JOA’s, The Lapidoth-Heletz Iris License (formerly known as the Lapidoth Heletz Luxi license) joint venture agreement and the Lapidoth Services Agreement. Farmee agrees to abide by the terms of such agreements to the extent of the terms of this Agreement and its Participating Interest.

ARTICLE 6

UNDERTAKING OF THE PARTIES

6.1

Farmor Obligations

During the Interim Period, Farmor shall comply with the following: 

A.

Material Developments. Farmor shall promptly notify Farmee and provide details upon the occurrence of: (a) any written notice of default or termination received or given by Farmor with respect to the Licenses  or the respective JOA, (b) any written notice of any pending or threatened claim, demand, action, suit, inquiry or proceeding related to the License  or the JOA, (c) any material damage, destruction or loss to major assets under the Licenses or the respective JOA, or (d) any event or condition between the date of this Agreement and the Approval Date that (i) would have a material adverse effect on the business, operations, financial condition or results of operations under the Licenses or the respective JOA, taken as a whole, or (ii) would render impossible Farmee’s right to the Assignment.

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6.2

Mutual Obligations

During the Interim Period the Farmee and Farmor shall comply with each of the following undertakings:

A.

Each Party, as applicable, agrees to use commercially reasonable efforts to satisfy, in an expeditious manner, the conditions precedent to the Assignment set forth in Article 4.

B.

The Parties shall not take any action nor fail to take any action prior to the Closing Date that would result in a breach of any of its representations and warranties under this Agreement.

ARTICLE 7

REPRESENTATIONS AND WARRANTIES OF THE PARTIES

7.1

Farmor’s Representations and Warranties

Except as otherwise disclosed on the attached schedules, Farmor makes the following representations and warranties to Farmee as of the date of this Agreement:    

A.

Farmor's Rights. Farmor holds the rights to a 100% undivided Participating Interest in the Heletz License and a 50% undivided interest in the Iris License free and clear of any liens, claims, burdens or encumbrances, other than the liens, claims, burdens or encumbrances in favor of the Government according to the terms of the License and applicable Laws and in respect of both Licenses certain overriding royalty interests aggregating 7% in total to be paid to two unrelated parties. The Licenses are in full force and effect and no notice of default, termination, or breach under the License has been received by Farmor. The Licenses are in good standing and all payments and guarantees to the Government required by the License have been made. The Licenses together with 

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applicable Laws contains the entirety of the obligation of Farmor to the Government, and no other understanding or agreement exists between Farmor and the Government in relation to the subject matter of the Licenses except as otherwise disclosed under this Agreement.

B.

Documents. Farmor has provided Farmee with complete and correct copies of the Licenses and all material correspondence relating to the Licenses or the Blocks with the Government or Lapidoth.  Where Farmor has provided any translation of a Document, Farmor has done so as a courtesy to the Farmee and Farmor makes no representation or warranty as to the accuracy of the translation.

C.

Claims and Litigation. There are no material claims, demands, actions, suits, governmental inquiries, or proceedings pending or to Farmor's knowledge threatened in connection with the License which would have an adverse effect upon the consummation of the transactions contemplated by this Agreement.

D.

Oil and Gas Presence. Farmor makes no warranties or guarantees of any kind whatsoever as to the presence of oil and/or gas, if any, in the lands covered by this Agreement and Farmee hereby assumes all risks associated with same.  

E.

Material disclosure. All information disclosed by Farmor to Farmee was when disclosed and will at Closing be true and accurate to the best of Farmor’s knowledge  and there is no fact not disclosed which would if disclosed render such information misleading.

F.

AEI.  AEI has no assets or liabilities whatsoever save for its participating interests in the Licenses as recited above

 

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7.2

Farmee’s Representations and Warranties

Except as otherwise disclosed in the attached schedules, Farmee to the best of its knowledge, makes the following representations and warranties to Farmor as of the date hereof :

A.

Claims and Litigation. There are no material claims, demands, actions, suits, governmental inquiries, or proceedings pending, or to Farmee’s knowledge, threatened, against Farmee which would have an adverse effect upon the consummation of the transactions contemplated by this Agreement.

B.

Financing. Farmee has or will have sufficient cash, available lines of credit or other sources of immediately available funds to enable it to fulfill all of its obligations under Article 4.1 as and when they arise. 

 

7.3         Mutual Representations and Warranties

The Parties make the following representations and warranties to each other as of the date hereof:

A.

Corporate Authority. Each Party is duly organized and validly existing under the laws of the state or country where it is organized.  To the extent required, each Party is qualified to conduct business in the jurisdiction as necessary to perform the obligations of the License. Each Party has all requisite corporate power and authority to enter into this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby.  This Agreement has been duly executed and delivered by each Party and constitutes a legal, valid and binding obligation of each Party, enforceable against each Party in accordance with its terms...  

B.

Other Representations and Warranties. Except as disclosed in 

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schedules attached to this Agreement, the execution, delivery, and performance of this Agreement by each Party, the consummation of the transactions contemplated hereby, and the compliance with the provisions hereof will not, to the best of each Party's knowledge and belief: 

(a)

violate any applicable Laws/Regulations, judgment, decree or award;

(b)

contravene the organization documents of a Party; or

(c)

result in a violation of a term or provision, or constitute a default or accelerate the performance of an obligation under any License or agreement executed by a Party hereto.

7.4    Disclaimer of Other Representations and Warranties

A.

Except for the representations and warranties provided in this article, Farmor and Farmee make no, and disclaim any, warranty or representation of any kind, either express, implied, statutory, or otherwise, including, without limitation, the accuracy or completeness of any data, reports, records, projections, information, or materials now, heretofore, or hereafter furnished or made available to Farmee in connection with this agreement.

B.

Farmee has access to technical capability, personnel and resources to review the technical data provided by Avenue and to review the Work Program requirements associated with the License.

ARTICLE 8

AREA OF MUTUAL INTEREST

An Area of Mutual Interest (“AMI”) will be created which will encompass the Blocks and an area of two miles surrounding the Blocks.  Each of the parties agree that while it is participating with the other in either of the Licenses, it will not engage in any other oil and gas license(s) on its own or with third parties in the AMI without offering to the other 

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the opportunity to acquire a participating interest in the new license equivalent to its interest at the time in this Agreement.. 

ARTICLE 9

TAXATION

9.1

Tax Obligations

Each Party shall be responsible for reporting and discharging its own tax measured by the profit or income of the Party and the satisfaction of such Party’s share of all License obligations under the License and under this Agreement.  Each Party shall protect, defend and indemnify each other Party from any and all loss, cost or liability arising from the indemnifying Party’s failure to report and discharge such taxes or satisfy such obligations.  The Parties intend that all income and all tax benefits (including deductions, depreciation, credits and capitalization) with respect to the expenditures made by the Parties hereunder will be allocated by the Government tax authorities to the Parties based on the share of each tax item actually received or borne by each Party.  If such allocation is not accomplished due to the application of the Laws / Regulations or other Government action, the Parties shall attempt to adopt mutually agreeable arrangements that will allow the Parties to achieve the financial results intended.  Operator shall provide each Party, in a timely manner and at such Party’s sole expense, with such information with respect to Joint Operations as such Party may reasonably request for preparation of its tax returns or responding to any audit or other tax proceeding.

9.2

Joint Levy

If interpretation or enforcement of the License by the Government imposes joint and several liability on the Parties for any levy, charge or tax, the Parties agree to cross indemnify each other to the extent that such levy, charge or tax is owed by one Party individually.  

9.3

United States Tax Election         

(A)

If, for United States federal income tax purposes, this Agreement and the operations under this Agreement are regarded as a partnership and if the Parties 

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have not agreed to form a tax partnership, each Party elects to be excluded from the application of all of the provisions of Subchapter “K”, Chapter 1, Subtitle “A” of the United States Internal Revenue Code of 1986, as amended (the “Code”), to the extent permitted and authorized by Section 761(a) of the Code and the regulations promulgated under the Code.  Operator, if it is a U.S. Party, is authorized and directed to execute and file for each Party such evidence of this election as may be required by the Internal Revenue Service, including all of the returns, statements, and data required by United States Treasury Regulations Sections 1.761-2 and 1.6031(a)-1(b)(5) and shall provide a copy thereof to each U.S. Party.  However, if Operator is not a U.S. Party, the Party who holds the greatest Participating Interest among the U.S. Parties shall fulfill the obligations of Operator under this Article.  Should there be any requirement that any Party give further evidence of this election, each Party shall execute such documents and furnish such other evidence as may be required by the Internal Revenue Service or as may be necessary to evidence this election.

(B)

No Party shall give any notice or take any other action inconsistent with the foregoing election.  If any income tax laws of any state or other political subdivision of the United States or any future income tax laws of the United States or any such political subdivision contain provisions similar to those in Subchapter “K”, Chapter 1, Subtitle “A” of the Code, under which an election similar to that provided by Section 761(a) of the Code is permitted, each Party shall make such election as may be permitted or required by such laws.  In making the foregoing election or elections, each U.S. Party states that the income derived by it from operations under this Agreement can be adequately determined without the computation of partnership taxable income. 

9.4

Withholding Tax

Should it be necessary in accordance with Israeli tax law, the Farmor shall provide a certificate of the Israeli Tax Authority of exemption from withholding tax before each payment is effected failing which the Farmee shall withhold tax at the rate of 25% of each payment and remit same to the Israeli Tax Authority as 

21

required under Israeli law.  If payment is made by the Farmee without deduction and withholding tax is subsequently assessed on such payment by the Israeli Tax Authority, the Farmor and the Farmee shall endeavour to seek Treaty protection for the payment but if such protection is unavailable shall be jointly responsible for any tax, interest or penalty assessed.  

