ELECTROGLAS INC
8-A12G, 1997-11-19
SPECIAL INDUSTRY MACHINERY, NEC
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<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON D.C.  20549


                                   FORM 8-A


               FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
                   PURSUANT TO SECTION 12(b) OR 12(g) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


                               ELECTROGLAS, INC.
            (Exact name of registrant as specified in its charter)

          DELAWARE                                       77-0336101
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                      Identification Number)

         2901 CORONADO DRIVE                             95054
       Santa Clara, California                         (Zip Code)
(Address of principal executive offices)

If this form relates to the                     If this form relates to the 
registration of a class of                      registration of a class of 
securities pursuant to                          securities pursuant to Section
Section 12(b) of the Exchange                   12(g) of the Exchange Act and 
Act and is effective pursuant to                is effective pursuant to 
General Instruction A.(c),                      General Instruction A.(d),
please check the following box.                 please check the following box.

            [ ]                                             [X]


Securities Act registration statement file number to which this form relates:
Not Applicable

Securities to be registered pursuant to Section 12(b) of the Act:

        Title of each class                  Name of each exchange on which
        to be so registered                  each class is to be registered
        -------------------                  ------------------------------
              None                                        None

Securities to be registered pursuant to Section 12(g) of the Act:

                         Common Stock Purchase Rights
                               (Title of class)
<PAGE>
 
ITEM 1.  Description of Registrant's Securities to Be Registered.
         -------------------------------------------------------

        On October 23, 1997, the Board of Directors of Electroglas, Inc. (the
"Company") authorized and declared a dividend distribution of one right (a
"Right") for each outstanding share of its Common Stock, par value $.001 per
share (the "Company Common Stock"), to stockholders of record at the close of
business on December 5, 1997 (the "Record Date"), and authorized the issuance
of one Right with each share of Company Common Stock issued (including shares
distributed from Treasury) by the Company thereafter between the Record Date and
the Distribution Date (as defined below). Each Right entitles the registered
holder, subject to the terms of the Rights Agreement (as defined below), to
purchase from the Company one one-hundredth of a share (a "Unit") of Series A
Preferred Stock, par value $.001 per share (the "Preferred Stock"), at a
purchase price of $140.00 per Unit, subject to adjustment. The purchase price is
payable in cash or by certified or bank check or money order payable to the
order of the Company. The description and terms of the Rights are set forth in a
Rights Agreement between the Company and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent, dated as of November 18, 1997, as amended from time to
time (the "Rights Agreement").

        The Rights Agreement
        --------------------

        Initially, the Rights will attach to all certificates representing
shares of outstanding Company Common Stock, and no separate Rights Certificates
will be distributed. The Rights will separate from the Company Common Stock and
the "Distribution Date" will occur upon the earlier of (i) ten business days
following a public announcement (the date of such announcement being the "Stock
Acquisition Date") that a person or group of affiliated or associated persons
has acquired or otherwise obtained beneficial ownership of 15% or more of the
then outstanding shares of Company Common Stock (an "Acquiring Person"), and
(ii) ten business days (or such later date as may be determined by action of the
Board of Directors prior to such time as any person becomes an Acquiring Person)
following the commencement of a tender offer or exchange offer that would result
in a person or group beneficially owning 15% or more of the then outstanding
shares of Company Common Stock. Until the Distribution Date, (i) the Rights will
be evidenced by Company Common Stock certificates and will be transferred with
and only with such Company Common Stock certificates, (ii) new Company Common
Stock certificates issued after the Record Date (also including shares
distributed from Treasury) will contain a notation incorporating the Rights
Agreement by reference and (iii) the surrender for transfer of any certificates
representing outstanding Company Common Stock will also constitute the transfer
of the Rights associated with the Company Common Stock represented by such
certificates.

        An "Acquiring Person" does not include (A) the Company; (B) any
Subsidiary of the Company; (C) any employee benefit plan maintained by the
Company or any of its Subsidiaries; (D) any trustee or fiduciary with respect to
such employee benefit plan acting in such capacity or a trustee or fiduciary
holding shares of Company Common 
<PAGE>
 
Stock for the purpose of funding any such plan or employee benefits; (E) any
Person if the Board of Directors of the Company determines in good faith that
such Person who would otherwise be an "Acquiring Person" became such
inadvertently (including, without limitation, because (x) such Person was
unaware that it beneficially owned a percentage of Company Common Stock that
would otherwise cause such Person to be an "Acquiring Person" or (y) such Person
was aware of the extent of its Beneficial Ownership of Company Common Stock but
had no actual knowledge of the consequences of such Beneficial Ownership under
this Agreement) and without any intention of changing or influencing control of
the Company, and if such Person does not acquire any additional shares of
Company Common Stock and as promptly as practicable divested or divests itself
of Beneficial Ownership of a sufficient number of shares of Company Common Stock
so that such Person would no longer be an "Acquiring Person;" or (F) any Person
who becomes the Beneficial Owner of 15% or more of the then outstanding shares
of Company Common Stock as a result of the acquisition of shares of Company
Common Stock directly from the Company in one or more transactions approved by a
majority of the Board of Directors, and (ii) no Person shall be deemed an
"Acquiring Person" as a result of the acquisition of shares of Company Common
Stock by the Company which, by reducing the number of shares of Company Common
Stock outstanding, increases the proportional number of shares beneficially
owned by such Person; provided, however, that if (A) a Person would become an
                      --------  -------
Acquiring Person (but for the operation of this subclause (ii)) as a result of
the acquisition of shares of Company Common Stock by the Company and (B) after
such share acquisition by the Company, such Person becomes the Beneficial Owner
of any additional shares of Company Common Stock, then such Person shall be
deemed an Acquiring Person unless upon becoming the Beneficial Owner of such
additional shares such Person is the Beneficial Owner of less than 15% of the
then outstanding shares of Company Common Stock.

        The Rights are not exercisable until the Distribution Date and will
expire at the close of business on the tenth anniversary of the Rights Agreement
unless earlier redeemed or exchanged by the Company as described below. Under
certain circumstances the exercisability of the Rights may be suspended. In no
event, however, will the Rights be exercisable prior to the expiration of the
period in which the Rights may be redeemed.

        As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Company Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights.

        In the event that a person becomes an Acquiring Person, then, in such
case, each holder of a Right will thereafter have the right to receive, upon
exercise, shares of Company Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a value equal to two times
the exercise price of the Right. The exercise price is the purchase price
multiplied by the number of Units of Preferred Stock issuable upon exercise of a
Right prior to the event described in this paragraph. 
<PAGE>
 
Notwithstanding any of the foregoing, following the occurrence of the event set
forth in this paragraph, all Rights that are, or (under certain circumstances
specified in the Rights Agreement) were, beneficially owned by any Acquiring
Person will be null and void.

        In the event that, at any time following the date that any person
becomes an Acquiring Person, (i) the Company is acquired in a merger or other
business combination transaction and the Company is not the surviving
corporation, (ii) any person merges with the Company and all or part of the
Company Common Stock is converted or exchanged for securities, cash or property
of the Company or any other person or (iii) 50% or more of the Company's assets
or earning power is sold or transferred, each holder of a Right (except Rights
which previously have been voided as described above) shall thereafter have the
right to receive, upon exercise, common stock of the Acquiring Person having a
value equal to two times the exercise price of the Right.

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

        With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments amount to at least 1% of the purchase
price. The Company is not required to issue fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-hundredth of a
share of Preferred Stock which may be evidenced by depositary receipts). In lieu
thereof, an adjustment in cash may be made based on the current market price of
a share of Preferred Stock on the day of exercise.

        At any time until ten business days following the Stock Acquisition
Date, a majority of the Board of Directors (including, following the date on
which there is an Acquiring Person, the majority of the Independent Directors)
may redeem the Rights in whole, but not in part, at a price of $.01 per Right
(subject to adjustment in certain events) (the "Redemption Price") payable, at
the election of the majority of the Board of Directors (including a majority of
the Independent Directors), in cash or shares of Company Common Stock.
Immediately upon the action of a majority of the Board of Directors (including,
following the date on which there is an Acquiring Person, a majority of the
Independent Directors) ordering the redemption of the Rights, the Rights will
terminate and the only right of the holders of Rights will be to receive the
Redemption Price.

        The Company may at any time after there is an Acquiring Person, by
action of a majority of the Board of Directors (including a majority of the
Independent Directors), 
<PAGE>
 
exchange all or part of the then outstanding and exercisable Rights (other than
Rights that shall have become null and void) for shares of Company Common Stock
pursuant to a one-for-one exchange ratio, as adjusted.

        Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Units of Preferred Stock (or other consideration).

        Any of the provisions of the Rights Agreement may be amended without the
approval of the holders of Company Common Stock at any time prior to the
Distribution Date. After the Distribution Date, the provisions of the Rights
Agreement may be amended in order to cure any ambiguity, defect or
inconsistency, to make changes which do not adversely affect the interests of
holders of Rights (excluding the interests of any Acquiring Person), or to
shorten or lengthen any time period under the Rights Agreement; provided,
                                                                --------
however, that no amendment to adjust (i) the time period governing redemption
- -------
shall be made at such time as the Rights are not redeemable or (ii) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the Rights of and/or benefiting, the holders of Rights. In
addition, after a person becomes an Acquiring Person, no amendment or supplement
may be made without the approval of a majority of the Board of Directors
(including a majority of the Independent Directors).

        Description of Preferred Stock
        ------------------------------

        The Units of Preferred Stock that may be acquired upon exercise of the
Rights will be nonredeemable and subordinate to any other shares of preferred
stock that may be issued by the Company.

        Each Unit of Preferred Stock will have a minimum preferential quarterly
dividend of $.01 per Unit or any higher per share dividend declared on the
Company Common Stock.

        In the event of liquidation, the holder of a Unit of Preferred Stock
will receive a preferred liquidation payment equal to the greater of $.01 per
Unit and the per share amount paid in respect of a share of the Company Common
Stock.

        Each Unit of Preferred Stock will have one vote, voting together with
the Company Common Stock.

        In the event of any merger, consolidation or other transaction in which
shares of Company Common Stock are exchanged, each Unit of Preferred Stock will
be entitled to receive the per share amount paid in respect of each share of
Company Common Stock.
<PAGE>
 
        The rights of holders of the Preferred Stock with respect to dividends,
liquidation and voting, and in the event of mergers and consolidations, are
protected by customary antidilution provisions.

        Because of the nature of the Preferred Stock's dividend, liquidation and
voting rights, the economic value of one Unit of Preferred Stock that may be
acquired upon the exercise of each Right should approximate the economic value
of one share of Company Common Stock.

ITEM 2.  Exhibits.
         --------

EXHIBIT
NUMBER  DESCRIPTION
- ------  -----------

1.  Rights Agreement, dated as of November 18, 1997, together with Exhibit A,
Form of Rights Certificate to be distributed on the Distribution Date,
Exhibit B Form of Summary of Rights and Exhibit C, Form of Certificate of 
Designation of Series A Preferred Stock
<PAGE>
 
                                   SIGNATURE

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized.

                                        ELECTROGLAS, INC.
                                        Date:  November 19, 1997
                                        
                                            /s/ Curtis C. Wozniak
                                        By: _________________________
                                            Curtis C. Wozniak
                                            Chief Executive Officer and Chairman
<PAGE>
 
                                   EXHIBITS



EXHIBIT
NUMBER  DESCRIPTION
- ------  -----------

1.  Rights Agreement, dated as of November 18, 1997, together with Exhibit A,
Form of Rights Certificate to be distributed on the Distribution Date, Exhibit B
Form of Summary of Rights and Exhibit C, Form of Certificate of Designation of
Series A Preferred Stock

<PAGE>
 
                                                                       EXHIBIT 1


                               ELECTROGLAS, INC.

                                      and

                               BANKBOSTON, N.A.

                                 Rights Agent



                               RIGHTS AGREEMENT

                         Dated as of November 18, 1997
<PAGE>
 
                               TABLE OF CONTENTS
                               -----------------
<TABLE>
<CAPTION>

SECTION                                                                                       PAGE
- -------                                                                                       ----
<S>           <C>                                                                        <C>
Section  1.   Certain Definitions.........................................................      1

Section  2.   Appointment of Rights Agent.................................................      6

Section  3.   Issue of Rights Certificates................................................      6

Section  4.   Form of Rights Certificates.................................................      8

Section  5.   Countersignature and Registration...........................................      8

Section  6.   Transfer, Split Up, Combination and Exchange of Rights Certificates;
              Mutilated, Destroyed, Lost or Stolen Rights Certificates....................      8

Section  7.   Exercise of Rights; Purchase Price; Expiration Date of Rights...............      9

Section  8.   Cancellation and Destruction of Rights Certificates.........................     11

Section  9.   Reservation and Availability of Capital Stock...............................     11

Section 10.   Preferred Stock Record Date.................................................     13

Section 11.   Adjustment of Purchase Price, Number and Kind of Shares or
              Number of Rights............................................................     13

Section 12.   Certificate of Adjusted Purchase Price or Number of Shares..................     21

Section 13.   Consolidation, Merger or Sale or Transfer of Assets or Earning Power........     22

Section 14.   Fractional Rights and Fractional Shares.....................................     25

Section 15.   Rights of Action............................................................     26

Section 16.   Agreement of Rights Holders.................................................     26

Section 17.   Rights Certificate Holder Not Deemed a Stockholder..........................     27

Section 18.   Concerning the Rights Agent.................................................     27

Section 19.   Merger or Consolidation or Change of Name of Rights Agent...................     28

Section 20.   Duties of Rights Agent......................................................     28

Section 21.   Change of Rights Agent......................................................     31
</TABLE>
                                       i
<PAGE>
 
<TABLE>
<CAPTION>

<S>                                                                                           <C>
Section 22.   Issuance of New Rights Certificates.........................................     31

Section 23.   Redemption and Termination..................................................     32

Section 24.   Notice of Certain Events....................................................     33

Section 25.   Notices.....................................................................     33

Section 26.   Supplements and Amendments..................................................     34

Section 27.   Successors..................................................................     35

Section 28.   Determinations and Actions by the Board of Directors, etc...................     35

Section 29.   Benefits of this Agreement..................................................     35

Section 30.   Severability................................................................     35

Section 31.   Governing Law...............................................................     36

Section 32.   Counterparts................................................................     36

Section 33.   Descriptive Headings........................................................     36

Section 34.   Exchange....................................................................     36

Exhibit A     Form of Rights Certificate  Form of Summary of Rights.......................     A-1
Exhibit B     Form of Summary of Rights...................................................     B-1
Exhibit C     Certificate of Designation..................................................     C-1
</TABLE>

                                      ii
<PAGE>
 
                                RIGHTS AGREEMENT

     RIGHTS AGREEMENT, dated as of November 18, 1997 (the "Agreement"), between
Electroglas, Inc., a Delaware corporation (the "Company"), and BankBoston, N.A.,
                                                -------                         
a national banking association (the "Rights Agent").
                                     ------------   

