This memo is intended to clarify the mechanics of a typical Preferred Stock Rights Agreement ("Rights Plan" or "Plan") and the rationale supporting its adoption.

Background of the Rights Plan:

The basic objectives of the Rights Plan are to deter abusive takeover tactics by making them unacceptably expensive to the raider and to encourage prospective acquirers to negotiate with the board of directors of the target company rather than to attempt a hostile takeover.

A typical Plan includes a "flip-in" feature designed to deter creeping accumulations of the company's stock (see Section 11(a)(ii)). The "flip-in" feature is structured to be triggered upon a person acquiring at least ___________(*%) percent of the company's outstanding common stock ("*% Holding"). If triggered, the flip-in feature would give shareholders, other than the holder triggering the flip-in, the right to purchase shares of the company at a fifty (50%) percent discount to market price (thereby diluting the triggering shareholder's stock holdings). The Plan also has a "flip-over" feature, which provides shareholders protection against being forced to dispose of their equity interest in the company. The flip-over feature would give shareholders the right to purchase shares of the acquiring company at a fifty (50%) percent discount in the event of a freeze-out merger or similar transaction (thereby diluting the acquiring company).

In a typical Plan, the Rights issued under the Plan are redeemable for a nominal amount prior to the Distribution Date, as hereinafter defined. Thus, the effect of the Plan is to force potential acquirers to deal with the company's board of directors before acquiring shares in excess of the threshold level. This increases the negotiating power of the board.

A Rights Plan is designed not to interfere with the day-to-day operations of the company. Prior to its being activated by an acquisition of a large block of the company's shares, it has no effect on the company's balance sheet or income statement and it has no tax effect on the company or the shareholders. The company will still be able to split its stock, issue stock dividends and combine its stock without interference from the Plan. While the exercise price under the Plan would have to be adjusted in such transactions, it should not hinder public offerings of common stock or SEC clearance of pooling-of-interests mergers.

The efficacy of similar rights plans have made it a common feature among U.S. corporations. Over 2,000 companies have adopted a rights plan, including approximately 60% of the S&P 500 companies.

Rights plans are also now well established in case law and statutory law. Starting with the Delaware Supreme Court's 1985 decision in the Household case, upholding one of the first rights plans to be adopted, the Delaware courts and courts in other jurisdictions have widely recognized the legality and legitimate uses of a variety of rights plans. In each of the few jurisdictions in which a rights plan has been held invalid under the state's corporation law (because of the discriminatory flip-in feature), the state legislature has amended the corporation law to establish clearly the legality of the flip-in feature of the rights plan.

The Household case and subsequent case law establish that adoption of a plan does not change the fiduciary standards to be followed by a board of directors in responding to a takeover bid. In the event of a specific takeover bid, the Plan and its operation will have to be assessed in light of the response that the board decides is appropriate based on the advice at that time of the company's financial advisors and legal counsel. Much of the case law since Household has focused on how a board uses the rights plan in the face of a takeover bid. Some early Delaware Chancery Court cases suggested that a board would have an obligation to redeem a rights plan following an opportunity to search for alternatives where the bid offered a higher value than or was close in value to the identified alternatives. However, recent Delaware case law (e.g., the Delaware Supreme Court decisions in Paramount v. Times, QVC v. Paramount and Unitrin v. American General) supports the view that, where a board has not made a decision to sell the company, the board may "just say no" and refuse to redeem the rights if the board determines in its business judgment that the bid is not in the best interests of the shareholders and would interfere with the company's long-term business plans and strategy.

Mechanics of a Typical Rights Plan:

Following is a discussion of the mechanics of a typical rights plan which triggers upon a holder acquiring 15% or more of the company's outstanding stock. On the declaration date, the board will declare a dividend of one right per common share ("Right"). Each Right will represent the right to purchase at the designated purchase price, 1/1000th of a share of Series A Preferred Stock, each fraction having rights similar to one share of common stock.

The Rights initially trade with the Common Stock. The Rights may be redeemed by the board for $.001 at any time prior to the Distribution Date. On the Distribution Date the Rights are mailed to each holder and as of that date are traded separately. A Distribution Date occurs upon the earlier of (i) ten days after an acquirer acquires a 15% Holding, or (ii) ten days after a tender offer which may lead to a 15% Holding is announced. The ten day period prior to the Distribution Date is intended to be used by the board to discuss and negotiate with the potential acquirer and make its decision as to whether to redeem the Rights at a nominal price or to let the Rights become exercisable. After a person acquires a 15% Holding, that person's Rights, along with the Right's of any related or associated entity, are voided and can never be exercised.

After the Distribution Date, the Rights can be exercised by executing the election to do so and paying the exercise price. In return, the holder will receive, depending on the time of the exercise, (i) preferred stock, (ii) common stock of the company, or (iii) common stock of the acquirer.

If only a tender offer has occurred, but before a person acquires a 15% Holding, then in return for exercising each right, the holder will receive 1/1000th of a preferred share with rights similar to one share of common stock. The Right in this form will generally not be exercised due to the excessive exercise price.

If the Right is exercised after a person acquires a 15% Holding, whether through a tender offer or otherwise, then in return for exercising each Right, the holder will receive shares of the company's common stock with a value equal to twice the exercise price. For example, if the stock is trading at five ($5) dollars, and the exercise price is $25, the exercise of the Right will yield ten shares of common stock with a cumulative value of fifty ($50) dollars.

If the company is acquired in a merger or other business combination transaction, or 50% or more of the company's assets or earning power are sold, then in return for exercising each Right, the holder will receive shares of the acquiring company's common stock with a value equal to twice the exercise price. For example, if the stock of the acquiring company is trading at ten ($10) dollars, and the exercise price is $25, the exercise of the Right will yield five shares of common stock with a cumulative value of fifty ($50) dollars.

At any time after a person acquires a 15% Holding, but before the holding is increased to fifty (50%) percent, the board may, at its option, exchange each Right (not yet exercised) for one share of common stock. This exchange allows the company to effectively dilute the acquiring person=s holdings without any outlay of cash by either the company or the Rights holder.

Conclusion:

Takeover activity continues and the dynamics of such activities are constantly changing. While the Rights Plan decreases the potential of hostile takeover activity, it will not, and is not intended to, make the company takeover proof. The Rights Plan protects against takeover abuses, it gives all parties an increased period of time in which to make decisions on such a fundamentally important issue, and it strengthens the ability of the board to fulfill its fiduciary duties.

In establishing such a Plan, the board must use its business judgment twice, first in determining whether to enact such a Plan, and again when faced with a potential takeover. The board must use its business judgment to determine whether it is satisfied with the takeover, at which time it can redeem the Rights causing them to be nullified, or if it is not satisfied, then to leave the Rights in place to be exercised. In any event, the Rights are a mechanism to prompt the potential acquirer to negotiate with the board to arrive at a mutually satisfactory takeover price or plan.

Any person who has a question about this memorandum or its application to specific circumstances may obtain additional guidance by contacting this firm.