ARTICLE 10

CONFIDENTIALITY AND NON-CIRCUMVENTION

10.1

Except as otherwise provided in the License and the JOA, each Party agrees that all information disclosed under this Agreement, except information in the public domain or lawfully in possession of a Party prior to the Effective Date, shall be considered confidential and shall not be disclosed to any other person or entity without the prior written consent of the Party which owns such confidential information. This obligation of confidentiality shall remain in force during the term of the License and for a period of five (5) years thereafter. Notwithstanding the foregoing, confidential information other than raw technical data obtained by the parties and pertaining to the license area, may be disclosed without consent and without violating the obligations contained in this Article in the following circumstances:

(1)

to an Affiliate provided the Affiliate is bound to the provisions of this Article 9 and the Party disclosing is responsible for the violation of an Affiliate; 

(2)

to a governmental agency or other entity when required by the License;

(3)

to the extent such information is required to be furnished in compliance with the applicable Laws/Regulations, or pursuant to any legal proceedings or because of any order of any court binding upon a Party; 

(4)

to attorneys engaged, or proposed to be engaged, by any Party where disclosure of such information is essential to such attorneys' work for such Party and such attorneys are bound by an obligation 

22

of confidentiality;

(5)

to Licensors and consultants engaged, or proposed to be engaged, by any Party where disclosure of such information is essential to such Licensor’s or consultant’s work for such Party;

(6)

to a bona fide prospective transferee of a Party’s Participating Interest, or portion thereof, to the extent appropriate in order to allow the assessment of such Participating Interest (including an entity with whom a Party and/or its Affiliates are conducting bona fide negotiations directed toward a merger, consolidation or the sale of a majority of its or an Affiliate's shares);

(7)

to a bank or other financial institution to the extent appropriate to a Party arranging for funding;

(8)

to the extent such information must be disclosed pursuant to any rules or requirements of any government or stock exchange having jurisdiction over such Party, or its Affiliates; provided that  such Party shall comply with the requirements of Article 14.10 hereunder;

(9)

to its respective employees, subject to each Party taking sufficient precautions to ensure such information is kept confidential; 

(10)

to the extent any information which, through no fault of a Party, becomes a part of the public domain; and

(11)

to the other parties to the License and JOA and the Government solely to the extent as may be required [in connection with the Preferential Rights] to satisfy the Conditions Precedent.

10.2

Disclosure as pursuant to Articles 9.1(5), (6), (7) and (11) shall not be made   unless prior to such disclosure the disclosing Party has obtained a written undertaking from the recipient party to keep the information strictly confidential for at least as long as the period set out above and to use the information for the sole purpose described in Articles 9.1(5), (6), (7), and (11), whichever is applicable, with respect to the disclosing Party

23

10.3

The Parties agree to keep confidential the names of any contacts introduced or revealed to the other party, and that their firm, company, associates, corporations, joint ventures, partnerships, divisions, subsidiaries, employees, agents, heirs, assigns, designees, or consultants will not contact, deal with, negotiate or participate in any transactions with any of the contacts without first entering a written agreement with the Party who provided such contact unless that Party gives prior written permission. Such confidentiality will include any names, addresses, telephone, telex, facsimile numbers, and/or other pertinent information disclosed or revealed to either Party. The Parties agree not to disclose, reveal or make use of any information during discussion or observation regarding methods, concepts, ideas, product/services, or proposed new products or services, nor to do business with any of the revealed contacts without the written consent of the introducing party or parties.

ARTICLE 11

ASSIGNMENTS

11.1

Farmee during the period of time in which it has not yet fulfilled its minimum earning obligations hereunder,  agrees not to assign, sell, transfer, or sub-lease this Agreement or any of its rights or obligations hereunder, in whole or in part (collectively “assign”), without first securing the written consent of the Farmor.   The assignment shall be subject during this period to the Farmor’s right of first refusal as provided in Paragraph 11.2 below.  If Farmor elects not to exercise this right, its approval of Farmee’s proposed assignment shall not be unreasonably withheld.  If Farmor perceives in its reasonable opinion that the new party lacks the financial credibility to honour its obligations under the License or Licenses it may withhold its approval to the assignment.  During this same period, Farmor may freely assign any part of its rights under the License or Licenses provided that in Farmee’s reasonable opinion such assignee shall have the financial credibility to honour its obligations under the License or Licenses.  Further, 

24

during this period it is understood that the Farmee shall not have the right of first refusal to acquire any part of any interest Farmor desires to assign.  After this period, Farmee’s right to assign shall be on the same terms as that of Farmor.   

11.2

During the period in which Farmee has not yet fulfilled its minimum earning obligations, Farmor shall have the first right to acquire any interest Farmee proposes to be assigned on the same terms as the proposed new assignee.  Thereafter both parties shall have the same first rights of acquisition with respect to any proposed assignment by the other.  

11.3

Neither Article 11.1 or 11.2 shall apply to an assignment by way of security to a bank or financial institution providing funding in good faith to one or more of the parties.

 

ARTICLE 12

NOTICES

All notices authorized or required between the Parties by any of the provisions of this Agreement shall be in writing (in English) and delivered in person or by courier service or by any electronic means of transmitting written communications which provides written confirmation of complete transmission, and properly addressed to the other Party.  Verbal communication does not constitute notice for purposes of this Agreement, and e-mail addresses and telephone numbers for the Parties are listed below as a matter of convenience only.  A notice given under any provision of this Agreement shall be deemed delivered only when received by the Party to whom such notice is directed, and the time for such Party to deliver any notice in response to such originating notice shall run from the date the originating notice is received.  “Received” for purposes of this Article shall mean actual delivery of the notice to the address of the Party specified hereunder.

25

Avenue Group, Inc. and Avenue Energy Israel    

 

  

 405 Lexington Ave, 26th Floor 

                       

New York, New York 10174

                         

Attention: Mendel Mochkin 

                        

Facsimile: +1.646.706.7258

            

Email: avenuegroup@gmail.com              

                        

Telephone: +1 212.812.2174  

                         

With a copy to:                                                             

Norman J. Singer Esq.

885 S Garfield St

Denver, CO  8020

Facsimile: +1 303 698 0044

Email: nsinger@aol.com

Telephone: +1 303 744 6550

TomCo Energy, PLC

  

Attention: Stephen A. Komlosy

34 Grosvenor Gardens 

London, SW1W ODH, United Kingdom

  

Facsimile: +44 207 808 484 7

Email: Stephen@komlosy.com

Telephone: +44 207 808 4867

With a copy to:

Rex Newman

Wallace LLP

1 Portland Place

London, W1B1PN  United Kingdom

Facsimile:  020 7636 4422

Email:        rex.newman@wallace.co.uk

Telephone:  020 7636 4422

26

ARTICLE 13

LAW AND DISPUTE RESOLUTION

10.1

Governing Law

The law of the State of Israel shall govern this Agreement for all purposes, including the resolution of disputes between or among Parties.

10.2

Dispute Resolution

Except as may be otherwise agreed in the JOA, any and all claims, demands, causes of action, disputes, controversies and other matters in question arising out of or relating to this Agreement, including any question regarding its breach, existence, validity or termination, which the Parties do not resolve amicably within a period of 45  days, shall be resolved by three arbitrators in accordance with the Arbitration Rules of the Forum Code of Procedure of the National Arbitration Forum. In any such arbitration proceeding there shall be only one arbitrator if the claim in question involves a controversy with a value of $250,000 or less and in such case the arbitrator shall be a lawyer who has practiced law for at least 20 years.  In such matters involving a value in excess of $250,000 there shall be three arbitrators with at least one being a lawyer who has practiced for at least 20 years.  In such case, each Party shall appoint one arbitrator within thirty (30) days of the filing of the arbitration, and the two arbitrators so appointed shall select the presiding arbitrator within thirty (30) days after the latter of the two arbitrators have been appointed.  If a Party fails to appoint its Party-appointed arbitrator or if the two Party-appointed arbitrators cannot reach an agreement on the presiding arbitrator within the applicable time period, then the National Arbitration Forum shall appoint the remainder of the three arbitrators not yet appointed. The place of arbitration shall be in the city of Tel Aviv, Israel.   The proceedings shall be in the English  language.  The resulting arbitral award shall be final and binding, and judgment upon such award may be entered in any court having jurisdiction thereof.  A dispute shall be deemed to have arisen when either Party notifies the other Party in writing to that effect.  Any monetary award issued by the arbitrator shall be payable in 45 days.  It is expressly agreed that the 

27

arbitrator shall have no authority to award special, indirect, consequential, exemplary or punitive damages.  

ARTICLE 14

FORCE MAJEURE

If as a result of Force Majeure, any Party is rendered unable, wholly or in part, to carry out its obligations under this Agreement, other than the obligation to pay any amounts due, then the obligations of the Party giving such notice, so far as and to the extent that the obligations are affected by such Force Majeure, shall be suspended during the continuance of any inability so caused and for such reasonable period thereafter as may be necessary for the Party to put itself in the same position that it occupied prior to the Force Majeure, but for no longer period.  The Party claiming Force Majeure shall notify the other Parties of the Force Majeure within a reasonable time after the occurrence of the facts relied on and shall keep all Parties informed of all significant developments.  Such notice shall give reasonably full particulars of the Force Majeure and also estimate the period of time which the Party will probably require to remedy the Force Majeure.  The affected Party shall use all reasonable diligence to remove or overcome the Force Majeure situation as quickly as possible in a commercially reasonable manner but shall not be obligated to settle any labor dispute except on terms acceptable to it. All such disputes shall be handled within the sole discretion of the affected Party.  For purposes of this Section, "Force Majeure" means an event beyond the control of either party, which by its nature could not have been foreseen by such party, or, if it could have been foreseen, was unavoidable, and includes without limitation, acts of God, storms, floods, riots, fires, sabotage, civil commotion or civil unrest, terrorism, interference by civil or military authorities, acts of war (declared or undeclared) and failure of energy sources.

28

ARTICLE 14

GENERAL PROVISIONS

14.1

Relationship of Parties

The rights, duties, obligations and liabilities of the Parties under this Agreement shall be individual, not joint or collective.  It is not the intention of the Parties to create, nor shall this Agreement be deemed or construed to create, a mining or other partnership, joint venture or association or (except as explicitly provided in this Agreement) a trust.  This Agreement shall not be deemed or construed to authorize any Party to act as an agent, servant or employee for any other Party for any purpose whatsoever except as explicitly set forth in this Agreement.  In their relations with each other under this Agreement, the Parties shall not be considered fiduciaries except as expressly provided in this Agreement.