     WHEREAS, effective October 23, 1997 (the "Rights Dividend Declaration
                                               ---------------------------
Date"), the Board of Directors of the Company (i) authorized and declared a
dividend distribution of one Right for each share of common stock, par value
$.01 per share, of the Company (the "Company Common Stock") outstanding at the
                                     --------------------                     
Close of Business on December 5, 1997 (the "Record Date"), and (ii) authorized
                                            -----------                       
the issuance of one Right (as such number may hereinafter be adjusted pursuant
hereto) for each share of Company Common Stock issued between the Record Date
(whether originally issued or delivered from the Company's treasury) and, except
as otherwise provided in Section 22, the Distribution Date, each Right initially
representing the right to purchase upon the terms and subject to the conditions
hereinafter set forth one Unit of Series A Preferred Stock (the "Rights");
                                                                 ------   

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

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

            (a)  "Acquiring Person" shall mean any Person who or which, together
                  ----------------                                              
     with all Affiliates or Associates of such Person, shall be the Beneficial
     Owner of 15% or more of the shares of Company Common Stock then
     outstanding.  Notwithstanding the foregoing:  (i) an "Acquiring Person"
     shall not include (A) the Company, (B) any Subsidiary of the Company, (C)
     any employee benefit plan maintained by the Company or any of its
     Subsidiaries, (D) any trustee or fiduciary with respect to such employee
     benefit plan acting in such capacity or a trustee or fiduciary holding
     shares of Company Common Stock for the purpose of funding any such plan or
     employee benefits, (E) any Person who has reported or is required to report
     such ownership on Schedule 13G under the Exchange Act (or any comparable or
     successor report), but only so long as (x) such Person is eligible to
     report such ownership on Schedule 13(G) under the Exchange Act (or any
     comparable or successor report), (y) such Person has not reported and is
     not required to report such ownership on Schedule 13(D) under the Exchange
     Act (or any comparable or successor report), and (z) such Person does not
     beneficially own 20% or more of the shares of Company Common Stock then
     outstanding, (F) any Person if the Board of Directors of the Company
     determines in good faith that such Person who would otherwise be an
     "Acquiring Person" became such inadvertently (including, without
     limitation, because (x) such Person was unaware that it beneficially owned
     a percentage of Company Common Stock that would otherwise cause such Person
     to be an "Acquiring Person" or (y) such Person was aware of the extent of
     its Beneficial Ownership of Company Common Stock but had no actual
     knowledge of the consequences of such Beneficial Ownership under this
     Agreement) and without any intention of changing or 


                                       1
<PAGE>
 
     influencing control of the Company, and if such Person does not acquire any
     additional shares of Company Common Stock and as promptly as practicable
     divested or divests itself of Beneficial Ownership of a sufficient number
     of shares of Company Common Stock so that such Person would no longer be an
     "Acquiring Person," or (G) any Person who becomes the Beneficial Owner of
     15% or more of the then outstanding shares of Company Common Stock as a
     result of the acquisition of shares of Company Common Stock directly from
     the Company in one or more transactions approved by a majority of the Board
     of Directors, and (ii) no Person shall be deemed an "Acquiring Person" as a
     result of the acquisition of shares of Company Common Stock by the Company
     which, by reducing the number of shares of Company Common Stock
     outstanding, increases the proportional number of shares beneficially owned
     by such Person; provided, however, that if (A) a Person would become an
                     --------  -------    
     Acquiring Person (but for the operation of this subclause (ii)) as a result
     of the acquisition of shares of Company Common Stock by the Company and (B)
     after such share acquisition by the Company, such Person becomes the
     Beneficial Owner of any additional shares of Company Common Stock, then
     such Person shall be deemed an Acquiring Person unless upon becoming the
     Beneficial Owner of such additional shares such Person is the Beneficial
     Owner of less than 15% of the then outstanding shares of Company Common
     Stock. Each Person identified in subclauses (A), (B), (C) and (D) of this
     Section (1)(a) is individually an "Exempt Person" and collectively "Exempt
     Persons."

            (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 Securities Exchange Act of 1934, as amended (the "Exchange Act"),
                                                                 ------------   
     as in effect on the date hereof.

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

               (i)   of which such Person or any of such Person's Affiliates or
          Associates is considered to be a "beneficial owner" under Rule 13d-3
          of the General Rules and Regulations under the Exchange Act (the
                                                                          
          "Exchange Act Regulations") as in effect on the date hereof; provided,
          -------------------------                                    -------- 
          however, that a Person shall not be deemed the "Beneficial Owner" of,
          -------                                                              
          or to "beneficially own", any securities under this subparagraph (i)
          as a result of an agreement, arrangement or understanding to vote such
          securities if such agreement, arrangement or understanding (A) arises
          solely from a revocable proxy or consent given in response to a public
          proxy or consent solicitation made pursuant to, and in accordance
          with, the applicable provisions of the Exchange Act and the Exchange
          Act Regulations, and (B) is not reportable by such Person on Schedule
          13D under the Exchange Act (or any comparable or successor report);

               (ii)  which are beneficially owned, directly or indirectly, by
          any other Person (or any Affiliate or Associate of such other Person)
          with which such Person (or any of such Person's Affiliates or
          Associates) has any agreement, arrangement or understanding (whether
          or not in writing), for the purpose of 

                                       2
<PAGE>
 
          acquiring, holding, voting (except pursuant to a revocable proxy or
          consent as described in the proviso to subparagraph (i) of this
          paragraph (c)) or disposing of such securities; or

               (iii) which such Person or any of such Person's Affiliates or
          Associates, directly or indirectly, has the right to acquire (whether
          such right is exercisable immediately or only after the passage of
          time or upon the satisfaction of conditions) pursuant to any
          agreement, arrangement or understanding (whether or not in writing) or
          upon the exercise of conversion rights, exchange rights, rights,
          warrants or options, or otherwise;

     provided, however, that under this paragraph (c) a Person shall not be
     --------  -------                                                     
     deemed the "Beneficial Owner" of, to have "Beneficial Ownership" of, or to
     "beneficially own", (A) securities tendered pursuant to a tender or
     exchange offer made in accordance with Exchange Act Regulations by such
     Person or any of such Person's Affiliates or Associates until such tendered
     securities are accepted for purchase or exchange, (B) securities that may
     be issued upon exercise of Rights at any time prior to the occurrence of a
     Triggering Event, or (C) securities that may be issued upon exercise of
     Rights from and after the occurrence of a Triggering Event, which 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(c) or
     Section 22 hereof (the "Original Rights") or pursuant to Section  11(i)
                             ---------------                                
     hereof in connection with an adjustment made with respect to any Original
     Rights; and further provided, however, that (x) nothing in this paragraph
                 ------- --------  -------                                    
     (c) shall cause a Person engaged in business as an underwriter of
     securities to be the "Beneficial Owner" of, or to "beneficially own," any
     securities acquired through such Person's participation in good faith in a
     firm commitment underwriting until the expiration of forty days after the
     date of such acquisition, (y) no decision reached, or action taken, by the
     Board of Directors of the Company or any committee thereof shall cause any
     Person (or any Affiliate or Associate of such Person) who is a member of
     the Board of Directors of the Company or such committee to be deemed, for
     the purposes of this Agreement, to be a Beneficial Owner of any securities
     beneficially owned by any other Person (or any Affiliate or Associate of
     such Person) who is a member of the Board of Directors of the Company or
     any committee thereof solely by reason of such membership of the Board of
     Directors or any committee thereof or participation in the decisions or
     actions thereof on the part of either or both of such Persons and (z) 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 paragraph (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, Sunday
                  ------------                                                  
     or a day on which banking institutions in the city of San Francisco,
     California is authorized or obligated by law or executive order to close.

                                       3
<PAGE>
 
            (e)  "Close of Business" on any given date shall mean 5:00 P.M.,
                  -----------------                                         
     California time, on such date; provided, however, that if such date is not
                                    --------  -------                          
     a Business Day it shall mean 5:00 P.M., California time, on the next
     succeeding Business Day.

            (f)  "Common Stock" of any Person other than the Company shall mean
                  ------------                                                 
     the capital stock of such Person with the greatest voting power, or, if
     such Person shall have no capital stock, the equity securities or other
     equity interest having power to control or direct the management of such
     Person.

            (g)  "Company" means Electroglas, Inc., a Delaware corporation, and
                 -------                                                      
     also means a Principal Party to the extent provided in Section 13(a).

            (h)  "Company Common Stock" has the meaning set forth in the Whereas
                  --------------------                                          
     Clause.

            (i)  "Distribution Date" has the meaning set forth in Section 3(a).
                  -----------------                                            

            (j)  "Expiration Date" has the meaning set forth in Section 7(a).
                  ---------------                                            

            (k)  "Independent Director" shall mean a member of the Board of
                  --------------------                                     
     Directors of the Company who is not, and has never been, an officer or
     employee of the Company, who is not an Acquiring Person or an Affiliate or
     Associate of an Acquiring Person and who either (i) was a member of the
     Board of Directors of the Company immediately prior to the first occurrence
     of a Section 11(a)(ii) Event or (ii) subsequently became a director of the
     Company and whose election or nomination for election is approved or
     recommended by a vote of a majority of the Board of Directors of the
     Company, which majority includes a majority of the Independent Directors
     then on the Board of Directors.

            (l)  "Person" shall mean any individual, partnership, firm,
                  ------                                               
     corporation, association, trust, unincorporated organization or other
     entity, as well as any syndicate or group deemed to be a person under
     Section 14(d)(2) of the Exchange Act as in effect on the date hereof.

            (m)  "Preferred Stock" shall mean the Series A Preferred Stock, par
                  ---------------                                              
     value $.01 per share, of the Company having the voting powers, designation,
     preferences and relative, participating, optional or other special rights
     and qualifications, limitations and restrictions described in the
     Certificate of Designation set forth as Exhibit C hereto and as amended
     from time to time.

            (n)  "Purchase Price" has the meaning set forth in Section 7(b).
                  --------------                                            

            (o)  "Record Date" has the meaning set forth in the Whereas Clause.
                  -----------                                                  

            (p)  "Right" has the meaning set forth in the Whereas Clause.
                  -----                                                  

            (q)  "Rights Certificate" has the meaning set forth in Section 3(a).
                  ------------------                                            


                                       4
<PAGE>
 
            (r)  "Rights Dividend Declaration Date" has the meaning set forth in
                  --------------------------------                              
     the Whereas Clause.

            (s)  "Section 11(a)(ii) Event" shall mean the event described in
                  -----------------------                                   
     Section 11(a)(ii) hereof.

            (t)  "Section 13 Event" shall mean any event described in clause
                  ----------------
     (x), (y) or (z) of Section 13(a) hereof.

            (u)  "Stock Acquisition Date" shall mean the first date of public
                  ----------------------                                     
     announcement (including, without limitation, the filing of any report
     pursuant to Section 13(d) of the Exchange Act (or any comparable or
     successor report)) by the Company or an Acquiring Person that an Acquiring
     Person has become such.

            (v)  "Subsidiary" shall mean, with reference to any Person, any
                  ----------    
     other Person of which an amount of voting securities or equity interests
     sufficient to elect at least a majority of the directors or equivalent
     governing body of such other Person is beneficially owned, directly or
     indirectly, by such Person, or otherwise controlled by such first-mentioned
     Person.

            (w)  "Summary of Rights" has the meaning set forth in Section 3(b).
                  -----------------                                            

            (x)  "Triggering Event" shall mean any Section 11(a)(ii) Event or
                  ---------------- 
     any Section 13 Event.

            (y)  "Unit" has the meaning set forth in Section 7(b).
                  ----                                            

            In addition, the following terms are defined in the Sections
     indicated below:

               Defined Term                  Section Number
               ------------                  --------------

               Adjustment Shares                  11(a)(ii)
               Adjustment Spread                  34(a)
               common stock equivalents           11(a)(iii)
               Current Value                      11(a)(iii)
               Depositary Agent                   7(c)
               Distribution Date                  3(a)
               Equivalent Preferred Stock         11(b)
               Exchange Act                       1(b)
               Exchange Act Regulations           1(c)
               Exchange Ratio                     34(a)
               Exempt Person                      1(a)
               Expiration Date                    7(a)
               Final Expiration Date              7(a)
               Nasdaq                             11(d)(i)
               Original Rights                    1(c)
               Purchase Price                     7(b)
               Redemption Price                   23(a)
               Registered Common Stock            13(b)(ii)


                                       5
<PAGE>
 
               Registration Date                  9(c)
               Registration Statement             9(c)
               Rights Certificates                3(a)
               Section 11(a)(ii) Event            11(a)(ii)(C)
               Section 11(a)(iii) Trigger Date    11(a)(iii)
               Section 13 Event                   13(a)
               Securities Act                     9(c)
               Spread                             11(a)(iii)
               Summary of Rights                  3(b)
               Trading Day                        11(d)(i)
               Unit                               7(b)
 
 
     Section 2.  Appointment of Rights Agent.  The Company hereby appoints the
                 ---------------------------                                  
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. With
the consent of the Rights Agent, the Company may from time to time appoint such
co-rights agents as it may deem necessary or desirable, upon ten (10) days'
prior written notice to the Rights Agent.  The Rights Agent shall have no duty
to supervise, and in no event be liable for, the acts or omissions of any such
co-rights agent.

     Section 3.  Issue of Rights Certificates.  (a) Until the earlier of (i) the
                 ----------------------------                                   
Close of Business on the tenth Business Day after the Stock Acquisition Date,
and (ii) the Close of Business on the tenth Business Day (or such later date as
may be determined by action of a majority of the Board of Directors of the
Company prior to the occurrence of a Section 11(a)(ii) Event) after the date
that a tender or exchange offer by any Person (other than an Exempt Person) is
first published or sent or given within the meaning of Rule 14d-4(a) of the
Exchange Act Regulations or any successor rule, if upon consummation thereof
such Person would be an Acquiring Person (including, in the case of both clause
(i) and (ii), any such date which is after the date of this Agreement and prior
to the issuance of the Rights)(the earlier of (i) and (ii) above being the
                                                                          
"Distribution Date"), (x) the Rights will be evidenced (subject to the
- ------------------                                                    
provisions of paragraph (b) of this Section 3) by the certificates for shares of
Company Common Stock registered in the names of the holders of shares of Company
Common Stock as of and subsequent to the Record Date (which certificates for
shares of Company Common Stock shall be deemed also to be certificates for
Rights) and not by separate certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying shares of
Company Common Stock including a transfer to the Company; provided, however,
                                                          --------  ------- 
that if a tender or exchange offer is terminated prior to the occurrence of a
Distribution Date, then no Distribution Date shall occur as a result of such
tender or exchange offer.  As soon as practicable after the Distribution Date,
the Rights Agent will send by first-class, insured, postage prepaid mail, to
each record holder of shares of Company Common Stock as of the Close of Business
on the Distribution Date, at the address of such holder shown on the records of
the Company, one or more rights certificates, in substantially the form of
Exhibit A hereto (the "Rights Certificates"), evidencing one Right for each
                       -------------------                                 
share of Company Common Stock so held, subject to adjustment as provided herein.