14.2

Further Assurances

Each of the Parties shall do all such acts and execute and deliver all such documents as shall be reasonably required in order to fully perform and carry out the terms of this Agreement.

14.3

Waiver

No waiver by any Party of any one or more defaults by another Party in the performance of any provision of this Agreement shall operate or be construed as a waiver of any future default or defaults by the same Party whether of a like or of a different character.  Except as expressly provided in this Agreement, no Party shall be deemed to have waived, 

released or modified any of its right under this Agreement unless such Party has expressly stated, in writing, that it does waive, release or modify such right.

14.4

Joint Preparation

Each provision of this Agreement shall be construed as though all Parties 

29

participated equally in the drafting of the same.  Consequently, the Parties acknowledge and agree that any rule of construction that a document is to be construed against the drafting party shall not be applicable to this Agreement.

14.5

Severance of Invalid Provisions

If and for so long as any provision of this Agreement shall be deemed to be judged invalid for any reason whatsoever, such invalidity shall not affect the validity or operation of any other provision of this Agreement except only so far as shall be necessary to give effect to the construction of such invalidity, and any such invalid provision shall be deemed severed from this Agreement without affecting the validity of the balance of this Agreement.

14.6

Modifications

There shall be no modification of this Agreement except by written consent of all Parties.

14.7

Priority of Agreement

In the event of any conflict between the provisions of the main body of this Agreement and its Exhibits, the provisions of the main body of the Agreement shall prevail. In the event of any conflict between this Agreement and the JOA, this Agreement shall prevail. In the event of any conflict between this Agreement and the License, this Agreement shall prevail unless such would be in violation of the Laws of  Israel or the terms of the License.

14.8

Interpretation

A.

Headings. The topical headings used in this Agreement are for convenience only and shall not be construed as having any substantive significance or as indicating that all of the provisions of this Agreement relating to any topic are to be found in any particular Article.

B.

Singular and Plural. Reference to the singular includes a reference to the plural and vice versa.

30

C.

Gender. Reference to any gender includes a reference to all other genders.

D.

Article. Unless otherwise provided, reference to any Article or an Exhibit means an Article or Exhibit of the Agreement.

E.

Include. "include" and "including" shall mean to be inclusive without limiting the generality of the description preceding such term and are used in an illustrative sense and not a limiting sense.

14.9

Counterpart Execution

This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed an original Agreement for all purposes; provided that no Party shall be bound to this Agreement unless and until all Parties have executed a counterpart. For purposes of assembling all counterparts into one document, Farmor is authorized to detach the signature page from one or more counterparts and, after signature thereof by the respective Party, attach each signed signature page to a counterpart.

14.10

Public Announcements

No public announcement or statement regarding the terms or existence or this Agreement shall be made without prior written consent of all Parties; provided that, notwithstanding any failure to obtain such approval, no Party shall be prohibited from issuing or making any such public announcement or statement to the extent it is necessary to do so in order to comply with the applicable laws, rules or regulations of any government, legal proceedings or stock exchange having jurisdiction over such Party or its Affiliates, however, any such required public announcement shall include only that portion information which the disclosing Party is advised by written opinion of counsel (including in-house counsel) is legally required.  Such opinion shall be delivered to the other Parties prior to any such public announcement.

31

14.11

Entirety

With respect to the subject matter contained herein, this Agreement together with the Loan Agreement to be entered into and the restricted sales agreement for consideration shares (i) is the entire agreement of the Parties; and (ii) supersedes all prior understandings and negotiations of the Parties.

IN WITNESS of their agreement each Party has caused its duly authorized representative to sign this instrument on the date set out in the first sentence of this Agreement. 

AVENUE GROUP INC and 

AVENUE ENERGY ISRAEL LTD

_/s/ Mendel Mockin_________________________

By Mendel Mockin,  

Executive vice President  - Avenue Group Inc

Executive Director – Avenue Energy Israel LTD.

   

TOMCO ENERGY PLC

_/s/ Stephen Komlosy__________________________

By: Stephen Komlosy

Title: Chairman 

32Filed by Bowne Pure Compliance

Exhibit
4.5

 

KONA GRILL, INC.

and

CONTINENTAL STOCK TRANSFER & TRUST, as Rights Agent

 

RIGHTS AGREEMENT

Dated as of May 27, 2008

 

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	Section 1. Certain Definitions
	 	 	1	 
	 
	 	 	 	 
	Section 2. Appointment of Rights Agent
	 	 	6	 
	 
	 	 	 	 
	Section 3. Issue of Right Certificates
	 	 	6	 
	 
	 	 	 	 
	Section 4. Form of Right Certificates
	 	 	8	 
	 
	 	 	 	 
	Section 5. Countersignature and Registration
	 	 	8	 
	 
	 	 	 	 
	Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates
	 	 	9	 
	 
	 	 	 	 
	Section 7. Exercise of Rights, Purchase Price; Expiration Date of Rights
	 	 	9	 
	 
	 	 	 	 
	Section 8. Cancellation and Destruction of Right Certificates
	 	 	11	 
	 
	 	 	 	 
	Section 9. Availability of Shares of Preferred Stock
	 	 	11	 
	 
	 	 	 	 
	Section 10. Preferred Stock Record Date
	 	 	12	 
	 
	 	 	 	 
	Section 11. Adjustment of Purchase Price, Number and Kind of Shares and Number
of Rights
	 	 	12	 
	 
	 	 	 	 
	Section 12. Certificate of Adjusted Purchase Price or Number of Shares
	 	 	20	 
	 
	 	 	 	 
	Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power
	 	 	20	 
	 
	 	 	 	 
	Section 14. Fractional Rights and Fractional Shares
	 	 	23	 
	 
	 	 	 	 
	Section 15. Rights of Action
	 	 	24	 
	 
	 	 	 	 
	Section 16. Agreement of Right Holders
	 	 	25	 
	 
	 	 	 	 
	Section 17. Right Certificate Holder Not Deemed a Stockholder
	 	 	25	 
	 
	 	 	 	 
	Section 18. Concerning the Rights Agent
	 	 	26	 
	 
	 	 	 	 
	Section 19. Merger or Consolidation or Change of Name of Rights Agent
	 	 	26	 
	 
	 	 	 	 
	Section 20. Duties of Rights Agent
	 	 	27	 
	 
	 	 	 	 
	Section 21. Change of Rights Agent
	 	 	29	 
	 
	 	 	 	 

 

i

 

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	Section 22. Issuance of New Right Certificates
	 	 	29	 
	 
	 	 	 	 
	Section 23. Redemption
	 	 	30	 
	 
	 	 	 	 
	Section 24. Exchange
	 	 	30	 
	 
	 	 	 	 
	Section 25. Notice of Certain Events
	 	 	31	 
	 
	 	 	 	 
	Section 26. Notices
	 	 	32	 
	 
	 	 	 	 
	Section 27. Supplements and Amendments
	 	 	32	 
	 
	 	 	 	 
	Section 28. Successors
	 	 	33	 
	 
	 	 	 	 
	Section 29. Benefits of this Agreement
	 	 	33	 
	 
	 	 	 	 
	Section 30. Determinations and Actions by the Board of Directors
	 	 	33	 
	 
	 	 	 	 
	Section 31. Severability
	 	 	33	 
	 
	 	 	 	 
	Section 32. Governing Law
	 	 	33	 
	 
	 	 	 	 
	Section 33. Counterparts
	 	 	34	 
	 
	 	 	 	 
	Section 34. Descriptive Headings
	 	 	34	 
	 
	 	 	 	 

 

ii

 

RIGHTS AGREEMENT

Rights Agreement, dated as of May 27, 2008 (“Agreement”), between Kona Grill, Inc., a
Delaware corporation (the “Company”), and Continental Stock Transfer & Trust Company, as
Rights Agent (the “Rights Agent”).

The Board of Directors of the Company has authorized and declared a dividend of one Preferred
share purchase right (a “Right”) for each share of Common Stock (as hereinafter defined) of
the Company outstanding as of the Close of Business (as defined below) on May 28, 2008 (the
“Record Date”), each Right representing the right to purchase one one-thousandth (subject
to adjustment) of one share of Preferred Stock (as hereinafter defined), upon the terms and subject
to the conditions herein set forth, and has further authorized and directed the issuance of one
Right (subject to adjustment as provided herein) with respect to each share of Common Stock that
shall be issued and become outstanding from and after the Record Date and prior to the earlier of
the Distribution Date and the Expiration Date (as such terms are hereinafter defined);
provided, however, that Rights may be issued with respect to shares of Common Stock
that shall be issued and become outstanding after the Distribution Date and prior to the Expiration
Date in accordance with Section 22.

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

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

(a) “Acquiring Person” shall mean any Person (as such term is hereinafter defined) who
or which shall be the Beneficial Owner (as such term is hereinafter defined) of 20% or more of the
shares of Common Stock then outstanding, but shall not include an Exempt Person (as such term is
hereinafter defined); provided, however, that (A) if the Board of Directors of the
Company determines in good faith that a Person who otherwise would be an “Acquiring Person”
inadvertently became the Beneficial Owner of a number of shares of Common Stock such that the
Person otherwise would qualify as an “Acquiring Person” (including, without limitation, because (x)
such Person was unaware that it beneficially owned a percentage of Common Stock that otherwise
would cause such Person to be an “Acquiring Person” or (y) such Person was aware of the extent of
its Beneficial Ownership of Common Stock but had no actual knowledge of the consequences of such
Beneficial Ownership under this Agreement) and without any plan or intention of changing or
influencing control of the Company, then such Person shall not be deemed to be or to have become an
“Acquiring Person” for any purposes of this Agreement unless and until such Person shall have
failed to divest itself, as soon as practicable (as determined, in good faith, by the Board of
Directors of the Company), of Beneficial Ownership of a sufficient number of shares of Common Stock
so that such Person would no longer otherwise qualify as an “Acquiring Person”; (B) if, as of the
date hereof or prior to the first public announcement of the adoption of this Agreement, any Person
is or becomes the Beneficial Owner of 20% or more of the shares of Common Stock outstanding, such
Person shall not be deemed to be or to become an “Acquiring Person” unless and until such time as
such Person shall, after the first public announcement of the adoption of this Agreement, become
the Beneficial Owner of one additional share of Common

 

1

 

Stock (other than pursuant to a dividend or
distribution paid or made by the Company in respect of all outstanding shares of Common Stock
or pursuant to a split or subdivision in respect of all outstanding shares of Common Stock),
unless, upon becoming the Beneficial Owner of such one additional share of Common Stock, such
Person is not then the Beneficial Owner of 20% or more of the shares of Common Stock then
outstanding; and (C) no Person shall become an “Acquiring Person” as the result of an acquisition
of shares of Common Stock by the Company which, by reducing the total number of shares of Common
Stock outstanding, increases the proportionate number of shares of Common Stock beneficially owned
by such Person to 20% or more of the shares of Common Stock then outstanding; provided,
however, that if a Person shall become the Beneficial Owner of 20% or more of the shares of
Common Stock then outstanding by reason of such share acquisitions by the Company and thereafter
shall become the Beneficial Owner of any additional shares of Common Stock (other than pursuant to
a dividend or distribution paid or made by the Company in respect of all outstanding shares of
Common Stock or pursuant to a split or subdivision in respect of all outstanding shares of Common
Stock), then such Person shall be deemed to be an “Acquiring Person” unless upon becoming the
Beneficial Owner of such additional shares of Common Stock such Person does not beneficially own
20% or more of the shares of Common Stock then outstanding. For all purposes of this Agreement, any
calculation of the number of shares of Common Stock outstanding at any particular time, including
for purposes of determining the particular percentage of such outstanding shares of Common Stock of
which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”).

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

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

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

(ii) which such Person or any of such Person’s Affiliates or Associates has (A) the right to
acquire (whether such right is exercisable immediately or only after the passage of time or the
occurrence of an event, or both) pursuant to any agreement, arrangement, or understanding (other
than customary agreements with and between underwriters and selling group members with respect to a
bona fide public offering of securities), or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; provided, however, that a Person
shall not be deemed the Beneficial Owner of, or to beneficially own, (x) securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person’s
Affiliates or Associates until such tendered securities are accepted for purchase, (y) securities
which such Person has a right to acquire upon the exercise of Rights at any time prior to the time
that any Person becomes an Acquiring Person or (z) securities issuable upon the exercise of Rights
from and after the time that any Person becomes an Acquiring Person if such

 

2

 

Rights were acquired by such Person or any of such Person’s Affiliates or Associates prior to
the Distribution Date or pursuant to Section 3(a) or Section 22 hereof (“Original Rights”)
or pursuant to Section 11(i) or Section 11(n) with respect to an adjustment to Original Rights; or
(B) the right to vote pursuant to any agreement, arrangement, or understanding; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own,
any security by reason of such agreement, arrangement, or understanding if the agreement
arrangement, or understanding to vote such security (1) arises solely from a revocable proxy or
consent given to such Person in response to a proxy or consent solicitation made to all holders of
Common Stock pursuant to, and in accordance with, the applicable rules and regulations promulgated
under the Exchange Act (including, without limitation, Regulation 14A under the Exchange Act) and
(2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or

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

provided, however, that no Person who is an officer, director, or employee of an
Exempt Person shall be deemed, solely by reason of such Person’s status or authority as such, to be
the “Beneficial Owner” of, to have “Beneficial Ownership” of or to
“beneficially own” any securities that are “beneficially owned” (as defined in this
Section 1(c)), including, without limitation, in a fiduciary capacity, by an Exempt Person or by
any other such officer, director, or employee of an Exempt Person.

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

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

(f) “Common Stock” when used with reference to the Company shall mean the Common
Stock, presently par value $.01 per share, of the Company. “Common Stock” when used with reference
to any Person other than the Company shall mean the common stock (or, in the case of an
unincorporated entity, the equivalent equity interest) with the greatest voting power of such other
Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which
ultimately control such first-mentioned Person.

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

 

3

 

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

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

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

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

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

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

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

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

(p) “NASDAQ” shall mean The NASDAQ Stock Market.

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

(r) “Permitted Offer” shall mean a tender offer or an exchange offer for all
outstanding shares of Common Stock of the Company conducted in accordance with Regulations 14D and
14E promulgated under the Exchange Act at a price and on terms determined, prior to the time the
Person making the offer or any Affiliate or Associate thereof is an Acquiring Person, by a majority
of the members of the Board of Directors who are not, and are not representatives, nominees,
Affiliates or Associates of, an Acquiring Person or the person making the offer, after receiving
advice from outside legal counsel and one or more investment banking firms, to be (a) at a price
that is fair, from a financial point of view, to the Company’s non-Affiliate stockholders (taking
into account all factors that such members of the Board deem relevant including, without
limitation, the availability of financing to pay for all shares validly tendered and not withdrawn
in the tender offer, the value of any securities being offered for exchange in the exchange offer,
the conditions to the tender offer or exchange offer, the prices that reasonably could be achieved
if the Company or its assets were sold on an orderly basis designed to realize current maximum
value and the reputation of the Person making the tender offer or exchange offer and the
reputation of its Affiliates and Associates) and (b) on overall terms otherwise advisable, fair to,
and in the best interests of the Company and its stockholders.

 

4

 

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

(t) “Preferred Stock” shall mean the Series A Junior Participating Preferred Stock,
par value $.01 per share, of the Company having the rights and preferences set forth in the Form of
Certificate of Designation attached to this Agreement as Exhibit A.

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

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

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

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

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

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

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

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

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

(dd) “Stockholder Approval” shall mean the approval of this Agreement by the
affirmative vote of the holders of a majority of the shares of Common Stock of the Company entitled
to vote and that are present, or represented by proxy, and are voted on the proposal to approve
this Agreement, at a meeting of stockholders of the Company duly held in accordance with applicable
law.

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

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

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

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

 

5

 

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

Section 3. Issue of Right Certificates.

(a) Until the Close of Business on the earlier to occur of (i) the tenth (10th) day
(or, if such Stock Acquisition Date results from the commencement of a Permitted Offer, such later
date as may be determined by action of a majority of the Board before the Distribution Date occurs,
as set forth below), after the Stock Acquisition Date or (ii) the tenth (10th) Business
Day (or such later date as may be determined by action of the Board of Directors of the Company
prior to such time as any Person becomes an Acquiring Person) after the date of the commencement by
any Person (other than an Exempt Person) of, or of the first public announcement of the intention
of such Person (other than an Exempt Person) to commence, a tender offer or exchange offer the
consummation of which would result in any Person (other than an Exempt Person) becoming the
Beneficial Owner of shares of Common Stock aggregating 20% or more of the Common Stock then
outstanding, other than a tender offer or exchange offer that is determined by action of a majority
of the Board before the Distribution Date occurs to be a Permitted Offer (the earlier of such dates
being herein referred to as the “Distribution Date”, provided, however,
that if either of such dates occurs after the date of this Agreement and on or prior to the Record
Date, then the Distribution Date shall be the Record Date), (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates for Common Stock registered
in the names of the holders thereof and not by separate Right Certificates, and (y) the Rights will
be transferable only in connection with the transfer of Common Stock. As soon as practicable after
the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign and
the Company will send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common Stock as of the close
of business on the Distribution Date (other than any Acquiring Person or any Associate or Affiliate
of an Acquiring Person), at the address of such holder shown on the records of the Company, a Right
Certificate, in substantially the form of Exhibit B hereto (a “Right Certificate”),
evidencing one Right (subject to adjustment as provided herein) for each share of Common Stock so
held. As of the Distribution Date, the Rights will be evidenced solely by such Right Certificates.

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

 

6

 

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

THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN
RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN KONA GRILL, INC. (THE
“COMPANY”) AND CONTINENTAL STOCK TRANSFER & TRUST COMPANY, AS RIGHTS AGENT,
DATED AS OF MAY 27, 2008, AND AS AMENDED FROM TIME TO TIME (THE “RIGHTS
AGREEMENT”), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE
AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
COMPANY. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT,
SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE
EVIDENCED BY THIS CERTIFICATE. THE COMPANY WILL MAIL TO THE HOLDER OF THIS
CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER RECEIPT OF A
WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE
RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR
BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN
TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE
TRANSFERABLE.

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

 

7

 

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

Section 4. Form of Right Certificates. The Right Certificates (and the forms of
election to purchase shares and of assignment to be printed on the reverse thereof) shall be
substantially in the form set forth in Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries, or endorsements printed thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or
as may be required to comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or interdealer quotation system on
which the Rights may from time to time be listed or quoted, or to conform to usage. Subject to the
provisions of this Agreement, the Right Certificates shall entitle the holders thereof to purchase
such number of one one-thousandth of a share of Preferred Stock as shall be set forth therein at
the Purchase Price, but the number of such one one-thousandth of a share of Preferred Stock and the
Purchase Price shall be subject to adjustment as provided herein.

Section 5. Countersignature and Registration.

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

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

 

8

 

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

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

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

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

(a) Except as otherwise provided herein, the Rights shall become exercisable on the
Distribution Date, and thereafter the registered holder of any Right Certificate may, subject to
Section 11(a)(ii) hereof and except as otherwise provided herein, exercise the Rights evidenced
thereby in whole or in part upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the office or agency of
the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price
with respect to the total number of one one-thousandth of a share of Preferred Stock (or other
securities, cash or other assets, as the case may be) as to which the Rights are exercised, at any
time which is both after the Distribution Date and prior to the time (the “Expiration
Date”) that is the earliest of (i) the Close of Business on the Final Expiration Date, (ii) the
time at which the Rights are redeemed as provided in Section 23 hereof (the “Redemption
Date”) or (iii) the time at which such Rights are exchanged as provided in Section 24 hereof.
The “Final Expiration Date” shall mean the earlier of (x) May 28, 2011 or (y) May 31, 2009, if the
Stockholder Approval shall not have been obtained prior to May 31, 2009.

 

9

 

(b) The Purchase Price shall be initially $55.00 for each one one-thousandth of a share of
Preferred Stock purchasable upon the exercise of a Right. The Purchase Price and the number of one
one-thousandth of a share of Preferred Stock or other securities or property to be acquired upon
exercise of a Right shall be subject to adjustment from time to time as provided in Sections 11 and
13 hereof and shall be payable in lawful money of the United States of America in accordance with
paragraph (c) of this Section 7.