                                       6
<PAGE>
 
     In the event that an adjustment in the number of Rights per share of
Company Common Stock has been made pursuant to Section 11(p) hereof, at the time
of distribution of the Rights Certificates, the Company may make the necessary
and appropriate rounding adjustments (in accordance with Section 14(a) hereof)
so that Rights Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of and after
the Distribution Date, the Rights will be evidenced solely by such Rights
Certificates.

       (b)  As promptly as practicable following the Record Date, the Company
will send a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form attached hereto as Exhibit B (the "Summary of Rights"),
                                                          -----------------   
by first-class, postage prepaid mail, to each record holder of shares of Company
Common Stock as of the Close of Business on the Record Date, at the address of
such holder shown on the records of the Company.  With respect to certificates
for Company 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 such certificate for Company Common Stock outstanding as of the
Record Date, with or without a copy of the Summary of Rights, shall also
constitute the transfer of the Rights associated with the Company Common Stock
requested thereof.

       (c)  Rights shall, without any further action, be issued in respect of
all shares of Company Common Stock which are issued (including any shares of
Company Common Stock held in treasury) after the Record Date but prior to the
earlier of the Distribution Date and the Expiration Date. Certificates,
representing such shares of Company Common Stock, issued after the Record Date
shall bear the following legend:

    This certificate also evidences and entitles the holder hereof to certain
  Rights as set forth in the Rights Agreement between Electroglas, Inc. (the
  "Company") and BankBoston, N.A. (the "Rights Agent") dated as of __________
  ___, 1997, 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 office of the stock transfer administration office of
  the Rights Agent. 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, as in effect on the date
  of mailing, without charge promptly after receipt of a written request
  therefor. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT,
  RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING
  PERSON OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE
  RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY
  ANY SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.

With respect to certificates representing shares of Company Common Stock that
bear the foregoing legend until the earlier of the Distribution Date and the
Expiration Date, the Rights 

                                       7
<PAGE>
 
associated with the shares of Company Common Stock represented by such
certificates shall be evidenced by such certificates alone and registered
holders of the shares of Company Common Stock shall also be the registered
holders of the associated Rights, and the transfer of any of such certificates
shall also constitute the transfer of the Rights associated with the shares of
Company Common Stock represented by such certificates.

     Section 4.  Form of Rights Certificates.  (a) The Rights Certificates (and
                 ---------------------------                                   
the forms of election to purchase, assignment and certificate to be printed on
the reverse thereof) shall each be substantially in the form set forth in
Exhibit A 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 any rule or
regulation thereunder or with any rule or regulation of any stock exchange or
automated quotation system on which the Rights may from time to time be listed
or to conform to usage. Subject to the provisions of Section 11 and Section 22
hereof, the Rights Certificates, whenever distributed, shall be dated as of the
Record Date and on their face shall entitle the holders thereof to purchase such
number of Units of Preferred Stock as shall be set forth therein at the price
set forth therein, but the amount and type of securities, cash or other assets
that may be acquired upon the exercise of each Right and the Purchase Price
thereof shall be subject to adjustment as provided herein.

     Section 5.  Countersignature and Registration. (a) Rights Certificates
                 ----------------------------------                         
shall be executed on behalf of the Company by its Chairman, the President or one
of its Vice Presidents under its corporate seal reproduced thereon attested by
its Secretary, Treasurer or one of its Assistant Secretaries. The signature of
any of these officers on the Rights Certificates may be manual or facsimile.
Rights Certificates bearing the manual or facsimile signatures of the
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the countersignature of such Rights Certificates or
did not hold such offices at the date of such Rights Certificates. No Rights
Certificate shall be entitled to any benefit under this Agreement or be valid
for any purpose unless there appears on such Rights Certificate a
countersignature duly executed by the Rights Agent by manual signature of an
authorized signatory, and such countersignature upon any Rights Certificate
shall be conclusive evidence, and the only evidence, that such Rights
Certificate has been duly countersigned as required hereunder.

       (b)  Following the Distribution Date, the Rights Agent will keep or cause
to be kept, at its office designated for surrender of Rights Certificates upon
exercise or transfer, books for registration and transfer of the Rights
Certificates issued hereunder. Such books shall show the name and address of
each holder of the Rights Certificates, the number of Rights evidenced on its
face by each Rights Certificate and the date of each Rights Certificate.

     Section 6.  Transfer, Split Up, Combination and Exchange of Rights
                 ------------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.  (a)
- ----------------------------------------------------------------------      
Subject to the provisions of Sections 4, 7(e) and 14 hereof, at any time after
the Close of Business on the Distribution Date, and at or prior to the Close of
Business on the Expiration Date, any Rights Certificate or 


                                       8
<PAGE>
 
Certificates may be transferred, split up, combined or exchanged for another
Rights Certificate or Certificates, entitling the registered holder to purchase
a like number of Units of Preferred Stock (or, following a Triggering Event,
other securities, cash or other assets, as the case may be) as the Rights
Certificate or Certificates surrendered then entitled such holder to purchase.
Any registered holder desiring to transfer, split up, combine or exchange any
Rights Certificate or Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Rights Certificate or Certificates
to be transferred, split up, combined or exchanged at the office of the Rights
Agent designated for such purpose. Neither the Rights Agent nor the Company
shall be obligated to take any action whatsoever with respect to the transfer of
any such surrendered Rights Certificate until the registered holder shall have
completed and executed the certificate set forth in the form of assignment on
the reverse side of such Rights Certificate and shall have provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) of the Rights represented by such Rights Certificate or
Affiliates or Associates thereof as the Company shall reasonably request;
whereupon the Rights Agent shall, subject to the provisions of Section 7(e) and
Section 14 hereof, countersign and deliver to the Person entitled thereto a
Rights Certificate or Rights 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 Rights Certificates.

       (b)  Subject to Section 7(e) hereof, if a Rights Certificate shall be
mutilated, lost, stolen or destroyed, upon request by the registered holder of
the Rights represented thereby and upon payment to the Company and the Rights
Agent of all reasonable expenses incident thereto, there shall be issued, in
exchange for and upon cancellation of the mutilated Rights Certificate, or in
substitution for the lost, stolen or destroyed Rights Certificate, a new Rights
Certificate, in substantially the form of the prior Rights Certificate, of like
tenor and representing the equivalent number of Rights, but, in the case of
loss, theft or destruction, only upon receipt of evidence satisfactory to the
Company and the Rights Agent of such loss, theft or destruction of such Rights
Certificate and, if requested by the Company or the Rights Agent, indemnity also
satisfactory to it.

     Section 7.  Exercise of Rights; Purchase Price; Expiration Date of Rights.
                 -------------------------------------------------------------  
(a) Prior to the earlier of (i) the Close of Business on the tenth anniversary
hereof (the "Final Expiration Date"), (ii) the time at which the Rights are
             ---------------------                                         
redeemed as provided in Section 23 hereof and (iii) the time at which the Rights
are exchanged as provided in Section 34 hereof (the earlier of (i), (ii) and
(iii) being the "Expiration Date"), the registered holder of any Rights
                 ---------------                                       
Certificate may, subject to the provisions of Sections 7(e) and 9(c) hereof,
exercise the Rights evidenced thereby, in whole or in part, at any time after
the Distribution Date upon surrender of the Rights Certificate, with the form of
election to purchase and the certificate on the reverse side thereof duly
executed, to the Rights Agent at the office of the Rights Agent designated for
such purpose, together with payment of the aggregate Purchase Price (as
hereinafter defined) for the number of Units of Preferred Stock (or, following a
Triggering Event, other securities, cash or other assets, as the case may be)
for which such surrendered Rights are then exercisable.

       (b)  The purchase price for each one one-hundredth of a share (each such
one one-hundredth of a share being a "Unit") of Preferred Stock upon exercise of
                                      ----                                      
Rights shall be $140, 


                                       9
<PAGE>
 
subject to adjustment from time to time as provided in Sections 11 and 13(a)
hereof (such purchase price, as so adjusted, being the "Purchase Price"), and
                                                        ---------------
shall be payable in accordance with paragraph (c) below.
                                                                
       (c)  As promptly as practicable following the occurrence of the
Distribution Date, the Company shall deposit with the Rights Agent or other
corporation in good standing organized under the laws of the United States or
any State of the United States, 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 (such institution being the
"Depositary Agent"), certificates representing the shares of Preferred Stock
- -----------------                                                           
that may be acquired upon exercise of the Rights and shall cause such Depositary
Agent to enter into an agreement pursuant to which the Depositary Agent shall
issue receipts representing interests in the shares of Preferred Stock so
deposited. Upon receipt of a Rights Certificate representing exercisable Rights,
with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price for the Units of Preferred Stock (or, following a Triggering Event, other
securities, cash or other assets, as the case may be) to be purchased thereby as
set forth below and an amount equal to any applicable transfer tax or evidence
satisfactory to the Company of payment of such tax, the Rights Agent shall,
subject to Section 20(k) hereof, thereupon promptly (i) requisition from the
Depositary Agent depositary receipts representing such number of Units of
Preferred Stock as are to be purchased and the Company will direct the
Depositary Agent to comply with such request, (ii) requisition from the Company
the amount of cash, if any, to be paid in lieu of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such depositary
receipts, cause the same to be delivered to or upon the order of the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, and (iv) after receipt thereof, deliver such cash, if
any, to or upon the order of the registered holder of such Rights Certificate.
In the event that the Company is obligated to issue Company Common Stock, other
securities of the Company, pay cash and/or distribute other property pursuant to
Section 11(a) hereof, the Company will make all arrangements necessary so that
such Company Common Stock, other securities, cash and/or other property are
available for distribution by the Rights Agent, if and when appropriate. The
payment of the Purchase Price (as such amount may be reduced pursuant to Section
11(a)(iii) hereof) may be made in cash or by certified or bank check or money
order payable to the order of the Company.

       (d)  In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing the Rights remaining unexercised shall be issued by the Rights Agent
and delivered to, or upon the order of, the registered holder of such Rights
Certificate, registered in such name or names as may be designated by such
holder, subject to the provisions of Section 14 hereof.

       (e)  Notwithstanding anything in this Agreement to the contrary, from and
after the first occurrence of any Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or 

                                      10
<PAGE>
 
Affiliate) which becomes a transferee after the Acquiring Person becomes such,
or (iii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) which becomes a transferee prior to or concurrently with the
Acquiring Person becoming such and which receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person (or
any such Associate or Affiliate) to holders of equity interests in such
Acquiring Person (or any such Associate or Affiliate) or to any Person with whom
the Acquiring Person (or such Associate or Affiliate) has any continuing
agreement, arrangement or understanding regarding the transferred Rights, shares
of Company Common Stock or the Company or (B) a transfer which the Board of
Directors has determined to be part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of this Section 7(e),
shall be null and void without any further action, and no holder of such Rights
shall have any rights whatsoever with respect to such Rights, whether under any
provision of this Agreement or otherwise. The Company shall use all reasonable
efforts to ensure that the provisions of this Section 7(e) hereof are complied
with, but shall have no liability to any holder of Rights or any other Person as
a result of its failure to make any determination under this Section 7(e) with
respect to an Acquiring Person or its Affiliates, Associates or transferees.

       (f)  Notwithstanding anything in this Agreement or any Rights Certificate
to the contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise by such registered holder unless such registered holder
shall have (i) completed and executed the certificate following the form of
election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise, and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) of the Rights
represented by such Rights Certificate or Affiliates or Associates thereof as
the Company shall reasonably request.

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

     Section 9.  Reservation and Availability of Capital Stock.  (a) The Company
                 ---------------------------------------------                  
shall at all times prior to the Expiration Date cause to be reserved and kept
available, out of its authorized and unissued shares of preferred stock, the
number of shares of Preferred Stock that, as provided in this Agreement, will be
sufficient to permit the exercise in full of all outstanding Rights. Upon the
occurrence of any events resulting in an increase in the aggregate number of
shares of Preferred Stock (or other equity securities of the Company) issuable
upon exercise of all outstanding Rights above the number then reserved, the
Company shall make appropriate increases in the number of shares so reserved to
the extent practicable.


                                      11
<PAGE>
 
       (b)  If the shares of Preferred Stock to be issued and delivered upon the
exercise of the Rights may be listed on any national securities exchange or
automated quotation system, the Company shall during the period from the
Distribution Date through the Expiration Date use its best efforts to cause all
securities reserved for such issuance to be listed on such exchange upon
official notice of issuance upon such exercise.

       (c)  The Company shall use its best efforts (i) as soon as practicable
following the occurrence of a Section 11(a)(ii) Event and a determination by the
Company in accordance with Section 11(a)(iii) hereof of the consideration to be
delivered by the Company upon exercise of the Rights or, if so required by law,
as soon as practicable following the Distribution Date (such date being the
                                                                           
"Registration Date"), to file a registration statement on an appropriate form
- ------------------                                                           
under the Securities Act of 1933, as amended (the "Securities Act"), with
                                                   --------------        
respect to the securities that may be acquired upon exercise of the Rights (the
"Registration Statement"), (ii) to cause the Registration Statement to become
 ----------------------                                                      
effective as soon as practicable after such filing, (iii) to cause the
Registration Statement to continue to be effective (and to include a prospectus
complying with the requirements of the Securities Act) until the earlier of (A)
the date as of which the Rights are no longer exercisable for the securities
covered by the Registration Statement, and (B) the Expiration Date and (iv) to
take as soon as practicable following the Registration Date such action as may
be required to ensure that any acquisition of securities upon exercise of the
Rights complies with any applicable state securities or "blue sky" laws.  The
Company may temporarily suspend, for a period of time not to exceed one hundred
twenty (120) days after the date set forth in clause (i) of the first sentence
of this Section 9(c), the exercisability of the Rights in order to prepare and
file such registration statement 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.  In
addition, if the Company shall determine that a registration statement is
required following the Distribution Date, the Company may temporarily suspend
the exercisability of the Rights until such time as a registration statement has
been declared effective.  Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification in such jurisdiction shall not have been obtained, the
exercise thereof shall not be permitted under applicable law or a registration
statement shall not have been declared effective.

       (d)  The Company shall take such action as may be necessary to ensure
that all shares of Preferred Stock (and, following the occurrence of a
Triggering Event, any other securities that may be delivered upon exercise of
Rights) shall be, at the time of delivery of the certificates or depositary
receipts for such securities (subject to payment of the Purchase Price), duly
and validly authorized and issued and fully paid and non-assessable.