(c) Except as otherwise provided herein, upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of
the aggregate Purchase Price for the shares of Preferred Stock to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such Right Certificate in
accordance with Section 9 hereof, in cash or by certified check, cashier’s check, or money order
payable to the order of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition
from any transfer agent of the Preferred Stock, or make available if the Rights Agent is the
transfer agent for the Preferred Stock, certificates for the number of shares of Preferred Stock to
be purchased, and the Company hereby irrevocably authorizes its transfer agent to comply with all
such requests, or (B) requisition from a depositary agent appointed by the Company depositary
receipts representing interests in such number of one one-thousandth of a share of Preferred Stock
as are to be purchased (in which case certificates for the Preferred Stock represented by such
receipts shall be deposited by the transfer agent with the depositary agent), and the Company
hereby directs any such depositary agent to comply with such request, (ii) when appropriate,
requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14 hereof, (iii) promptly after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the registered holder
of such Right Certificate, registered in such name or names as may be designated by such holder,
and (iv) when appropriate, after receipt, promptly deliver such cash to or upon the order of the
registered holder of such Right Certificate.

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

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

 

10

 

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

Section 9. Availability of Shares of Preferred Stock.

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

(b) So long as the shares of Preferred Stock issuable upon the exercise of Rights may be
listed or admitted to unlisted trading privileges on any national securities exchange, including
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 unlisted
trading privileges on such exchange, or quoted on NASDAQ, upon official notice of issuance upon
such exercise.

(c) From and after such time as the Rights become exercisable, the Company shall use its best
efforts, if then necessary to permit the issuance of shares of Preferred Stock upon the exercise of
Rights, to register and qualify such shares of Preferred Stock under the Securities Act and any
applicable state securities or “Blue Sky” laws (to the extent exemptions therefrom are not
available), cause such registration statement and qualifications to become effective as soon as
possible after such filing and keep such registration and qualifications effective (with a
prospectus at all times meeting the requirements of the Securities Act) until the earlier of the
date as of which the Rights are no longer exercisable for such securities and the Expiration Date.

(d) 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 issue
a public announcement stating that the exercisability of the Rights has been temporarily suspended,
as well as a public announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be
exercisable in any jurisdiction unless the requisite qualification in such jurisdiction shall have
been obtained and until a registration statement under the Securities Act shall have been declared
effective, unless an exemption therefrom is available.

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

 

11

 

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

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

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

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

 

12

 

(ii) Subject to Sections 23 and 24 of this Agreement, in the event any Person becomes an
Acquiring Person unless the event causing such Person to become an Acquiring Person is (x) any
transaction set forth in Section 13(a) hereof or (y) an acquisition of Common Stock pursuant to a
Permitted Offer; provided, however, this clause (y) shall cease to apply if such
Acquiring Person thereafter becomes the Beneficial Owner of any additional shares of Common Stock
other than pursuant to a Permitted Offer or a transaction set forth in Section 13(a) or 13(b)
hereof (the first occurrence of such event being referred to hereinafter as the “Flip-In
Event”), then (A) the Purchase Price shall be adjusted to be the Purchase Price in effect
immediately prior to the Flip-In Event multiplied by the number of one one-thousandth of a share of
Preferred Stock for which a Right was exercisable immediately prior to such Flip-In Event, whether
or not such Right was then exercisable, and (B) each holder of a Right, except as otherwise
provided in this Section 11(a)(ii) and Section 11(a)(iii) hereof, shall thereafter have the right
to receive, upon exercise thereof at a price equal to the Purchase Price (as so adjusted), in
accordance with the terms of this Agreement and in lieu of shares of Preferred Stock, such number
of shares of Common Stock as shall equal the result obtained by dividing the Purchase Price (as so
adjusted) by 50% of the current per share market price of the Common Stock (determined pursuant to
Section 11(d) hereof) on the date of such Flip-In Event; provided, however, that
the Purchase Price (as so adjusted) and the number of shares of Common Stock so receivable upon
exercise of a Right shall, following the Flip-In Event, be subject to further adjustment as
appropriate in accordance with Section 11(f) hereof. Notwithstanding anything in this Agreement to
the contrary, however, from and after the Flip-In Event, any Rights that are beneficially owned by
(x) any Acquiring Person (or any Affiliate or Associate of any Acquiring Person), (y) a transferee
of any Acquiring Person (or any such Affiliate or Associate) who becomes a transferee after the
Flip-In Event, or (z) a transferee of any Acquiring Person (or any such Affiliate or Associate) who
became a transferee prior to or concurrently with the Flip-In Event pursuant to either (I) a
transfer from the Acquiring Person to holders of its equity securities or to any Person with whom
it has any continuing agreement, arrangement, or understanding regarding the transferred Rights or
(II) a transfer which the Board of Directors of the Company has determined is part of a plan,
arrangement, or understanding which has the purpose or effect of avoiding the provisions of this
paragraph, and subsequent transferees of such Persons, shall be void without any further action and
any holder of such Rights shall thereafter have no rights whatsoever with respect to such Rights
under any provision of this Agreement. The Company shall use all reasonable efforts to ensure that
the provisions of this Section 11(a)(ii) are complied with, but shall have no liability to any
holder of Right Certificates or other Person as a result of its failure to make any determinations
with respect to an Acquiring Person or its Affiliates, Associates, or transferees hereunder. From
and after the Flip-In Event, no Right Certificate shall be issued pursuant to Section 3 or Section
6 hereof that represents Rights that are or have become void pursuant to the provisions of this
paragraph, and any Right Certificate delivered to the Rights Agent that represents Rights that are
or have become void pursuant to the provisions of this paragraph shall be canceled. From and after
the occurrence of an event specified in Section 13(a) hereof, any Rights that theretofore have not
been exercised pursuant to
this Section 11(a)(ii) shall thereafter be exercisable only in accordance with Section 13 and
not pursuant to this Section 11(a)(ii).

 

13

 

(iii) The Company may at its option substitute for a share of Common Stock issuable upon the
exercise of Rights in accordance with the foregoing subparagraph (ii) a number of shares of
Preferred Stock or fraction thereof such that the current per share market price of one share of
Preferred Stock multiplied by such number or fraction is equal to the current per share market
price of one share of Common Stock. In the event that there shall not be sufficient shares of
Common Stock issued but not outstanding or authorized but unissued to permit the exercise in full
of the Rights in accordance with the foregoing subparagraph (ii), the Board of Directors of the
Company shall, with respect to such deficiency, to the extent permitted by applicable law and any
material agreements then in effect to which the Company is a party, (A) determine the excess (such
excess, the “Spread”) of (1) the value of the shares of Common Stock issuable upon the
exercise of a Right in accordance with the foregoing subparagraph (ii) (the “Current
Value”) over (2) the Purchase Price (as adjusted in accordance with the foregoing subparagraph
(ii)), and (B) with respect to each Right (other than Rights which have become void pursuant to the
foregoing subparagraph (ii)), make adequate provision to substitute for the shares of Common Stock
issuable in accordance with the foregoing subparagraph (ii) upon exercise of the Right and payment
of the Purchase Price (as adjusted in accordance therewith), (1) cash, (2) a reduction in such
Purchase Price, (3) shares of Preferred Stock or other equity securities of the Company (including,
without limitation, shares or fractions of shares of Preferred stock which, by virtue of having
dividend, voting, and liquidation rights substantially comparable to those of the shares of Common
Stock, are deemed in good faith by the Board of Directors of the Company to have substantially the
same value as the shares of Common Stock (such shares of Preferred Stock and shares or fractions of
shares of Preferred Stock are hereinafter referred to as “Common Stock Equivalents”)), (4)
debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having a
value which, when added to the value of the shares of Common Stock issued upon exercise of such
Right, shall have an aggregate value equal to the Current Value (less the amount of any reduction
in such Purchase Price), where such aggregate value has been determined by the Board of Directors
of the Company upon the advice of a nationally recognized investment banking firm selected in good
faith by the Board of Directors of the Company; provided, however, that if the
Company shall not make adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the Flip-In Event (the date of the Flip-In Event being the “Section
11(a)(ii) Trigger Date”), then the Company shall be obligated to deliver, to the extent
permitted by applicable law and any material agreements then in effect to which the Company is a
party, upon the surrender for exercise of a Right and without requiring payment of such Purchase
Price, shares of Common Stock (to the extent available), and then, if necessary, such number or
fractions of shares of Preferred Stock (to the extent available) and then, if necessary, cash,
which shares and/or cash have an aggregate value equal to the Spread. If, upon the occurrence of
the Flip-In Event, the Board of Directors of the Company shall determine in good faith that it is
likely that sufficient additional shares of Common Stock could be authorized for issuance upon
exercise in full of the Rights, then, if the Board of Directors of the Company so elects, the
thirty (30) day period set forth above may be extended to the extent necessary, but not more than
ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek
stockholder approval for the authorization of such additional shares (such thirty (30) day period,
as it may be extended,

 

14

 

is herein called the “Substitution Period”). To the extent that the Company determines
that some action need be taken pursuant to the second and/or third sentence of this Section
11(a)(iii), the Company (x) shall provide, subject to Section 11(a)(ii) hereof and the last
sentence of this Section 11(a)(iii) hereof, that such action shall apply uniformly to all
outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of
the Substitution Period in order to seek any authorization of additional shares and/or to decide
the appropriate form of distribution to be made pursuant to such second sentence and to determine
the value thereof. In the event of any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily suspended, as well
as a public announcement at such time as the suspension is no longer in effect. For purposes of
this Section 11(a)(iii), the value of the shares of Common Stock shall be the current per share
market price (as determined pursuant to Section 11(d)(i)) on the Section 11(a)(ii) Trigger Date and
the per share or fractional value of any “Common Stock Equivalent” shall be deemed to equal
the current per share market price of the Common Stock. The Board of Directors of the Company may,
but shall not be required to, establish procedures to allocate the right to receive shares of
Common Stock upon the exercise of the Rights among holders of Rights pursuant to this Section
11(a)(iii).

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

 

15

 

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

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

 

16

 

(ii) For the purpose of any computation hereunder, if the Preferred Stock is publicly traded,
the “current per share market price” of the Preferred Stock shall be determined in accordance with
the method set forth in Section 11(d)(i). If the Preferred Stock is not publicly traded but the
Common Stock is publicly traded, the “current per share market price” of the Preferred Stock shall
be conclusively deemed to be the current per share market price of the Common Stock as determined
pursuant to Section 11(d)(i) multiplied by the then applicable Adjustment Number (as defined in and
determined in accordance with the Certificate of Designation for the Preferred Stock). If neither
the Common Stock nor the Preferred Stock is publicly traded, “current per share market price” shall
mean the fair value per share as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights Agent.

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

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

(g) All Rights originally issued by the Company subsequent to any adjustment made to the
Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the
number of one one-thousandth of a share of Preferred Stock purchasable from time to time hereunder
upon exercise of the Rights, all subject to further adjustment as provided herein.

 

17

 

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

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

(j) Irrespective of any adjustment or change in the Purchase Price or the number of one
one-thousandth of a share of Preferred Stock issuable upon the exercise of a Right, the Right
Certificates theretofore and thereafter issued may continue to express the Purchase Price and the
number of one one-thousandth of a share of Preferred Stock which were expressed in the initial
Right Certificates issued hereunder.

(k) Before taking any action that would cause an adjustment reducing the Purchase Price below
the then par value, if any, of the fraction of Preferred Stock or other shares of capital stock
issuable upon exercise of a Right, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of Preferred Stock or other such shares
at such adjusted Purchase Price.

 

18

 

(l) In any case in which this Section 11 shall require that an adjustment in the Purchase
Price be made effective as of a record date for a specified event, the Company may elect to defer
until the occurrence of such event issuing to the holder of any Right exercised after such record
date the Preferred Stock and other capital stock or securities of the Company, if any, issuable
upon such exercise over and above the Preferred Stock and other capital stock or securities of the
Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to
such adjustment; provided, however, that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder’s right to receive such additional
shares upon the occurrence of the event requiring such adjustment.

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

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

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

 

19

 

Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an
adjustment is made as provided in Section 11 or 13 hereof, the Company shall promptly (a) prepare a
certificate setting forth such adjustment, and a brief statement of the facts accounting for such
adjustment, (b) file with the Rights Agent and with each transfer agent for the Common Stock and
the Preferred Stock a copy of such certificate and (c) mail a brief summary thereof to each holder
of a Right Certificate in accordance with Section 25 hereof (if so required under Section 25
hereof). The Rights Agent shall be fully protected in relying on any such certificate and on any
adjustment therein contained and shall not be deemed to have knowledge of any such adjustment
unless and until it shall have received such certificate.

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

(a) In the event, directly or indirectly, at any time after the Flip-In Event (i) the Company
shall consolidate with or shall merge into any other Person, (ii) any Person shall merge with and
into the Company and the Company shall be the continuing or surviving corporation of such merger
and, in connection with such merger, all or part of the Common Stock shall be changed into or
exchanged for stock or other securities of any other Person (or of the Company) or cash or any
other property, or (iii) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning
power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person (other than the Company or one or more wholly owned
Subsidiaries of the Company), then upon the first occurrence of such event, proper provision shall
be made so that: (A) each holder of a Right (other than Rights which have become void pursuant to
Section 11(a)(ii) hereof) shall thereafter have the right to receive, upon the exercise thereof at
the Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii) hereof), in
accordance with the terms of this Agreement and in lieu of shares of Preferred Stock or Common
Stock of the Company, such number of validly authorized and issued, fully paid, non-assessable and
freely tradable shares of Common Stock of the Principal Party (as such term is hereinafter
defined), not subject to any liens, encumbrances, rights of first refusal, or other adverse claims,
as shall equal the result obtained by dividing the Purchase Price (as theretofore adjusted in
accordance with Section 11(a)(ii) hereof) by 50% of the current per share market price of the
Common Stock of such Principal Party (determined pursuant to Section 11(d) hereof) on the date of
consummation of such consolidation, merger, sale, or transfer; provided, however,
that the Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii) hereof) and
the number of shares of Common Stock of such Principal Party so receivable upon exercise of a Right
shall be subject to further adjustment as appropriate in accordance with Section 11(f) hereof to
reflect any events occurring in respect of the Common Stock of such Principal Party after the
occurrence of such consolidation, merger, sale, or transfer; (B) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale, or
transfer, all the obligations and duties of the Company pursuant to this Agreement; (C) the term
“Company” shall thereafter be deemed to refer to such Principal Party; and (D) such Principal Party
shall take such steps (including, but not limited to, the reservation of a sufficient number of its
shares of Common Stock in accordance with Section 9 hereof) in connection with such consummation of
any such transaction as may be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be,

 

20

 

 in relation to the shares of its Common Stock thereafter deliverable upon the exercise of the
Rights; provided that, upon the subsequent occurrence of any consolidation, merger, sale, or
transfer of assets or other extraordinary transaction in respect of such Principal Party, each
holder of a Right shall thereupon be entitled to receive, upon exercise of a Right and payment of
the Purchase Price as provided in this Section 13(a), such cash, shares, rights, warrants, and
other property which such holder would have been entitled to receive had such holder, at the time
of such transaction, owned the Common Stock of the Principal Party receivable upon the exercise of
a Right pursuant to this Section 13(a), and such Principal Party shall take such steps (including,
but not limited to, reservation of shares of stock) as may be necessary to permit the subsequent
exercise of the Rights in accordance with the terms hereof for such cash, shares, rights, warrants,
and other property.

(b) “Principal Party” shall mean:

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

(ii) in the case of any transaction described in (iii) of the first sentence of Section 13(a)
hereof, the Person that is the party receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions, or, if each Person that is a party to
such transaction or transactions receives the same portion of the assets or earning power so
transferred or if the Person receiving the greatest portion of the assets or earning power cannot
be determined, whichever of such Persons is the issuer of Common Stock having the greatest
aggregate market value of shares outstanding;

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

 

21

 

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

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

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

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

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

(d) In case the Principal Party has a provision in any of its authorized securities or in its
certificate of incorporation or by-laws or other instrument governing its affairs, which provision
would have the effect of (i) causing such Principal Party to issue (other than to holders of Rights
pursuant to this Section 13), in connection with, or as a consequence of, the consummation of a
transaction referred to in this Section 13, shares of Common Stock or Common Stock Equivalents of
such Principal Party at less than the then current market price per share thereof (determined
pursuant to Section 11(d) hereof) or securities exercisable for, or convertible into,

 

22

 

 Common Stock or Common Stock Equivalents of such Principal Party at less
than such then current market price, or (ii) providing for any special payment, tax, or
similar provision in connection with the issuance of the Common Stock of such Principal Party
pursuant to the provisions of Section 13, then, in such event, the Company hereby agrees with each
holder of Rights that it shall not consummate any such transaction unless prior thereto the Company
and such Principal Party shall have executed and delivered to the Rights Agent a supplemental
agreement providing that the provision in question of such Principal Party shall have been
canceled, waived, or amended, or that the authorized securities shall be redeemed, so that the
applicable provision will have no effect in connection with, or as a consequence of, the
consummation of the proposed transaction.

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

(f) Notwithstanding anything in this Agreement to the contrary, Section 13 shall not be
applicable to a transaction described in Section 13(a)(i) and (ii) if (1) such transaction is
consummated with a Person or Persons who acquired shares of Common Stock of the Company pursuant to
a Permitted Offer (or a wholly owned subsidiary of any such Person or Persons), (2) the price per
share of Common Stock offered in such transaction is not less than the price per share of Common
Stock paid to all holders of shares of Common Stock whose shares were purchased pursuant to such
Permitted Offer, and (3) the form of consideration being offered to the remaining holders of shares
of Common Stock pursuant to such transaction is the same as the form of consideration paid pursuant
to such Permitted Offer. Upon consummation of any such transaction contemplated by this Section
13(f), all Rights hereunder shall expire.

Section 14. Fractional Rights and Fractional Shares.

(a) The Company shall not be required to issue fractions of Rights (except prior to the
Distribution Date in accordance with Section 11(n) hereof) or to distribute Right Certificates
which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the
registered holders of the Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the current market value of
a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right
shall be the closing price of the Rights for the Trading Day immediately prior to the date on which
such fractional Rights would have been otherwise issuable. The closing price for any day shall be
the last sale price, regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading
on the New York Stock Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or,

 

23

 

if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted, the average of the
high bid and low asked prices on NASDAQ or in the over-the-counter market, as reported by NASDAQ or
such other system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a professional market
maker making a market in the Rights selected by the Board of Directors of the Company. If on any
such date no such market maker is making a market in the Rights, the fair value of the Rights on
such date as determined in good faith by the Board of Directors of
the Company shall be used.

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

(c) The Company shall not be required to issue fractions of shares of Common Stock or to
distribute certificates which evidence fractional shares of Common Stock upon the exercise or
exchange of Rights. In lieu of such fractional shares of Common Stock, the Company shall pay to the
registered holders of the Right Certificates with regard to which such fractional shares of Common
Stock would otherwise be issuable an amount in cash equal to the same fraction of the current
market value of a whole share of Common Stock (as determined in accordance with Section 14(a)
hereof) for the Trading Day immediately prior to the date of such exercise or exchange.

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

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

 

24

 

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

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

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

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

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

 

25

 

Section 18. Concerning the Rights Agent.

(a) The Company agrees to pay to the Rights Agent reasonable compensation for all services
rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration and execution of
this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss, liability or expense,
incurred without gross negligence, bad faith, or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the costs and expenses of defending against any claim
of liability arising therefrom, directly or indirectly.

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

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

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

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

 

26

 

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

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

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

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

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

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

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

 

27

 

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

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

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

(j) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or
transfer, the certificate contained in the form of assignment or the form of election to purchase
set forth on the reverse thereof, as the case may be, has not been completed to certify the holder
is not an Acquiring Person (or an Affiliate or Associate thereof) or a transferee thereof, the
Rights Agent shall not take any further action with respect to such requested exercise or transfer
without first consulting with the Company.