       (e)  The Company shall pay any documentary, stamp or transfer tax imposed
in connection with the issuance or delivery of the Rights Certificates or upon
the exercise of Rights; provided, however, the Company shall not be required to
                        --------  -------                                      
pay any such tax imposed in connection with the issuance or delivery of Units of
Preferred Stock, or any certificates or depositary receipts for such Units of
Preferred Stock (or, following the occurrence of a Triggering Event, any other
securities, cash or assets, as the case may be) to any person other 


                                      12
<PAGE>
 
than the registered holder of the Rights Certificates evidencing the Rights
surrendered for exercise. The Company shall not be required to issue or deliver
any certificates or depositary receipts for Units of Preferred Stock (or,
following the occurrence of a Triggering Event, any other securities, cash or
assets, as the case may be) to, or in a name other than that of, the registered
holder upon the exercise of any Rights until any such tax shall have been paid
(any such tax being payable by the holder of such Rights Certificate at the time
of surrender) or until it has been established to the Company's satisfaction
that no such tax is due.

     Section 10.  Preferred Stock Record Date.  Each Person in whose name any
                  ---------------------------                                
certificate or depositary receipt for Units of Preferred Stock (or, following
the occurrence of a Triggering Event, other securities) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of the Units of Preferred Stock (or, following the occurrence of a
Triggering Event, other securities) represented thereby on, and such certificate
shall be dated, the date upon which the Rights 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 (or, following
the occurrence of a Triggering Event, other securities) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such securities on, and such certificate shall be dated, the next succeeding
Business Day on which the Preferred Stock (or, following the occurrence of a
Triggering Event, other securities) transfer books of the Company are open and,
                                                                               
further provided, however, that if delivery of Units of Preferred Stock is
- ------- --------  -------                                                 
delayed pursuant to Section 9(c) hereof, such Persons shall be deemed to have
become the record holders of such Units of Preferred Stock only when such Units
first become deliverable. Prior to the exercise of the Rights evidenced thereby,
the holder of a Rights Certificate shall not be entitled to any rights of a
stockholder of the Company with respect to securities for which the Rights shall
be exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company, except
as provided herein.

     Section 11.  Adjustment of Purchase Price, Number and Kind of Shares or
                  ----------------------------------------------------------
Number of Rights. The Purchase Price, the number and kind of securities
- ----------------                                                       
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 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, 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 Purchase Price in effect at the time of the record date for such
     dividend or of the effective date of such subdivision, combination or
     reclassification, and the number and kind of shares of Preferred Stock or
     capital stock, as the case may be, issuable on such date upon exercise of
     the Rights, shall be proportionately adjusted so that the holder of any
     Right exercised 


                                      13
<PAGE>
 
     after such time shall be entitled to receive, upon payment of the Purchase
     Price then in effect, the aggregate number and kind of shares of Preferred
     Stock or capital stock, as the case may be, which, if such Right had been
     exercised immediately prior to such date, such holder would have owned upon
     such exercise and been entitled to receive by virtue of such dividend,
     subdivision, combination or reclassification; provided, however, that in no
                                                   --------  -------    
     event shall the consideration to be paid upon the exercise of one Right be
     less than the aggregate par value of the shares of capital stock of the
     Company issuable upon the exercise of one Right. If an event occurs which
     would require an adjustment under both this Section 11(a)(i) and Section
     11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i)
     shall be in addition to, and shall be made prior to, any adjustment
     required pursuant to Section 11(a)(ii) hereof .

            (ii)   In the event any Person shall become an Acquiring Person,
     other than pursuant to any transaction set forth in Section 13(a) hereof,
     then, immediately upon the occurrence of such event (a "Section 11(a)(ii)
     ----                                                    -----------------
     Event"), proper provision shall be made so that each holder of a Right
     (except as provided below and in Section 7(e) hereof) shall, subject to
     Section 34 hereof, thereafter have the right to receive, upon exercise of
     such Right at the then current Purchase Price in accordance with the terms
     of this Agreement, in lieu of the number of Units of Preferred Stock for
     which a Right was exercisable immediately prior to the first occurrence of
     a Section 11(a)(ii) Event (whether or not such Right was then exercisable),
     such number of Units of Preferred Stock as shall equal the result obtained
     by (x) multiplying the then current Purchase Price by the then number of
     Units of Preferred Stock for which a Right was exercisable immediately
     prior to the first occurrence of a Section 11(a)(ii) Event (whether or not
     such Right was then exercisable) (such product thereafter being, for all
     purposes of this Agreement, other than Section 13 hereof, the "Purchase
                                                                    --------
     Price"), and (y) dividing that product by 50% of the then current market
     -----                                                                   
     price (determined pursuant to Section 11(d) hereof) per Unit of Preferred
     Stock on the date of such first occurrence (such Units of Preferred Stock
     being the "Adjustment Shares"); provided, however, that the Purchase Price
                -----------------    --------  -------                         
     and the number of Units of Preferred Stock so receivable upon exercise of a
     Right shall, following the Section 11(a)(ii) Event, be subject  to further
     adjustment as appropriate in accordance with Section 11 hereof.
     Notwithstanding the foregoing, the Rights shall not be exercisable pursuant
     to this Section 11(a)(ii) until the time period during which the Rights may
     be redeemed pursuant to Section 23 hereof shall have expired.  .

            (iii)  The Company, by the vote of a majority of the Board of
     Directors (including, following a Section 11(a)(ii) Event, a majority of
     the Independent Directors), may at its option substitute for a Unit of
     Preferred Stock issuable upon the exercise of Rights in accordance with the
     foregoing subparagraph (ii), shares of Company Common Stock or fractions
     thereof having a current market price (as determined by Section 11(d)
     hereof) equal to the current market price of a Unit of Preferred Stock on
     the date of the Section 11(a)(ii) Event. In the event that the number of
     shares of Preferred Stock which are authorized by the Company's Restated
     Certificate of Incorporation but not outstanding or reserved for issuance
     for purposes other than upon exercise of the Rights is not sufficient to
     permit the exercise in full of the Rights in accordance with the foregoing
     subparagraph 


                                      14
<PAGE>
 
     (ii) of this Section 11(a), the Company, by the vote of a majority of the
     Board of Directors (including, following a Section 11(a)(ii) Event, a
     majority of the Independent Directors), shall to the extent permitted by
     applicable law and any material agreements then in effect to which the
     Company is a party or by which it is bound: (A) determine the excess of (1)
     the value of the Adjustment Shares issuable upon the exercise of a Right
     (the "Current Value") over (2) the Purchase Price (such excess being the
           -------------   
     "Spread"), and (B) with respect to each Right (other than Rights which have
      ------  
     become void pursuant to Section 7(e)), make adequate provision to
     substitute, in whole or in part, for such Adjustment Shares, upon exercise
     of a Right and payment of the applicable Purchase Price, (1) cash, (2) a
     reduction in the Purchase Price, (3) shares of Company Common Stock or
     other equity securities of the Company (including, without limitation,
     shares, or units of shares, of preferred stock (such other shares being
     "common stock equivalents")), (4) debt securities of the Company, (5) other
      ------------------------
     assets, or (6) any combination of the foregoing, having an aggregate value
     which, when added to the value of the Units of Preferred Stock actually
     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 a majority of the
     Board of Directors (including, following a Section 11(a)(ii) Event, a
     majority of the Independent Directors), after receiving advice from a
     nationally recognized investment banking firm; provided, however, that if
                                                    -------   -------
     the Company shall not have made adequate provision to deliver value
     pursuant to clause (B) above within thirty days following the later of (x)
     the first occurrence of a Section 11(a)(ii) Event and (y) the date on which
     the Company's right of redemption pursuant to Section 23(a) expires (the
     later of (x) and (y) being referred to herein as the
     "Section 11(a)(iii) Trigger Date"), then, subject to Section 34 hereof,
     --------------------------------                                       
     the Company shall be obligated (to the extent permitted by applicable law
     and any material agreements then in effect to which the Company is a party
     or by which it is bound) to deliver, upon the surrender for exercise of a
     Right and without requiring payment of the Purchase Price, Units of
     Preferred Stock (to the extent available) and then, if necessary, shares
     (or fractions of shares, at the discretion of the Board) of Company Common
     Stock, cash or a combination thereof, which Units of Preferred Stock,
     shares (or fractions of shares) of Company Common Stock and/or cash shall
     have an aggregate value equal to the Spread; further provided, however,
                                                  ------- --------  -------  
     that if the Company is unable to comply with the immediately foregoing
     provision within such thirty day period, then the Company shall (to the
     extent permitted by law) take all such action as may be necessary to comply
     with such provision, including the calling of a meeting of stockholders to
     authorize additional shares of Preferred Stock or Company Common Stock. To
     the extent that the Company determines that some action need be taken
     pursuant to the first sentence of this Section 11(a)(iii), the Company
     shall provide, subject to Section 7(e) hereof, that such action shall apply
     uniformly to all outstanding Rights. For purposes of this Section
     11(a)(iii), the value of a Unit of Preferred Stock or share of Company
     Common Stock shall be the current market price (as determined pursuant to
     Section 11(d) hereof) per Unit of Preferred Stock or share of Company
     Common Stock, as the case may be, on the Section 11(a)(iii) Trigger Date
     and the value of any common stock equivalent shall be deemed to have the
     same value as the Preferred Stock on such date.


                                      15
<PAGE>
 
          (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 to subscribe for or purchase (for a period expiring within forty-five
     calendar days after such record date) shares of Preferred Stock (or shares
     having substantially the same rights, privileges and preferences as shares
     of Preferred Stock ("Equivalent Preferred Stock")) or securities
                          --------------------------                 
     convertible into Preferred Stock or Equivalent Preferred Stock at a price
     per share of Preferred Stock or per share of Equivalent Preferred Stock (or
     having a conversion price per share, if a security convertible into
     Preferred Stock or Equivalent Preferred Stock) less than the current market
     price (as determined pursuant to Section l1(d) hereof) per share of
     Preferred Stock 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 sum of the number of shares of Preferred
     Stock outstanding on such record date plus the number of shares of
     Preferred Stock which the aggregate offering price of the total number of
     shares of Preferred Stock and/or Equivalent Preferred Stock 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 outstanding on such record date plus the number of additional shares
     of Preferred Stock and/or Equivalent Preferred Stock to be offered for
     subscription or purchase (or into which the convertible securities so to be
     offered are initially convertible). In case such subscription price may be
     paid by delivery of consideration part or all of which may be in a form
     other than cash, the value of such consideration shall be as determined in
     good faith by a majority of the Board of Directors (including a majority of
     the Independent Directors), whose determination shall be described in a
     statement filed with the Rights Agent and shall be binding on the Rights
     Agent and the holders of the Rights. Shares of Preferred Stock owned by or
     held for the account of the Company or any Subsidiary shall not be deemed
     outstanding for the purpose of any such computation. Such adjustment shall
     be made successively whenever such a record date is fixed, and in the event
     that such rights, options or warrants are not so issued, the Purchase Price
     shall be adjusted to be the Purchase Price which would then be in effect if
     such record date had not been fixed.

          (c)  In case the Company shall fix a record date for a distribution to
     all holders of shares of 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, cash
     (other than a regular quarterly cash dividend paid out of funds legally
     available therefor), assets (other than a dividend payable in shares of
     Preferred Stock, but including any dividend payable in stock other than
     Preferred Stock) or subscription rights, options 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 current market price (as
     determined pursuant to Section 11(d) hereof) per share of Preferred Stock
     on such record date less the fair market value (as determined in good faith
     by a majority of the Board of Directors (including, following a Section
     11(a)(ii) Event, a majority of the Independent 


                                      16
<PAGE>
 
     Directors), whose determination shall be described in a statement filed
     with the Rights Agent and shall be binding on the Rights Agent and the
     holder of the Rights) of the cash, assets or evidences of indebtedness so
     to be distributed or of such subscription rights, options or warrants
     distributable in respect of a share of Preferred Stock and the denominator
     of which shall be such current market price (as determined pursuant to
     Section 11(d) hereof) per share of Preferred Stock. 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 be adjusted
     to be the Purchase Price which would have been in effect if such record
     date had not been fixed.

          (d) (i)  For the purpose of any computation hereunder, the "current
     market price" per share of Company Common Stock or Common Stock on any date
     shall be deemed to be the average of the daily closing prices per share of
     such shares for the ten consecutive Trading Days (as such term is
     hereinafter defined) immediately prior to such date; provided, however, if
                                                          --------  -------    
     prior to the expiration of such requisite ten Trading Day period the issuer
     announces either (A) a dividend or distribution on such shares payable in
     such shares or securities convertible into such shares (other than the
     Rights), or (B) any subdivision, combination or reclassification of such
     shares, then, following the ex-dividend date for such dividend or the
     record date for such subdivision, combination or reclassification, as the
     case may be, the "current market price" shall be properly adjusted to take
     into account such event. The closing price for each day shall be, if the
     shares are listed and admitted to trading on a national securities
     exchange, as reported in the principal consolidated transaction reporting
     system with respect to securities listed on the principal national
     securities exchange on which such shares are listed or admitted to trading
     or, if such shares are not listed or admitted to trading on any national
     securities exchange, the last quoted price or, if not so quoted, the
     average of the high bid and low asked prices in the over-the-counter
     market, as reported by the Nasdaq National Market ("Nasdaq") or such other
                                                         ------                
     system then in use, or, if on any such date such shares are not quoted by
     any such organization, the average of the closing bid and asked prices as
     furnished by a professional market maker making a market in such shares
     selected by a majority of the Board of Directors (including, following a
     Section 11(a)(ii) Event, a majority of the Independent Directors). If on
     any such date no market maker is making a market in such shares, the fair
     value of such shares on such date as determined in good faith by a majority
     of the Board of Directors (including, following a Section 11(a)(ii) Event,
     a majority of the Independent Directors) shall be used. If such shares are
     not publicly held or not so listed or traded, "current market price" per
     share shall mean the fair value per share as determined in good faith by a
     majority of the Board of Directors (including, following a Section
     11(a)(ii) Event, a majority of the Independent Directors), whose
     determination shall be described in a statement filed with the Rights Agent
     and shall be conclusive for all purposes. The term "Trading Day" shall
                                                         -----------       
     mean, if such shares are listed or admitted to trading on any national
     securities exchange, a day on which the principal national securities
     exchange on which such shares are listed or admitted to trading is open for
     the transaction of business or, if such shares are not so listed or
     admitted, a Business Day.


                                      17
<PAGE>
 
            (ii)  For the purpose of any computation hereunder, the "current
     market price" per share of Preferred Stock shall be determined in the same
     manner as set forth above for Company Common Stock in clause (i) of this
     Section 11(d) (other than the fourth sentence thereof). If the current
     market price per share of Preferred Stock cannot be determined in the
     manner provided above or if the Preferred Stock is not publicly held or
     listed or traded in a manner described in clause (i) of this Section 11(d),
     the "current market price" per share of Preferred Stock shall be
     conclusively deemed to be an amount equal to 100 (as such amount may be
     appropriately adjusted for such events as stock splits, stock dividends and
     recapitalizations with respect to Company Common Stock occurring after the
     date of this Agreement) multiplied by the current market price per share of
     Company Common Stock. If neither Company Common Stock nor Preferred Stock
     is publicly held or so listed or traded, "current market price" per share
     of the Preferred Stock shall mean the fair value per share as determined in
     good faith by a majority of the Board of Directors (including, following a
     Section 11(a)(ii) Event, a majority of the Independent Directors) whose
     determination shall be described in a statement filed with the Rights Agent
     and shall be binding on the Rights Agent and the holders of the Rights. For
     all purposes of this Agreement, the "current market price" of a Unit of
     Preferred Stock shall be equal to the "current market price" of one share
     of Preferred Stock divided by 100.

          (e)  Anything herein to the contrary notwithstanding, 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-hundredth of a share of Company
     Common Stock or Common Stock or other share or ten-thousandth of a share of
     Preferred Stock, 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 mandates such adjustment and (ii) the Expiration Date.

          (f)  If as a result of an adjustment made pursuant to Section
     11(a)(ii) or 13(a) hereof, the holder of any Right thereafter exercised
     shall become entitled to receive any shares of capital stock other than
     Preferred Stock, thereafter the number of such other shares so receivable
     upon exercise of any Right and the Purchase Price thereof 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), (b), (c), (d), (e), (g), (h), (i), (j),
     (k), (l) and (m), 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 Units of Preferred
     Stock (or other securities or amount of 

                                      18
<PAGE>
 
     cash or combination thereof) that may be acquired from time to time
     hereunder upon exercise of the Rights, all subject to further adjustment as
     provided herein.

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

          (i)  The Company may elect on or after the date of any adjustment of
     the Purchase Price to adjust the number of Rights, in lieu of any
     adjustment in the number of Units of Preferred Stock that may be acquired
     upon the exercise of a Right. Each of the Rights outstanding after the
     adjustment in the number of Rights shall be exercisable for the number of
     Units 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 ten-thousandth) obtained by dividing the
     Purchase Price in effect immediately prior to adjustment of the Purchase
     Price by the Purchase Price in effect immediately after adjustment of the
     Purchase Price. The Company 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. This record date may be the date on which the Purchase Price is
     adjusted or any day thereafter, but, if the Rights Certificates have been
     issued, shall be at least ten days later than the date of such public
     announcement. If Rights Certificates have been issued, upon each adjustment
     of the number of Rights pursuant to this Section 11(i), the Company shall,
     as promptly as practicable, cause to be distributed to holders of record of
     Rights Certificates on such record date Rights 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 Rights Certificates held by such
     holders prior to the date of adjustment, and upon surrender thereof, if
     required by the Company, new Rights Certificates evidencing all the Rights
     to which such holders shall be entitled after such adjustment. Rights
     Certificates to be so distributed shall be issued, executed and
     countersigned in the manner provided for herein (and may bear, at the
     option of the Company, the adjusted Purchase Price) and shall be registered
     in the names of the holders of record of Rights 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 Units of Preferred Stock issuable upon the exercise of the
     Rights, the Rights Certificates theretofore and thereafter issued may
     continue to express the Purchase Price 


                                      19
<PAGE>
 
     per Unit and the number of Units of Preferred Stock which were expressed in
     the Initial Rights Certificates issued hereunder.

          (k)  Before taking any action that would cause an adjustment reducing
     the Purchase Price below the then par value of the number of Units of
     Preferred Stock issuable upon exercise of the Rights, the Company shall
     take any corporate action which may, in the opinion of its counsel, be
     necessary in order that the Company may validly and legally issue such
     fully paid and non-assessable number of Units of Preferred Stock at such
     adjusted Purchase Price.

          (1)  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 the issuance to the holder of any Right exercised after such
     record date of that number of Units of Preferred Stock and shares of other
     capital stock or securities of the Company, if any, issuable upon such
     exercise over and above the number of Units of Preferred Stock and shares
     of 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 (fractional or otherwise) or
     securities upon the occurrence of the event requiring such adjustment.

          (m)  Anything in this Section 11 to the contrary notwithstanding, the
     Company shall be entitled to make such reductions in the Purchase Price, in
     addition to those adjustments expressly required by this Section 11, as and
     to the extent that in their good faith judgment a majority of the Board of
     Directors (including, following a Section 11(a)(ii) Event, a majority of
     the Independent Directors) shall determine to be advisable in order that
     any (i) consolidation or subdivision of the Preferred Stock, (ii) issuance
     wholly for cash of any shares of Preferred Stock at less than the current
     market price, (iii) issuance wholly for cash of shares of Preferred Stock
     or securities which by their terms are convertible into or exchangeable for
     shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights,
     options or warrants referred to in this Section 11, hereafter made by the
     Company to holders of its Preferred Stock, shall not be taxable to such
     holders or shall reduce the taxes payable by such holders.

          (n)  The Company shall not, at any time after the Distribution Date,
     (i) consolidate with any other Person (other than a wholly owned Subsidiary
     of the Company in a transaction which complies with Section 11(o) hereof),
     (ii) merge with or into any other Person (other than a wholly owned
     Subsidiary of the Company in a transaction which complies with Section
     11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell
     or transfer), in one transaction, or a series of transactions, assets or
     earning power aggregating more than 50% of the assets or earning power of
     the Company and its Subsidiaries (taken as a whole) to any other Person or
     Persons (other than the Company and/or any of its Subsidiaries in one or
     more transactions each of which complies with Section 11(o) hereof), if (x)
     at the time of or immediately after such consolidation, 


                                      20
<PAGE>
 
     merger or sale 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 or (y) prior to, simultaneously with or immediately after such
     consolidation, merger or sale, the Person which constitutes, or would
     constitute, the "Principal Party" for purposes of Section 13(a) hereof
     shall have distributed or otherwise transferred to its shareholders or
     other persons holding an equity interest in such Person Rights previously
     owned by such Person or any of its Affiliates and Associates; provided,
                                                                   -------- 
     however, this Section 11(n) shall not affect the ability of any wholly
     -------      
     owned Subsidiary of the Company to consolidate with, merge with or into, or
     sell or transfer assets or earning power to, any other wholly owned
     Subsidiary of the Company.

          (o)  After the Distribution Date, the Company shall not, except as
     permitted by Section 23, Section 26 or Section 34 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
     otherwise eliminate the benefits intended to be afforded by the Rights.

          (p)  Anything in this Agreement to the contrary notwithstanding, in
     the event that the Company shall at any time after the Rights Dividend
     Declaration Date and prior to the Distribution Date (i) declare a dividend
     on the outstanding shares of Company Common Stock payable in shares of
     Company Common Stock, (ii) subdivide the outstanding shares of Company
     Common Stock, (iii) combine the outstanding shares of Company Common Stock
     into a smaller number of shares, or (iv) issue any shares of its capital
     stock in a reclassification of Company Common Stock (including any such
     reclassification in connection with a consolidation or merger in which the
     Company is the continuing or surviving corporation), the number of Rights
     associated with each share of Company Common Stock then outstanding, or
     issued or delivered thereafter prior to the Distribution Date or in
     accordance with Section 22 hereof, shall be proportionately adjusted so
     that the number of Rights thereafter associated with each share of Company
     Common Stock following any such event shall equal the result obtained by
     multiplying the number of Rights associated with each share of Company
     Common Stock immediately prior to such event by a fraction the numerator of
     which shall be the total number of shares of Company Common Stock
     outstanding immediately prior to the occurrence of the event and the
     denominator of which shall be the total number of shares of Company Common
     Stock outstanding immediately following the occurrence of such event.

     Section 12.  Certificate of Adjusted Purchase Price or Number of Shares.
                  ----------------------------------------------------------  
Whenever an adjustment is made as provided in Section 11 or Section 13 hereof,
the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Company Common Stock, a copy of such certificate, and
(c) mail a brief summary thereof to each holder of a Rights Certificate (or, if
prior to the Distribution Date, to each holder of a certificate representing
shares of Company Common 


                                      21
<PAGE>
 
Stock) in accordance with Section 25 hereof. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment therein
contained and shall 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 that, following the first occurrence of a Section
- -----                                                                     
11(a)(ii) Event, directly or indirectly, either (x) the Company shall
consolidate with, or merge with and into, any other Person (other than a wholly
owned Subsidiary of the Company in a transaction which complies with Section
11(o) hereof), and the Company shall not be the continuing or surviving
corporation of such consolidation or merger, (y) any Person (other than a wholly
owned Subsidiary of the Company in a transaction which compiles with Section
11(o) hereof) shall consolidate with, or merge with or into, the Company, and
the Company shall be the continuing or surviving corporation of such
consolidation or merger and, in connection with such consolidation or merger,
all or part of the outstanding shares of Company Common Stock shall be converted
into or exchanged for stock or other securities of the Company or any other
Person or cash or any other property, or (z) the Company shall sell or otherwise
transfer (or one or more of its Subsidiaries shall sell or otherwise transfer)
to any Person or Persons (other than the Company or any of its wholly owned
Subsidiaries in one or more transactions each of which complies with Section
11(o) hereof), 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) (any such event being a "Section 13 Event"), then, and in
                                            ----------------                
each such case, proper provision shall be made so that: (i) each holder of a
Right, except as provided in Section 7(e) hereof, shall thereafter have the
right to receive, upon the exercise thereof at the then current Purchase Price,
in accordance with this Agreement and in lieu of Units of Preferred Stock or
shares of Company Common Stock, such number of validly authorized and issued,
fully paid, non-assessable and freely tradeable shares of Common Stock of the
Principal Party (as such term is hereinafter defined), which shares shall not be
subject to any liens, encumbrances, rights of call or first refusal, transfer
restrictions or other adverse claims, as shall be equal to the result obtained
by (1) multiplying the then current Purchase Price by the number of Units of
Preferred Stock for which a Right is exercisable immediately prior to the first
occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred
prior to the first occurrence of a Section 13 Event, multiplying the number of
such Units for which a Right would be exercisable hereunder but for the
occurrence of such Section 11(a)(ii) Event by the Purchase Price which would be
in effect hereunder but for such first occurrence) and (2) dividing that product
(which, following the first occurrence of a Section 13 Event, shall be the
"Purchase Price" for all purposes of this Agreement) by 50% of the current
market price (determined pursuant to Section 11(d) hereof) per share of the
Common Stock of such Principal Party on the date of consummation of such Section
13 Event, 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 Section 13 Event; (ii) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such Section 13 Event, all the obligations and duties of the Company pursuant to
this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to
such Principal Party, it being specifically intended that the provisions of
Section 11 


                                      22
<PAGE>
 
hereof shall apply only to such Principal Party following the first occurrence
of a Section 13 Event; (iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of shares
of its Common Stock) in connection with the consummation of any such transaction
as may be necessary to ensure that the provisions of this Agreement shall
thereafter be applicable, as nearly as reasonably may be, in relation to its
shares of Common Stock thereafter deliverable upon the exercise of the Rights,
to its shares of Common Stock; provided, however, that, upon the
                               --------  -------                
subsequent occurrence of any merger, consolidation, sale of all or substantially
all of the assets, recapitalization, reclassification of shares, reorganization
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, such cash, shares, rights, warrants and
other property which such holder would have been entitled to receive had it, at
the time of such transaction, owned the shares of Common Stock of the Principal
Party purchasable upon the exercise of a Right, 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; and (v) the provisions of Section 11(a)(ii) hereof shall be of
no further effect following the first occurrence of any Section 13 Event.

          (b)  "Principal Party" shall mean:

               (i)   in the case of any transaction described in clause (x) or
          (y) of the first sentence of Section 13(a), (A) the Person that is the
          issuer of any securities into which shares of Company Common Stock are
          converted in such merger or consolidation, or, if there is more than
          one such issuer, the issuer of Common Stock that has the highest
          aggregate current market price (determined pursuant to Section 11(d)
          hereof) and (B) if no securities are so issued, the Person that is the
          other party to such merger or consolidation, or, if there is more than
          one such Person, the Person the Common Stock of which has the highest
          aggregate current market price (determined pursuant to Section 11(d)
          hereof); and

               (ii)  in the case of any transaction described in clause (z) of
          the first sentence of Section 13(a) hereof, the Person that is the
          party receiving the largest 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 transferred pursuant
          to such transaction or transactions or if the Person receiving the
          largest portion of the assets or earning power cannot be determined,
          whichever Person the Common Stock of which has the highest aggregate
          current market price (determined pursuant to Section 11(d) hereof);
          provided, however, that in any such case, (1) if the Common Stock of
          --------  -------                                                   
          such Person is not at such time and has not been continuously over the
          preceding twelve-month period registered under Section 12 of the
          Exchange Act ("Registered Common Stock"), or such Person is not a
                         -----------------------                           
          corporation, and such Person is a direct or indirect Subsidiary of
          another Person that has Registered Common Stock outstanding,
          "Principal Party" shall refer to 


                                      23
<PAGE>
 
          such other Person; (2) if the Common Stock of such Person is not
          Registered Common Stock or such Person is not a corporation, and such
          Person is a direct or indirect Subsidiary of another Person but is not
          a direct or indirect Subsidiary of another Person which has Registered
          Common Stock outstanding, "Principal Party" shall refer to the
          ultimate parent entity of such first-mentioned Person; (3) if the
          Common Stock of such Person is not Registered Common Stock or such
          Person is not a corporation, and such Person is directly or indirectly
          controlled by more than one Person, and one or more of such other
          Persons has Registered Common Stock outstanding, "Principal Party"
          shall refer to whichever of such other Persons is the issuer of the
          Registered Common Stock having the highest aggregate current market
          price (determined pursuant to Section 11(d) hereof); and (4) if the
          Common Stock of such Person is not Registered Common Stock or such
          Person is not a corporation, and such Person is directly or indirectly
          controlled by more than one Person, and none of such other Persons
          have Registered Common Stock outstanding, "Principal Party" shall
          refer to whichever ultimate parent entity is the corporation having
          the greatest shareholders equity or, if no such ultimate parent entity
          is a corporation, shall refer to whichever ultimate parent entity is
          the entity having the greatest net assets

          (c)  The Company shall not consummate any such consolidation, merger,
     sale or transfer unless the Principal Party shall have a sufficient number
     of authorized shares of its Common Stock which have not been issued or
     reserved for issuance to permit the exercise in full of the Rights in
     accordance with this Section 13, and unless prior thereto the Company and
     such Principal Party shall have executed and delivered to the Rights Agent
     a supplemental agreement providing for the terms set forth in paragraphs
     (a) and (b) of this Section 13 and further providing that the Principal
     Party at its own expense, shall:

               (i)   (A) file on an appropriate form, as soon as practicable
          following the execution of such agreement, a registration statement
          under the Securities Act with respect to the Common Stock that may be
          acquired upon exercise of the Rights, (B) cause such registration
          statement to remain effective (and to include a prospectus complying
          with the requirements of the Securities Act) until the Expiration
          Date, and (C) as soon as practicable following the execution of such
          agreement, take such action as may be required to ensure that any
          acquisition of such Common Stock upon the exercise of the Rights
          complies with any applicable state security or "blue sky" laws; and

               (ii)  as soon as practicable following the execution of such
          agreement, deliver to holders of the Rights historical financial
          statements for the Principal Party and each of its Affiliates which
          comply in all respects with the requirements for registration on Form
          10 under the Exchange Act.