 

28

 

Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may
resign and be discharged from its duties under this Agreement upon 30 days’ notice in writing
mailed to the Company and to each transfer agent of the Common Stock or Preferred Stock by
registered or certified mail, and, following the Distribution Date, to the holders of the Right
Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights
Agent upon 30 days’ notice in writing, mailed to the Rights Agent or successor Rights Agent, as the
case may be, and to each transfer agent of the Common Stock or Preferred Stock by registered or
certified mail, and, following the Distribution Date, to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or
shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights
Agent. If the Company shall fail to make such appointment within a period of 30 days after giving
notice of such removal or after it has been notified in writing of such resignation or incapacity
by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company), then the registered
holder of any Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or
by such a court, shall be a corporation organized and doing business under the laws of the United
States or the laws of any state of the United States or the District of Columbia, in good standing,
having an office in the State of New York, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or examination by federal or
state authority and which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to
the successor Rights Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the purpose. Not later than the
effective date of any such appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock or Preferred Stock, and,
following the Distribution Date, mail a notice thereof in writing to the registered holders of the
Right Certificates. Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may be.

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

 

29

 

Section 23. Redemption.

(a) The Board of Directors of the Company may, at any time prior to the Flip-In Event and the
Final Expiration Date, redeem all but not less than all the then outstanding Rights at a redemption
price of $.001 per Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring in respect of the Common Stock after the date
hereof (the redemption price being hereinafter referred to as the “Redemption Price”).
The redemption of the Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors of the Company in its sole discretion may establish. The
Redemption Price shall be payable, at the option of the Company, in cash, shares of Common Stock,
or such other form of consideration as the Board of Directors of the Company shall determine.

(b) Immediately upon the action of the Board of Directors of the Company ordering the
redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at such later time as the
Board of Directors of the Company may establish for the effectiveness of such redemption), and
without any further action and without any notice, the right to exercise the Rights will terminate
and the only right thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption; provided,
however, that the failure to give, or any defect in, any such notice shall not affect the
validity of such redemption. Within ten (10) days after such action of the Board of Directors of
the Company ordering the redemption of the Rights (or such later time as the Board of Directors of
the Company may establish for the effectiveness of such redemption), the Company shall mail a
notice of redemption to all the holders of the then outstanding Rights at their last addresses as
they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the notice. Each such
notice of redemption shall state the method by which the payment of the Redemption Price will be
made.

Section 24. Exchange.

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

 

30

 

(b) Immediately upon the effectiveness of the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24 and without any
further action and without any notice, the right to exercise such Rights shall
terminate and the only right thereafter of a holder of such Rights shall be to receive that
number of shares of Common Stock equal to the number of such Rights held by such holder multiplied
by the Exchange Ratio. The Company shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company shall promptly mail a notice of any such
exchange to all of the holders of the Rights so exchanged at their last addresses as they appear
upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the shares of Common Stock for Rights will
be effected and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other
than Rights which have become void pursuant to the provisions of Section 11(a)(ii) hereof) held by
each holder of Rights.

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

Section 25. Notice of Certain Events.

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

 

31

 

(b) In case any event described in Section 11(a)(ii) or Section 13 shall occur then the
Company shall as soon as practicable thereafter give to each holder of a Right Certificate (or if
occurring prior to the Distribution Date, the holders of the Common Stock) in accordance with
Section 26 hereof, a notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii) and Section 13
hereof.

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

Kona Grill, Inc.

7150 East Camelback Road

Suite 220

Scottsdale, AZ 85251

Attention: Secretary

Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement
to be given or made by the Company or by the holder of any 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:

Continental Stock Transfer & Trust Company

17 Battery Place, 8th floor

New York, NY 10004-1123

Attention: Compliance Department

Notices or demands authorized by this Agreement to be given or made by the Company or the Rights
Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Company.

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

 

32

 

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

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

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

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

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

 

33

 

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

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

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

34

 

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

	 	 	 	 	 
	 	KONA GRILL, INC., a Delaware corporation

 	 
	 	By:  	/s/ Marcus E. Jundt
 	 
	 	Name:  	Marcus E. Jundt 	 
	 	Title:  	Chief Executive Officer 	 
	 
	 	CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
as Rights Agent

 	 
	 	By:  	/s/ John A. Comer Jr.	 
	 	Name:  	John A. Comer Jr.	 
	 	Title:  	Vice President 	 
	 

 

35

 

Exhibit A

FORM OF

CERTIFICATE OF DESIGNATION

of

SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

of

KONA GRILL, INC.

Pursuant to Section 151 of the General Corporation Law

of the State of Delaware

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

That pursuant to the authority vested in the Board of Directors of the Corporation (the “Board
of Directors”) in accordance with the provisions of the Certificate of Incorporation of the said
Corporation, the said Board of Directors on May 27, 2008 adopted the following resolution creating
a series of 10,000 shares of Preferred Stock designated as “Series A Junior Participating Preferred
Stock”:

RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of
the Certificate of Incorporation, a series of Preferred Stock, par
value $.01 per share, of the Corporation be and hereby is created,
and that the designation and number of shares thereof and the voting
and other powers, preferences and relative, participating, optional
or other rights of the shares of such series and the qualifications,
limitations and restrictions thereof are as follows:

Series A Junior Participating Preferred Stock

1. Designation and Amount. There shall be a series of Preferred Stock that shall be designated
as “Series A Junior Participating Preferred Stock,” and the number of shares constituting
such series shall be 10,000. Such number of shares may be increased or decreased by resolution of
the Board of Directors; provided, however, that no decrease shall reduce the number
of shares of Series A Junior Participating Preferred Stock to less than the number of shares then
issued and outstanding plus the number of shares issuable upon exercise of outstanding rights,
options, or warrants or upon conversion of outstanding securities issued by the Corporation.

 

A-1

 

2. Dividends and Distribution.

(A) Subject to the prior and superior rights of the holders of any shares of any class or
series of stock of the Corporation ranking prior and superior to the shares of Series A Junior
Participating Preferred Stock with respect to dividends, the holders of shares of Series A Junior
Participating Preferred Stock, in preference to the holders of shares of any class or series of
stock of the Corporation ranking junior to the Series A Junior Participating Preferred Stock in
respect thereof, shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends payable in cash on the last day
of March, June, September and December in each year (each such date being referred to herein as a
“Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series A Junior Participating Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00 or
(b) the Adjustment Number (as defined below) times the aggregate per share amount of all cash
dividends, and the Adjustment Number times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock, par value $.01 per share, of the Corporation (the “Common Stock”)
since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of
Series A Junior Participating Preferred Stock. The “Adjustment Number” shall initially be 1,000. In
the event the Corporation shall at any time after May 28, 2008 (i) declare and pay any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or
(iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying
such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.

(B) The Corporation shall declare a dividend or distribution on the Series A Junior
Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a
dividend or distribution on the Common Stock (other than a dividend payable in shares of Common
Stock).

(C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior
Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of
issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Junior Participating Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either
of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of
Series A Junior Participating Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination of holders of
shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend
or distribution declared thereon, which record date shall be no more than sixty (60) days prior to
the date fixed for the payment thereof.

 

A-2

 

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

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

(B) Except as required by law, by Section 3(C) and by Section 10 hereof, holders of Series A
Junior Participating Preferred Stock shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to vote with holders of Common Stock as set
forth herein) for taking any corporate action.

(C) If, at the time of any annual meeting of stockholders for the election of directors, the
equivalent of six (6) quarterly dividends (whether or not consecutive) payable on any share or
shares of Series A Junior Participating Preferred Stock are in default, the number of directors
constituting the Board of Directors of the Corporation shall be increased by two (2). In addition
to voting together with the holders of Common Stock for the election of other directors of the
Corporation, the holders of record of the Series A Junior Participating Preferred Stock, voting
separately as a class to the exclusion of the holders of Common Stock, shall be entitled at said
meeting of stockholders (and at each subsequent annual meeting of stockholders), unless all
dividends in arrears on the Series A Junior Participating Preferred Stock have been paid or
declared and set apart for payment prior thereto, to vote for the election of two (2) directors of
the Corporation, the holders of any Series A Junior Participating Preferred Stock being entitled to
cast a number of votes per share of Series A Junior Participating Preferred Stock as is specified
in paragraph (A) of this Section 3. Each such additional director shall not be a member of Class I,
Class II or Class III of the Board of Directors of the Corporation, but shall serve until the next
annual meeting of stockholders for the election of directors, or until his or her successor shall
be elected and shall qualify, or until his or her right to hold such office terminates pursuant to
the provisions of this Section 3(C). Until the default in payments of all dividends which
permitted the election of said directors shall cease to exist, any director who shall have been so
elected pursuant to the provisions of this Section 3(C) may be removed at any time, without cause,
only by the affirmative vote of the holders of the shares of Series A Junior Participating
Preferred Stock at the time entitled to cast a majority of the votes entitled to be cast for the
election of any such director at a special meeting of such holders called for that purpose, and any
vacancy thereby created may be filled by the vote of such holders. If and when such default shall
cease to exist, the holders of the Series A Junior Participating Preferred Stock shall be divested
of the foregoing special voting rights, subject to revesting in the event of each and every
subsequent like default in payments of dividends. Upon the termination of the foregoing special
voting rights, the terms of office of all persons who may have been elected directors pursuant to
said special voting rights shall forthwith terminate, and the number of directors constituting the
Board of Directors shall be reduced by two (2). The voting rights granted by this
Section 3(C) shall be in addition to any other voting rights granted to the holders of the
Series A Junior Participating Preferred Stock in this Section 3.

 

A-3

 

4. Certain Restrictions.

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

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

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

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

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

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

 

A-4

 

6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation, dissolution or winding up
of the Corporation, voluntary or otherwise, no distribution shall be made to the holders of shares
of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received
an amount per share (the “Series A Liquidation Preference”) equal to the greater of (i) $1.00 plus
an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, or (ii) the Adjustment Number times the per share amount of all cash
and other property to be distributed in respect of the Common Stock upon such liquidation,
dissolution or winding up of the Corporation.