          (d)  In case the Principal Party which is to be a party to a
     transaction referred to in this Section 13 has a provision in any of its
     authorized securities or in its Certificate of 


                                      24
<PAGE>
 
     Incorporation or By-laws or other instrument governing its corporate
     affairs, which provision would have the effect of (i) causing such
     Principal Party to issue, in connection with, or as a consequence of, the
     consummation of a transaction referred to in this Section 13, shares of
     Common Stock of such Principal Party at less than the then current market
     price per share (determined pursuant to Section 11(d) hereof) or securities
     exercisable for, or convertible into, Common Stock of such Principal Party
     at less than such then current market price (other than to holders of
     Rights pursuant to this Section 13) or (ii) providing for any special
     payment, tax or similar provisions in connection with the issuance of the
     Common Stock of such Principal Party pursuant to the provisions of this
     Section 13; then, in such event, the Company shall not consummate any such
     transaction unless prior thereto the Company and such Principal Party shall
     have executed and delivered to the Rights Agent a supplemental agreement
     providing that the provision in question of such Principal Party shall have
     been cancelled, waived or amended, or that the authorized securities shall
     be redeemed, so that the applicable provision will have no effect in
     connection with, or as a consequence of, the consummation of the proposed
     transaction.

          (e)  The provisions of this Section 13 shall similarly apply to
     successive mergers or consolidations or sales or other transfers. In the
     event that a Section 13 Event shall occur at any time after the occurrence
     of a Section 11(a)(ii) Event, the Rights which have not theretofore been
     exercised shall thereafter become exercisable, in the manner and for the
     securities described in Section 13(a).

     Section 14.  Fractional Rights and Fractional Shares.  (a) The Company
                  ---------------------------------------                  
shall not be required to issue fractions of Rights or to distribute Rights
Certificates which evidence fractional Rights. In lieu of issuing such
fractional Rights, there shall be paid to the Persons to which such fractional
Rights would otherwise be issuable, an amount in cash equal to such fraction of
the market value of a whole Right. For purposes of this Section 14(a), the
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 of the Rights for any day shall
be, if the Rights are listed or admitted to trading on a national securities
exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by Nasdaq or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by a majority
of the Board of Directors (including, following a Section 11(a)(ii) Event, a
majority of the Independent Directors). 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 a majority of the Board of Directors (including,
following a Section 11(a)(ii) Event,  a majority of the Independent Directors)
shall be used and such determination shall be described in a statement filed
with the Rights Agent and the holders of the Rights.



                                      25
<PAGE>
 
       (b)  The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one one-
hundredth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence such fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-hundredth of a
share of Preferred Stock); provided, however, that in lieu of fractions of
                           --------  -------                              
shares of Preferred Stock which are integral multiples of one one-hundredth of a
share of Preferred Stock, the Company may provide for the issuance of depositary
receipts pursuant to Section 7(c) hereof.  In lieu of such fractional shares of
Preferred Stock that are not integral multiples of one one-hundredth of a share,
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the then current market price of a share of Preferred Stock on the
day of exercise, determined in accordance with Section 11(d) hereof.

       (c)  The holder of a Right by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.

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

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

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

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


                                      26
<PAGE>
 
          (c)  subject to Section 6(a) and Section 7(f) hereof, the Company and
     the Rights Agent may deem and treat the person in whose name a Rights
     Certificate (or, prior to the Distribution Date, the associated Company
     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 Rights Certificates or the associated Company 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 the last sentence of Section 7 (e) hereof, shall be
     affected by any notice to the contrary; and

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

  Section 17.  Rights Certificate Holder Not Deemed a Stockholder.  No holder,
               --------------------------------------------------             
as such, of any Rights Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the number of shares of Preferred
Stock or any other securities of the Company which may at any time be issuable
on the exercise of the Rights represented thereby, nor shall anything contained
herein or in any Rights Certificate be construed to confer upon the holder of
any Rights 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, except as provided in Section 24 hereof, to receive
notice of meetings or other actions affecting stockholders, or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificate shall have been exercised in accordance
with the provisions hereof.  This Section 17 shall also apply to holders, as
such, of Rights prior to the issuance of Rights Certificates.

     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, including reasonable fees and disbursements of its counsel, incurred
in connection with the execution and administration of this Agreement and the
exercise and performance of its duties hereunder. The Company shall indemnify
the Rights Agent for, and 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 reasonable costs and expenses of defending against any claim of
liability hereunder.


                                      27
<PAGE>
 
       (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 Rights Certificate or
certificate for Preferred 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 have been signed, executed and,
where necessary, verified or acknowledged by the proper Person or Persons.

     Section 19.  Merger or Consolidation or Change of Name of Rights Agent.
                  ---------------------------------------------------------  
(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 corporate
trust or shareholder services businesses 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 document or any further act on the part
of any of the parties hereto; provided, however, 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 Rights Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of a predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Rights
Certificates shall have the full force provided in the Rights 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 Rights Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior name
or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.

     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 Rights 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 (including, without 


                                      28
<PAGE>
 
     limitation, the identity of any Acquiring Person and the determination of
     "current market price") 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 specified herein) may be deemed to be
     conclusively proved and established by a certificate signed by the Chairman
     of the Board, the President, any Vice President, the Treasurer, any
     Assistant Treasurer, the Secretary or any Assistant Secretary of the
     Company and delivered to the Rights Agent; provided, however, that so long
                                                --------  -------
     as any Person is an Acquiring Person hereunder, such certificate shall be
     signed and delivered by a majority of the Board of Directors (including of
     a majority of the Independent Directors); 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 only for its own gross
     negligence, bad faith or willful misconduct.

          (d)  The Rights Agent shall not be liable for or by reason of any of
     the statements of fact or recitals contained in this Agreement or in the
     Rights Certificates or be required to verify the same (except as to its
     countersignature on such Rights Certificates), 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 have any responsibility for the
     validity of this Agreement or the execution and delivery hereof (except the
     due execution hereof by the Rights Agent) or for the validity or execution
     of any Rights Certificate (except its countersignature thereof); nor shall
     it be responsible for any breach by the Company of any covenant or failure
     by the Company to satisfy conditions contained in this Agreement or in any
     Rights Certificate; nor shall it be responsible for any adjustment required
     under the provisions of Section 11 or Section 13 hereof or for the manner,
     method or amount of any such adjustment or the ascertaining of the
     existence of facts that would require any such adjustment (except with
     respect to the exercise of Rights evidenced by Rights Certificates after
     receipt by the Rights Agent of the certificate describing any such
     adjustment contemplated by Section 12); 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 any other securities to be
     issued pursuant to this Agreement or any Rights Certificate or as to
     whether any shares of Preferred Stock or any other securities will, when so
     issued, be validly authorized and issued, fully paid and non-assessable.

          (f)  The Company shall perform, execute, acknowledge and deliver or
     cause to be performed, executed, acknowledged and delivered all such
     further acts, instruments and assurances as may reasonably be required by
     the Rights Agent for the performance by the Rights Agent of its duties
     under this Agreement.

          (g)  The Rights Agent is hereby authorized and directed to accept
     instructions with respect to the performance of its duties hereunder from
     the Chairman of the Board, 


                                      29
<PAGE>
 
     the President, any Vice President, the Secretary, any Assistant Secretary,
     the Treasurer or any Assistant Treasurer 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 to be taken by it
     in good faith in accordance with instructions of any such officer;
     provided, however, that so long as any Person is an Acquiring Person
     --------  -------                 
     hereunder, the Rights Agent shall accept such instructions and advice only
     from a majority of the Board of Directors (including a majority of the
     Independent Directors) and shall not be liable for any action taken or
     suffered to be taken by it in good faith in accordance with such
     instructions of the majority of the Board of Directors (including a
     majority of the Independent Directors). 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 Rights 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 such 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 shareholder, 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.

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

          (k)  If, with respect to any Rights Certificate surrendered to the
     Rights Agent for exercise or transfer, the certificate attached to the form
     of assignment or form of election to purchase, as the case may be, has
     either not been completed, not signed or indicates an affirmative response
     to clause 1 and/or 2 thereof, the Rights Agent shall not take any further
     action with respect to such requested exercise or transfer without first
     consulting 

                                      30
<PAGE>
 
     with the Company. If such certificate has been completed and signed and
     shows a negative response to clauses 1 and 2 of such certificate, unless
     previously instructed otherwise in writing by the Company (which
     instructions may impose on the Rights Agent additional ministerial
     responsibilities, but no discretionary responsibilities), the Rights Agent
     may assume without further inquiry that the Rights Certificate is not owned
     by a person described in Section 7(e) hereof and shall not be charged with
     any knowledge to the contrary.

     Section 21.  Change of Rights Agent.  The Rights Agent or any successor
                  ----------------------                                    
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty days' prior notice in writing mailed to the Company, and to each
transfer agent of the Preferred Stock and the Company Common Stock, by
registered or certified mail, and to the holders of the Rights Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon thirty days' prior notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to each transfer agent
of the Preferred Stock and the Company Common Stock, by registered or certified
mail, and to the holders of the Rights 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 thirty 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 Rights Certificate (who shall, with such notice, submit his
Rights Certificate for inspection by the Company), then any registered holder of
any Rights 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) a corporation organized and
doing business under the laws of the United States or any state of the United
States in good standing, shall be authorized under applicable laws to exercise
corporate trust or stock transfer powers and shall be subject to supervision or
examination by federal or state authorities or (b) an Affiliate of a corporation
described in clause (a). 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 Preferred Stock and the Company Common Stock, and mail a notice thereof in
writing to the registered holders of the Rights 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.

     Section 22.  Issuance of New Rights Certificates.  Notwithstanding any of
                  -----------------------------------                         
the provisions of this Agreement or the Rights to the contrary, the Company may,
at its option, issue new Rights Certificates evidencing Rights in such form as
may be approved by a majority of the Board of Directors (including, following a
Section 11(a)(ii) Event, a majority of the Independent Directors) to reflect any
adjustment or change made in accordance with the provisions of this 


                                      31
<PAGE>
 
Agreement in the Purchase Price or the number or kind or class of shares or
other securities or property that may be acquired under the Rights Certificates.
In addition, in connection with the issuance or sale of shares of Company Common
Stock following the Distribution Date and prior to the Expiration Date, the
Company (a) shall, with respect to shares of Company Common Stock so issued or
sold pursuant to the exercise of stock options or under any employee plan or
arrangement, or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company, and (b) may, in any other case, if deemed
necessary or appropriate by a majority of the Board of Directors (including,
following a Section 11(a)(ii) Event, a majority of the Independent Directors),
issue Rights Certificates representing the appropriate number of Rights in
connection with such issuance or sale; provided, however, that (i) no such
                                       --------  -------
Rights Certificate shall be issued if, and to the extent that, the Company shall
be advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued, and (ii) no such Rights Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.

     Section 23.  Redemption and Termination.  (a) Subject to Section 30 hereof,
                  --------------------------                                    
the Company may, at its option, by action of a majority of the Board of
Directors (including, following a Section 11(a)(ii) Event, a majority of the
Independent Directors), at any time prior to the earlier of (i) the Close of
Business on the tenth Business Day following the Stock Acquisition Date or (ii)
the Final Expiration Date, redeem all but not less than all of the then
outstanding Rights at a redemption price of $.01 per Right, as such amount may
be appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being the
"Redemption Price").  The Company may, at its option, by action of a majority of
- -----------------                                                               
the Board of Directors (including, following a Section 11(a)(ii) Event, a
majority of the Independent Directors), pay the Redemption Price either in
shares of Company Common Stock (based on the "current market price", as defined
in Section 11(d) hereof, of the shares of Company Common Stock at the time of
redemption) or cash and the redemption of the Rights shall be effective on the
basis and with such conditions as the Board of Directors (including, following a
Section 11(a)(ii) Event, a majority of the Independent Directors) may in its
sole discretion establish.

       (b)  Immediately upon the action of a majority of the Board of Directors
(including, following a Section 11(a)(ii) Event, a majority of the Independent
Directors) ordering the redemption of the Rights, evidence of which shall be
filed with the Rights Agent, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held.  The Company shall promptly give 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.  Promptly after
the action of a majority of the Board of Directors (including, following a
Section 11(a)(ii) Event, a majority of the Independent Directors) ordering the
redemption of the Rights, the Company shall give notice of such redemption to
the Rights Agent and the holders of the then outstanding Rights by mailing such
notice to all such holders at each holder's last address as it appears upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Company Common 


                                      32
<PAGE>
 
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 will state the method by which the payment of the Redemption Price
will be made.

     Section 24.  Notice of Certain Events.  (a) In case the Company shall
                  ------------------------                                
propose, at any time after the Distribution Date, (i) to pay any dividend
payable in stock of any class to the holders of Preferred Stock or to make any
other distribution to the holders of Preferred Stock (other than a regular
quarterly cash dividend paid out of funds legally available therefor), (ii) to
offer to the holders of 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 of outstanding shares of Preferred Stock), (iv) to effect
any consolidation or merger into or with any other Person, or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer), in one or more transactions, of more than 50% of the
assets or earning power of the Company and its Subsidiaries (taken as a whole)
to any other Person or Persons (other than a transfer by the Company and/or any
of its wholly owned Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 25 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the shares of 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 twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock whichever shall be the earlier; provided, however, no such notice shall be
                                      --------  -------                         
required pursuant to this Section 24, if any wholly owned Subsidiary of the
Company effects a consolidation or merger with or into, or effects a sale or
other transfer of assets or earnings power to, any other wholly owned Subsidiary
of the Company.

       (b)  In case any Triggering Event shall occur, then, in any such case,
(i) the Company shall as soon as practicable thereafter give to each holder of a
Rights Certificate, to the extent feasible and in accordance with Section 25
hereof, a notice of the occurrence of such event, which shall specify the event
and the consequences of the event to holders of Rights under Section 11(a)(ii)
or Section 13 hereof, as the case may be.

     Section 25.  Notices.  All notices and other communications provided for
                  -------                                                    
hereunder shall, unless otherwise stated herein, be in writing (including by
telex, telegram or cable) and mailed or sent or delivered, if to the Company, at
its address at:

                                      33
<PAGE>
 
     Electroglas, Inc.
     3045 Stender Way
     Santa Clara, California 95054
     Attention: Director of Administration

       and if to the Rights Agent, at its address at:

     BankBoston, N.A.
     c/o Boston EquiService Limited Partnership
     150 Regall Street
     Canton, MA 02021
     Attn:  Client Administration

     Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Company Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.

     Section 26.  Supplements and Amendments.  Prior to the Distribution Date
                  --------------------------                                 
and subject to the penultimate sentence of this Section 26, the Company 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
certificates representing shares of Company Common Stock. From and after the
Distribution Date and subject to the penultimate sentence of this Section 26,
the Company and the Rights Agent shall, if the Company so directs, supplement or
amend this Agreement without the approval of any holders of Rights Certificates
in order (i) to cure any ambiguity, (ii) to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, (iii) to shorten or lengthen any time period hereunder, or
(iv) to change or supplement the provisions hereunder in any manner which the
Company may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Rights Certificates (other than an Acquiring Person
or an Affiliate or Associate of an Acquiring Person); provided, however, that
                                                      --------  -------      
this Agreement may not be supplemented or amended to lengthen, pursuant to
clause (iii) of this sentence, (A) subject to Section 30 hereof, a time period
relating to when the Rights may be redeemed at such time as the Rights are not
then redeemable, or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Upon the delivery of a certificate from an
appropriate officer of the Company or, so long as any Person is an Acquiring
Person hereunder, from the majority of the Board of Directors (including a
majority of the Independent Directors) which states that the proposed supplement
or amendment is in compliance with the terms of this Section 26, the Rights
Agent shall execute such supplement or amendment. Notwithstanding anything
contained in this Agreement to the contrary, (i) no supplement or amendment
shall be made which changes the Redemption Price, the Purchase Price, the
Expiration Date or the number of Units of Preferred Stock or other securities or
assets for which a Right is exercisable without the approval of a majority of
the Board of Directors (including, following a Section 11(a)(ii) Event, a
majority of the Independent Directors), and 


                                      34
<PAGE>
 
(ii) following the occurrence of a Section 11(a)(ii) Event, no supplement or
amendment whatsoever shall be made without the approval of the Board of
Directors, including a majority of the Independent Directors. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Company Common Stock.

     Section 27.  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 28.  Determinations and Actions by the Board of Directors, etc.
                  ---------------------------------------------------------  
For all purposes of this Agreement, any calculation of the number of shares of
Company Common Stock outstanding at any particular time, including for purposes
of determining the particular percentage of such outstanding shares of Company
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 Exchange Act
Regulations as in effect on the date hereof. Except as otherwise specifically
provided herein, the Board of Directors of the Company (including, where so
provided, a majority of the Independent Directors) shall have the exclusive
power and authority to administer this Agreement and to exercise all rights and
powers specifically granted to the Board (including, where so provided, a
majority of the Independent Directors) or to the Company, or as may be necessary
or advisable in the administration of this Agreement, including, without
limitation, the right and power (i) to interpret the provisions of this
Agreement, and (ii) to make all determinations deemed necessary or advisable for
the administration of this Agreement. All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
including, where so provided, a majority of the Independent Directors in good
faith shall (x) be final, conclusive and binding on the Company, the Rights
Agent, the holders of the Rights and all other parties, and (y) not subject the
Board or any member thereof to any liability to the holders of the Rights.
Whenever in this Agreement a vote of a majority of the Independent Directors is
required, there shall be present in office at least one Independent Director.

     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 Rights Certificates (and, prior to the
Distribution Date, registered holders of shares of Company 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 Rights Certificates (and, prior to the
Distribution Date, registered holders of shares of Company Common Stock).

     Section 30. Severability. If any term, provision, covenant or restriction
                 ------------                                                 
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
- --------  -------                                                        
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and a majority of the
Board of Directors (including, following a 


                                      35
<PAGE>
 
Section 11(a)(ii) Event, a majority of the Independent Directors) determines in
its good faith judgment that severing the invalid language from this Agreement
would adversely affect the purpose or effect of this Agreement and the Rights
shall not then be redeemable, the right of redemption set forth in Section 23
hereof shall be reinstated and shall not expire until the Close of Business on
the tenth Business Day following the date of such determination by a majority of
the Board of Directors (including, following a Section 11(a)(ii) Event, a
majority of the Independent Directors).

     Section 31.  Governing Law.  This Agreement, each Right and each Rights
                  -------------                                             
Certificate issued hereunder shall be governed by, and construed in accordance
with, the laws of the State of Delaware applicable to contracts executed in and
to be performed entirely in such State.

     Section 32.  Counterparts.  This Agreement may be executed (including by
                  ------------                                               
facsimile) in one or more counterparts, and by the different parties hereto in
separate counterparts, each of which when executed shall be deemed to be an
original, but all of which taken together shall constitute one and the same
instrument.

     Section 33.  Descriptive Headings.  The headings contained in this
                  --------------------                                 
Agreement are for descriptive purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

     Section 34.  Exchange.  (a) The Company, upon resolution of a majority of
                  --------                                                    
the Board of Directors (including a majority of the Independent Directors) may,
at its option, at any time after the first occurrence of a Section 11(a)(ii)
Event, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to Section 7(e)
hereof) for Units of Preferred Stock or shares of Company Common Stock (at the
election of the Board of Directors (including a majority of the Independent
Directors)) at an exchange ratio of one Unit of Preferred Stock or one share of
Company Common Stock, as the case may be, per Right, as appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date hereof (such exchange ratio being the "Exchange Ratio").
                                                      --------------    
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after any Person (other than an Exempt Person),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of shares of Company Common Stock aggregating 50% or more of
the shares of Company Common Stock then outstanding.  From and after the
occurrence of a Section 13(a) Event, any Rights that theretofore have not been
exchanged pursuant to this Section 34(a) shall thereafter be exercisable only in
accordance with Section 13 and may not be exchanged pursuant to this Section
34(a).  The exchange of the Rights by the Board of Directors (including a
majority of the Independent Directors) may be made effective at such time, on
such basis and with such conditions as the Board of Directors (including a
majority of the Independent Directors) in its sole discretion may establish.

       (b)  Immediately upon the action of a majority of the Board of Directors
(including a majority of the Independent Directors) ordering the exchange of any
Rights pursuant to Section 34(a) 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 


                                      36
<PAGE>
 
number of Units of Preferred Stock or shares of Company Common Stock, as the
case may be, 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 promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
shall state the method by which the exchange of Units of Preferred Stock or
shares of Company Common Stock, as the case may be, 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 7(e) hereof) held by each holder of Rights.

       (c)  In the event that the number of shares of Preferred Stock or Company
Common Stock, as the case may be, which are authorized by the Company's Restated
Certificate of Incorporation but not outstanding or reserved for issuance for
purposes other than upon exercise of the Rights are not sufficient to permit any
exchange of Rights as contemplated in accordance with this Section 34, the
Company, upon a resolution of a majority of the Board of Directors (including a
majority of the Independent Directors), shall take all such action as may be
necessary to authorize additional shares of Preferred Stock or Company Common
Stock, as the case may be, for issuance upon exchange of the Rights or make
adequate provision to substitute, in whole or in part, (1) cash, (2) other
equity securities of the Company, (3) debt securities of the Company, (4) other
assets, or (5) any combination of the foregoing, having an aggregate value for
each Right to be exchanged equal to the per share market price of one Unit of
Preferred Stock or share of Company Common Stock, as the case may be (determined
pursuant to Section 11(d) hereof) as of the date of a Section 11(a)(ii) Event,
where such aggregate value has been determined by a majority of the Board of
Directors (including a majority of the Independent Directors).

       (d)  The Company shall not be required to issue fractions of Units of
Preferred Stock or fractions of shares of Company Common Stock or to distribute
certificates which evidence fractional Units or fractional shares.  In lieu of
issuing fractional Units or fractional shares, the Company may pay to the
registered holders of Rights Certificates at the time such Rights are exchanged
as herein provided an amount in cash equal to the same fraction of the current
market price (determined pursuant to Section 11(d) hereof) of one Unit of
Preferred Stock or one share of Company Common Stock, as the case may be, on the
Trading Day immediately prior to the date of exchange pursuant to this Section
34.


                                      37
<PAGE>
 
     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the date first above written.

                                 ELECTROGLAS, INC.



                                 By:  __________________________________
                                 Name:    Curtis S. Wozniak
                                 Title:   Chief Executive Officer
 
 
 
                                 By:  __________________________________
                                 Name:    Armand Stegall
                                 Title:   Secretary
 
 
 
                                 BANKBOSTON, N.A.
 
 
 
                                 By:  __________________________________
                                 Name:
                                 Title:
 
 
 
                                 By:  __________________________________
                                 Name:
                                 Title:



                                      38
<PAGE>
 
                                                                       EXHIBIT A

                          FORM OF RIGHTS CERTIFICATE
Certificate No. ______                                             ______ Rights

NOT EXERCISABLE AFTER THE EXPIRATION DATE (AS DEFINED IN THE RIGHTS AGREEMENT
REFERRED TO BELOW). THE RIGHTS ARE SUBJECT TO REDEMPTION OR EXCHANGE, AT THE
OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.  UNDER
CERTAIN CIRCUMSTANCES (SPECIFIED IN THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY
OWNED BY ACQUIRING PERSONS (AS DEFINED IN THE RIGHTS AGREEMENT) OR ANY
SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID.

                              Rights Certificate

                               ELECTROGLAS, INC.

        This certifies that ______________________, or registered assigns, is
the registered holder of the number of Rights set forth above, each of which
entitles the registered holder thereof, subject to the terms and conditions of
the Rights Agreement dated as of November 18, 1997, as amended from time to time
(the "Rights Agreement''; terms defined therein are used herein with the same
meaning unless otherwise defined herein) between Electroglas, Inc., a Delaware
corporation (the "Company"), and BankBoston, N.A., as Rights Agent (which term
shall include any successor Rights Agent under the Rights Agreement), to
purchase from the Company at any time after the Distribution Date and prior to
the Expiration Date at the office of the Rights Agent, one one-hundredth of a
fully paid and nonassessable share of Series A Preferred Stock, par value $.01
per share (the ''Preferred Stock"), of the Company at the Purchase Price
initially of $140.00 per one one-hundredth share of Preferred Stock (each such
one one-hundredth of a share being a "Unit"), upon presentation and surrender of
this Rights Certificate with the Election to Purchase and related certificate
duly executed. The number of Rights evidenced by this Rights Certificate (and
the number of shares which may be purchased upon exercise thereof) set forth
above, and the Purchase Price per Unit set forth above, and the Purchase Price
per share set forth above, are the number and Purchase Price as of November 18,
1997 based on the Preferred Stock as constituted at such date. The Company
reserves the right to require prior to the occurrence of a Triggering Event (as
such term is defined in the Rights Agreement) that a number of Rights be
exercised so that only whole shares of Preferred Stock will be issued.

        UPON THE OCCURRENCE OF A SECTION 11(a)(ii) EVENT, IF THE RIGHTS
EVIDENCED BY THIS RIGHTS CERTIFICATE ARE BENEFICIALLY OWNED BY AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF ANY SUCH ACQUIRING PERSON OR, UNDER
CERTAIN CIRCUMSTANCES DESCRIBED IN THE RIGHTS AGREEMENT, A TRANSFEREE OF ANY
SUCH ACQUIRING PERSON, ASSOCIATE OR AFFILIATE, SUCH RIGHTS SHALL BECOME NULL AND
VOID AND NO HOLDER HEREOF 

                                      A-1
<PAGE>
 
SHALL HAVE ANY RIGHT WITH RESPECT TO SUCH RIGHTS FROM AND AFTER THE OCCURRENCE
OF SUCH SECTION 11(a)(ii) EVENT.

        In certain circumstances described in the Rights Agreement, the Rights
evidenced hereby may entitle the registered holder thereof to purchase capital
stock of an entity other than the Company or receive common stock, cash or other
assets, all as provided in the Rights Agreement.

        As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities, which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain events,
including a Triggering Event.

        This Rights Certificate is subject to all of the terms and conditions of
the Rights Agreement, which terms 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 Rights Certificates, which limitations of rights include
the temporary suspension of the exercisability of such Rights under the specific
circumstances set forth in the Rights Agreement. Copies of the Rights Agreement
are on file at the principal office of the Rights Agent and are available from
the Rights Agent upon written request.

        This Rights Certificate, with or without other Rights Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Rights Certificate or Rights Certificates of like tenor
and date evidencing an aggregate number of Rights equal to the aggregate number
of Rights evidenced by the Rights Certificate or Rights Certificates
surrendered. If this Rights Certificate shall be exercised in part, the
registered holder shall be entitled to receive, upon surrender hereof, another
Rights Certificate or Rights Certificates for the number of whole Rights not
exercised.

        Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Company under certain circumstances
at its option at a redemption price of $.01 per Right, at any time prior to the
earlier of the close of business on (i) the tenth business day following the
Stock Acquisition Date (as such time period may be extended pursuant to the
Rights Agreement), other than a Stock Acquisition Date that occurs as a result
of a Qualifying Offer, and (ii) the Final Expiration Date. In addition, the
Rights may be exchanged, in whole or in part, for shares of the Common Stock of
the Company. Immediately upon the action of the Board of Directors of the
Company authorizing any such exchange, and without any further action or any
notice, the Rights (other than Rights which are not subject to such exchange)
will terminate and the Rights will only enable holders to receive the shares
issuable upon such exchange. Under certain circumstances set forth in the Rights
Agreement, the decision to 

                                      A-2
<PAGE>
 
redeem the Rights shall require the concurrence of a majority of the Independent
Directors.

        No fractional shares of Preferred Stock will be issued upon the exercise
of any Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a share of Preferred Stock or depositary
receipts representing such fractions), but in lieu thereof a cash payment will
be made, as provided in the Rights Agreement.

        No holder of this Rights Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of Preferred Stock
or of any other securities which may at any time be issuable on the exercise
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 of subscription rights, or otherwise, until
the Rights









                                      A-3
<PAGE>
 
evidenced by this Rights Certificate shall have been exercised as provided in
the Rights Agreement.

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

        WITNESS the facsimile signature of the proper officers of the Company.
Dated as of _________________, __________



                                                ELECTROGLAS, INC.


                                                By:____________________________
                                                   Name:
                                                   Title:  President



                                                By:____________________________
                                                   Name:
                                                   Title:  Secretary



Countersigned:

BANKBOSTON, N.A.
          as Rights Agent


     By:  ________________________________
          Name:
          Title:





                                      A-4
<PAGE>
 
                 [Form of Reverse Side of Rights Certificate]

                              FORM OF ASSIGNMENT


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



     FOR VALUE RECEIVED ____________________ hereby sells, assigns and transfers
unto:___________________________________________________________

(Please print name and address of transferee)_________________________________ 
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________
Attorney, to transfer the within Rights Certificate on the books of the within-
named Company, with full power of substitution.

                                                Dated _________________ , _____


                                                ________________________________
                                                Signature

                                                Signature Guaranteed:

                                  Certificate
                                  -----------

        The undersigned hereby certifies by checking the appropriate boxes in
(1) and (2) that:

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

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

                                                Dated __________________, ______

                                                ________________________________
                                                Signature

                                                Signature Guaranteed:


                                      A-5
<PAGE>
 
                                    NOTICE
                                    ------

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

        Signatures must be guaranteed by an approved eligible financial
institution acceptable to the Rights Agent in its sole discretion or by a
participant in the Securities Transfer Agents Medallion Program, the Stock
Exchange Medallion Program or the New York Stock Exchange Medallion Program.