(B) In the event, however, that there are not sufficient assets available to permit payment in
full of the Series A Liquidation Preference and the liquidation preferences of all other classes
and series of stock of the Corporation, if any, that rank on a parity with the Series A Junior
Participating Preferred Stock in respect thereof, then the assets available for such distribution
shall be distributed ratably to the holders of the Series A Junior Participating Preferred Stock
and the holders of such parity shares in proportion to their respective liquidation preferences.

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

7. Consolidation, Merger, Etc. In case the Corporation shall enter into any consolidation,
merger, combination or other transaction in which the outstanding shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other property, then in
any such case each share of Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to the Adjustment Number times the
aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or exchanged.

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

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

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

 

A-5

 

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

IN WITNESS WHEREOF, the undersigned has executed this Certificate this 27 day of May, 2008.

	 	 	 	 	 
	 	KONA GRILL, INC., a Delaware corporation

 	 
	 	By:  	 	 
	 	 	Marcus E. Jundt, Chief Executive Officer 	 
	 	 	 	 
	 

 

A-6

 

Exhibit B

Form of Right Certificate

Certificate No. R-                    

NOT EXERCISABLE AFTER THE FINAL EXPIRATION DATE OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION
AT $.001 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE
RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE
RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO
IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS
AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID
AND WILL NO LONGER BE TRANSFERABLE.

RIGHT CERTIFICATE

KONA GRILL, INC.

This certifies that                                          or registered assigns, is the registered owner of
the number of Rights set forth above, each of which entitles the owner thereof, subject to the
terms, provisions and conditions of the Rights Agreement, dated as of May 27, 2008, as the same may
be amended from time to time (the “Rights Agreement”), between Kona Grill, Inc., a Delaware
corporation (the “Company”), and Continental Stock Transfer & Trust Co., as Rights Agent (the
“Rights Agent”), to purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Agreement) and prior to 5:00 P.M., New York City time, on the earlier of
(a) May 28, 2011, or (b) May 31, 2009, if the Stockholder Approval shall not have been obtained
prior to May 31, 2009 at the office or agency of the Rights Agent designated for such purpose, or
of its successor as Rights Agent, one one-thousandth of a fully paid non-assessable share of Series
A Junior Participating Preferred Stock, par value $.01 per share (the “Preferred Stock”), of the
Company at a purchase price of $55.00 per one one-thousandth of a share of Preferred Stock (the
“Purchase Price”), upon presentation and surrender of this Right Certificate with the Form of
Election to Purchase duly executed. The number of Rights evidenced by this Rights Certificate (and
the number of one one-thousandth of a share of Preferred Stock which may be purchased upon exercise
hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price
as of May 27, 2008, based on the Preferred Stock as constituted at such date. As provided in the
Rights Agreement, the Purchase Price, the number of one one-thousandth of a share of Preferred
Stock (or other securities or property) which may be purchased upon the exercise of the Rights and
the number of Rights evidenced by this Right Certificate are subject to modification and adjustment
upon the happening of certain events.

 

B-1

 

This Right Certificate is subject to all of the terms, provisions, and conditions of the
Rights Agreement, which terms, provisions, and conditions are hereby incorporated herein by
reference and made a part hereof and to which Rights Agreement reference is hereby made for a
full description of the rights, limitations of rights, obligations, duties, and immunities
hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the
Rights Agreement are on file at the principal executive offices of the Company and the
above-mentioned office or agency of the Rights Agent. The Company will mail to the holder of this
Right Certificate a copy of the Rights Agreement without charge after receipt of a written request
therefor.

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

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate
(i) may be redeemed by the Company at a redemption price of $.001 per Right or (ii) may be
exchanged in whole or in part for shares of the Company’s Common Stock, par value $.01 per share,
or shares of Preferred Stock.

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

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

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

 

B-2

 

WITNESS the facsimile signature of the proper officers of the Company and its corporate seal.
Dated as of May 28, 2008.

	 	 	 	 	 	 	 
	 	 	KONA GRILL, INC., a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 	 	 
	 

	 	Title:	 	 	 	 

ATTEST:

	 	 	 
	 

[Title]

	 	 

Countersigned:

CONTINENTAL STOCK TRANSFER & TRUST, as Rights Agent

	 	 	 	 	 
	By:
	 	 	 	 
	Name:

	 	 

	 	 
	Title:

	 	 

	 	 
	 

	 	 

	 	 

 

B-3

 

Form of Reverse Side of Right Certificate

FORM OF ASSIGNMENT

(To be executed by the registered holder if such

holder desires to transfer the Right Certificate)

FOR VALUE RECEIVED                                                               
                            
hereby sells, assigns and transfers unto

 

 

(Please print name and address of transferee)

                     Rights represented by this Right Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint                                         
Attorney, to transfer said Rights on the books of the within-named Company, with full power of
substitution.

	 	 	 	 	 
	Dated:
	 	 	 	 
	 

	 	 

	 	 

	 	 	 	 	 
	 

	 	 

Signature
	 	 

Signature Guaranteed:

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

 

(To be completed)

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

	 	 	 	 	 
	 

	 	 

Signature
	 	 

 

B-4

 

Form of Reverse Side of Right Certificate — continued

FORM OF ELECTION TO PURCHASE

(To be executed if holder desires to exercise

Rights represented by the Rights Certificate)

To KONA GRILL, INC.:

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

 

(Please print name and address)

 

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

Please insert social security

or other identifying number

 

(Please print name and address)

 

	 	 	 	 	 
	Dated:
	 	 	 	 
	 

	 	 

	 	 

	 	 	 	 	 
	 

	 	 

Signature
	 	 

(Signature must conform to holder specified on Right Certificate)

Signature Guaranteed:

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

 

B-5

 

Form of Reverse Side of Right Certificate — continued

 

(To be completed)

 

(To be completed)

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

	 	 	 	 	 
	 

	 	 

Signature
	 	 

 

NOTICE

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

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

 

B-6

 

Exhibit C

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

SUMMARY OF RIGHTS TO PURCHASE

SHARES OF PREFERRED STOCK OF

KONA GRILL, INC.

On May 27, 2008, the Board of Directors of Kona Grill, Inc. (the “Company”) declared a
dividend of one Preferred share purchase right (a “Right”) for each outstanding share of
common stock, par value $.01 per share, of the Company (the “Common Stock”). The dividend to
the stockholders of record on May 28, 2008 (the “Record Date”). Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a share of Series A
Junior Participating Preferred Stock, par value $.01 per share, of the Company (the
“Preferred Stock”) at a price of $55.00 per one one-thousandth of a share of Preferred Stock
(the “Purchase Price”), subject to adjustment. The description and terms of the Rights are
set forth in a Rights Agreement dated as of May 27, 2008, as the same may be amended from
time to time (the “Rights Agreement”), between the Company and Continental Stock Transfer &
Trust, as Rights Agent (the “Rights Agent”).

Until the earlier to occur of (i) ten (10) days following a public announcement that a person
or group of affiliated or associated persons (with certain exceptions, an “Acquiring Person”) has
acquired beneficial ownership of 20% or more of the outstanding shares of Common Stock or (ii) ten
(10) business days (or such later date as may be determined by action of the Board of Directors of
the Company prior to such time as any person or group of affiliated persons becomes an Acquiring
Person) following the commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial ownership by a person or
group of 20% or more of the outstanding shares of Common Stock (the earlier of such dates being
called the “Distribution Date”), the Rights will be evidenced, with respect to any of the Common
Stock certificates outstanding as of the Record Date, by such Common Stock certificate together
with this Summary of Rights.

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

 

C-1

 

The Rights are not exercisable until the Distribution Date. The Rights will expire on the
earliest of (a) the Close of Business on the Final Expiration Date, (b) the time at which the
Rights are redeemed as provided in Section 23 of the Rights Agreement (the “Redemption Date”) or
(c) the time at which such Rights are exchanged as provided in Section 24 of the Rights Agreement.
The “Final Expiration Date” shall mean the earlier of (x) May 28, 2011, or (y) May 31, 2009, if the
Stockholder Approval shall not have been obtained prior to May 31, 2009.

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

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

Shares of Preferred Stock issued upon exercise of the Rights would not be redeemable. Each
share of Preferred Stock, if so issued upon exercise, would be entitled, when, as and if declared,
to a minimum preferential quarterly dividend payment of the greater of (a) $1.00 per share and (b)
an amount equal to 1,000 times the dividend declared and payable in respect of one whole share of
Common Stock. In the event of any liquidation, dissolution or winding up of the Company, the
holders of the Preferred Stock would be entitled to a minimum preferential payment equal to the
greater of (a) $1.00 per share (plus all accrued but unpaid dividends thereon) and (b) an amount
equal to 1,000 times the payment made in respect of one whole share of Common Stock. Each issued
and outstanding share of Preferred Stock would have 1,000 votes, voting together with the Common
Stock. Finally, in the event of any merger, consolidation or other transaction in which outstanding
shares of Common Stock were converted or exchanged, each share of Preferred Stock would be entitled
to receive 1,000 times the amount received in respect of one whole share of Common Stock. These
rights are protected by customary anti-dilution provisions.

Because of the nature of the Preferred Stock’s dividend, liquidation, and voting rights
described above, the value of the 1/1000th interest in a share of Preferred Stock
purchasable upon exercise of each Right should and is intended to approximate the value of one
whole share of Common Stock.

 

C-2

 

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

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

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

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

At any time prior to the time an Acquiring Person becomes such, the Board of Directors of the
Company may redeem the Rights in whole, but not in part, at a price of $.001 per Right (the
“Redemption Price”) payable, at the option of the Company, in cash, shares of Common Stock or such
other form of consideration as the Board of Directors of the Company shall determine. The
redemption of the Rights may be made effective at such time, on such basis and with such conditions
as the Board of Directors of the Company in its sole discretion may establish. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.

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

 

C-3

 

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

A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as
an Exhibit to a Registration Statement on Form 8-A dated May 28, 2008. A copy of the Rights
Agreement is available free of charge from the Company. This summary description of the Rights does
not purport to be complete and is qualified in its entirety by reference to the Rights Agreement,
as the same may be amended from time to time, which is hereby incorporated herein by reference.

 

C-4

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