        In the event the certification set forth above is not completed, the
Company will deem the beneficial owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement) and, in the case of an Assignment, will affix a
legend to that effect on any Rights Certificates issued in exchange for this
Rights Certificate.







                                      A-6
<PAGE>
 
                         FORM OF ELECTION TO PURCHASE

         (To be executed if the registered holder desires to exercise
                Rights represented by the Rights Certificate.)

To:  ELECTROGLAS, INC.

     The undersigned hereby irrevocably elects to exercise ____________________
Rights represented by this Rights Certificate to purchase the Units of Preferred
Stock issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person or other property which may be issuable upon the
exercise of the Rights) and requests that certificates for such Units be issued
in the name of and delivered to: __________________________________

________________________________________________________________________ (Please
print name and address) _______________________________ (Please insert social
security or other identifying number).

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

(Please print name and address) ______________________________________________
(Please insert social security or other identifying number).

                                                Dated __________________________


                                                ________________________________
                                                Signature

                                                Signature Guaranteed:

                                  Certificate
                                  -----------

        The undersigned hereby certifies by checking the appropriate boxes in
(1) and (2) that:

        (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
beneficially owned by an Acquiring Person or an Affiliate or an Associate
thereof (as defined in the Rights Agreement); and

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



                                      A-7
<PAGE>
 
                                                Dated: _________________________


                                                ________________________________
                                                Signature

                                                Signature Guaranteed:


                                    NOTICE

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

        Signatures must be guaranteed by an approved eligible financial
institution acceptable to the Rights Agent in its sole discretion or by a
participant in the Securities Transfer Agents Medallion Program, the Stock
Exchange Medallion Program or the New York Stock Exchange Medallion Program.

        In the event the certification set forth above is not completed, the
Company will deem the beneficial owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement) and, in the case of an Assignment, will affix a
legend to that effect on any Rights Certificates issued in exchange for this
Rights Certificate.






                                      A-8
<PAGE>
 
                                                                       EXHIBIT B

                          UNDER CERTAIN CIRCUMSTANCES
                     (SPECIFIED IN THE RIGHTS AGREEMENT),
                RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS
                     (AS DEFINED IN THE RIGHTS AGREEMENT)
                    OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS
                           MAY BECOME NULL AND VOID.

                 SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK

On October 23, 1997, the Board of Directors of Electroglas, Inc. (the "Company")
authorized and declared a dividend distribution of one Right for each
outstanding share of its common stock, par value $.01 per share (the "Company
Common Stock"), to stockholders of record at the close of business on November
30, 1997 (the "Record Date"), and authorized the issuance of one Right with each
share of Company Common Stock issued (including shares distributed from
Treasury) by the Company thereafter between the Record Date and the Distribution
Date (as defined below).  Each Right entitles the registered holder, subject to
the terms of the Rights Agreement (as defined below), to purchase from the
Company one one-hundredth of a share (a "Unit") of Series A Preferred Stock, par
value $.01 per share (the "Preferred Stock"), at a purchase price of $140.00 per
Unit, subject to adjustment.  The purchase price is payable in cash or by
certified or bank check or money order payable to the order of the Company.  The
description and terms of the Rights are set forth in a Rights Agreement between
the Company and BankBoston, N.A., as Rights Agent, dated as of November 18,
1997, as amended from time to time (the "Rights Agreement").

        Copies of the Rights Agreement and the Certificate of Designation for
the Preferred Stock have been filed with the Securities and Exchange Commission
as exhibits to a Registration Statement on Form 8-A dated November 18, 1997.
Copies of the Rights Agreement and the Certificate of Designation are available
free of charge from the Company. This summary description of the Rights and the
Preferred Stock does not purport to be complete and is qualified in its entirety
by reference to all of the provisions of the Rights Agreement and the
Certificate of Designation, including the definitions therein of certain terms,
which Rights Agreement and Certificate of Designation are incorporated herein by
reference.

        The Rights Agreement
        --------------------

        Initially, the Rights will attach to all certificates representing
shares of outstanding Company Common Stock, and no separate Rights Certificates
will be distributed. The Rights will separate from the Company Common Stock and
the "Distribution Date" will occur upon the earlier of (i) ten days following a
public announcement (the date of such announcement being the "Stock Acquisition
Date") that a person or group of affiliated or associated persons has acquired
or otherwise obtained beneficial ownership of 15% or more of the then
outstanding shares of Company 

                                      B-1
<PAGE>
 
Common Stock (an "Acquiring Person"), and (ii) ten business days (or such later
date as may be determined by action of the Board of Directors prior to such time
as any person becomes an Acquiring Person) following the commencement of a
tender offer or exchange offer that would result in a person or group
beneficially owning 15% or more of the then outstanding shares of Company Common
Stock. Until the Distribution Date, (i) the Rights will be evidenced by Company
Common Stock certificates and will be transferred with and only with such
Company Common Stock certificates, (ii) new Company Common Stock certificates
issued after the Record Date (also including shares distributed from Treasury)
will contain a notation incorporating the Rights Agreement by reference and
(iii) the surrender for transfer of any certificates representing outstanding
Company Common Stock will also constitute the transfer of the Rights associated
with the Company Common Stock represented by such certificates.

        An "Acquiring Person" does not include (A) the Company, (B) any
subsidiary of the Company, (C) any employee benefit plan maintained by the
Company or any of its subsidiaries, (D) any trustee or fiduciary with respect to
such employee benefit plan acting in such capacity or a trustee or fiduciary
holding shares of Company Common Stock for the purpose of funding any such plan
or employee benefits, (E) any person who has reported or is required to report
such beneficial ownership on Schedule 13G under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), but only so long as (x) such person is
eligible to report such ownership on Schedule 13(G) under the Exchange Act, (y)
such person (or any other person) has not reported and is not required to report
such ownership on Schedule 13(D) under the Exchange Act, and (z) such person
does not beneficially own 20% or more of the shares of Company Common Stock then
outstanding, or (F) any person if the Board of Directors determines in good
faith that such person who would otherwise be an "Acquiring Person" became such
inadvertently and without any intention of changing or influencing control of
the Company, and as promptly as practicable divested or divests itself of
beneficial ownership of a sufficient number of shares of Company Common Stock so
that such person would no longer beneficially own 15% or more of the then
outstanding shares of Company Common Stock, and after becoming aware that such
person would inadvertently be an "Acquiring Person" (but for the operation of
this clause) such person does not beneficially own any additional shares, unless
such person's beneficial ownership of Company Common Stock is less than 15% of
the then outstanding shares of Company Common Stock. In addition, no person
shall be deemed an "Acquiring Person" as a result of the acquisition of shares
of Company Common Stock by the Company which, by reducing the number of shares
of Company Common Stock outstanding, increases the proportional number of shares
beneficially owned by such person; provided, however, that if (A) a person would
                                   --------  -------
become an "Acquiring Person" (but for the operation of this provision) as a
result of the acquisition of shares of Company Common Stock by the Company and
(B) after such share acquisition by the Company, such person becomes the
beneficial owner of any additional shares of Company Common Stock, then such
person shall be deemed an "Acquiring Person."

                                      B-2
<PAGE>
 
        The Rights are not exercisable until the Distribution Date and will
expire at the close of business on the tenth anniversary of the Rights Agreement
unless earlier redeemed or exchanged by the Company as described below. Under
certain circumstances the exercisability of the Rights may be suspended. In no
event, however, will the Rights be exercisable prior to the expiration of the
period in which the Rights may be redeemed.

        As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Company Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights.

        In the event that a person becomes an Acquiring Person, then, in such
case, each holder of a Right will thereafter have the right to receive, upon
exercise, shares of Company Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a value equal to two times
the exercise price of the Right. The exercise price is the purchase price
multiplied by the number of Units of Preferred Stock issuable upon exercise of a
Right prior to the event described in this paragraph. Notwithstanding any of the
foregoing, following the occurrence of the event set forth in this paragraph,
all Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person will be null and
void.

        In the event that, at any time following the date that any person
becomes an Acquiring Person, (i) the Company is acquired in a merger or other
business combination transaction and the Company is not the surviving
corporation, (ii) any person merges with the Company and all or part of the
Company Common Stock is converted or exchanged for securities, cash or property
of the Company or any other person or (iii) 50% or more of the Company's assets
or earning power is sold or transferred, each holder of a Right (except Rights
which previously have been voided as described above) shall thereafter have the
right to receive, upon exercise, common stock of the Acquiring Person having a
value equal to two times the exercise price of the Right.

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

        With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments amount to at least 1% of the purchase
price. The Company is not required to issue fractional shares of Preferred Stock
(other than fractions which are 

                                      B-3
<PAGE>
 
integral multiples of one one-hundredth of a share of Preferred Stock which may
be evidenced by depositary receipts). In lieu thereof, an adjustment in cash may
be made based on the current market price of a share of Preferred Stock on the
day of exercise.

        At any time until ten business days following the Stock Acquisition
Date, a majority of the Board of Directors (including, following the date on
which there is an Acquiring Person, the majority of the Independent Directors)
may redeem the Rights in whole, but not in part, at a price of $.01 per Right
(subject to adjustment in certain events) (the "Redemption Price") payable, at
the election of the majority of the Board of Directors (including a majority of
the Independent Directors), in cash or shares of Company Common Stock.
Immediately upon the action of a majority of the Board of Directors (including,
following the date on which there is an Acquiring Person, a majority of the
Independent Directors) ordering the redemption of the Rights, the Rights will
terminate and the only right of the holders of Rights will be to receive the
Redemption Price.

        The Company may at any time after there is an Acquiring Person, by
action of a majority of the Board of Directors (including a majority of the
Independent Directors), exchange all or part of the then outstanding and
exercisable Rights (other than Rights that shall have become null and void) for
shares of Company Common Stock pursuant to a one-for-one exchange ratio, as
adjusted.

        Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Units of Preferred Stock (or other consideration).

        Any of the provisions of the Rights Agreement may be amended without the
approval of the holders of Company Common Stock at any time prior to the
Distribution Date. After the Distribution Date, the provisions of the Rights
Agreement may be amended in order to cure any ambiguity, defect or
inconsistency, to make changes which do not adversely affect the interests of
holders of Rights (excluding the interests of any Acquiring Person), or to
shorten or lengthen any time period under the Rights Agreement; provided,
                                                                --------
however, that no amendment to adjust (i) the time period governing redemption
- -------
shall be made at such time as the Rights are not redeemable or (ii) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the Rights of and/or benefiting, the holders of Rights. In
addition, after a person becomes an Acquiring Person, no amendment or supplement
may be made without the approval of a majority of the Board of Directors
(including a majority of the Independent Directors).

                                      B-4
<PAGE>
 
        Description of Preferred Stock
        ------------------------------

        The Units of Preferred Stock that may be acquired upon exercise of the
Rights will be nonredeemable and subordinate to any other shares of preferred
stock that may be issued by the Company.

        Each Unit of Preferred Stock will have a minimum preferential quarterly
dividend of $.01 per Unit or any higher per share dividend declared on the
Company Common Stock.

        In the event of liquidation, the holder of a Unit of Preferred Stock
will receive a preferred liquidation payment equal to the greater of $.01 per
Unit and the per share amount paid in respect of a share of the Company Common
Stock.

        Each Unit of Preferred Stock will have one vote, voting together with
the Company Common Stock.

        In the event of any merger, consolidation or other transaction in which
shares of Company Common Stock are exchanged, each Unit of Preferred Stock will
be entitled to receive the per share amount paid in respect of each share of
Company Common Stock.

        The rights of holders of the Preferred Stock with respect to dividends,
liquidation and voting, and in the event of mergers and consolidations, are
protected by customary antidilution provisions.

        Because of the nature of the Preferred Stock's dividend, liquidation and
voting rights, the economic value of one Unit of Preferred Stock that may be
acquired upon the exercise of each Right should approximate the economic value
of one share of Company Common Stock.







                                      B-5
<PAGE>
                                                                       EXHIBIT C

 
                               ELECTROGLAS, INC.
                          CERTIFICATE OF DESIGNATION
                      OF THE VOTING POWERS, DESIGNATION,
                   PREFERENCES AND RELATIVE, PARTICIPATING,
             OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
                      LIMITATIONS AND RESTRICTIONS OF THE
                           SERIES A PREFERRED STOCK

                     -------------------------------------

Pursuant to Section 151 of the General Corporation Law of the State of Delaware

                     -------------------------------------

        The undersigned officers of Electroglas, 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, DO
HEREBY CERTIFY:

        That, pursuant to the authority conferred upon the Board of Directors of
the Corporation by its Restated Certificate of Incorporation (the
"Certificate"), the said Board of Directors, at a duly called meeting held on
October 23, 1997, at which a quorum was present and acted throughout, adopted
the following resolution, which resolution remains in full force and effect on
the date hereof creating a series of 500,000 shares of Preferred Stock having a
par value of $.01 per share, designated as Series A Preferred Stock (the "Series
A Preferred Stock") out of the class of 1,000,000 shares of preferred stock of
the par value of $.01 per share (the "Preferred Stock"):

        RESOLVED, that pursuant to the authority vested in the Board of
Directors in accordance with the provisions of its Certificate, the Board of
Directors does hereby create, authorize and provide for 500,000 shares of its
authorized Preferred Stock to be designated and issued as the Series A Preferred
Stock, having the voting powers, designation, relative, participating, optional
and other special rights, preferences and qualifications, limitations and
restrictions that are set forth as follows:

        1. Dividends and Distributions. (A) Subject to the prior and superior
           ---------------------------
rights of the holders of any shares of any other series of Preferred Stock or
any other shares of stock of the Corporation ranking prior and superior to the
shares of Series A Preferred Stock with respect to dividends, each holder of one
one-hundredth (1/100) of a share (a "Unit") of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for that purpose, (i) quarterly dividends payable in
cash on the last day of February, May, August and November in each year (each
such date being a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of such Unit of Series
A Preferred Stock, in an amount per Unit (rounded to the nearest cent) equal to
the greater of (a) $.01 or (b) subject to the provision for adjustment
hereinafter set forth, the aggregate per share amount of all cash dividends
declared on shares of 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 a Unit of Series A Preferred 
<PAGE>
 
Stock, and (ii) subject to the provision for adjustment hereinafter set forth,
quarterly distributions (payable in kind) on each Quarterly Dividend Payment
Date in an amount per Unit equal to the aggregate per share amount 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 shares of 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 a Unit of
Series A Preferred Stock. In the event that the Corporation shall at any time
after November 30, 1997 (the "Rights Declaration Date") (i) declare any dividend
on outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock or (iii) combine outstanding shares
of Common Stock into a smaller number of shares, then in each such case the
amount to which the holder of a Unit of Series A Preferred Stock was entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which
shall be the number of shares of Common Stock that are outstanding immediately
after such event and the denominator of which shall be 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 Units of
Series A Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the shares of Common Stock (other than a
dividend payable in shares of Common Stock); provided, however, that, in the
                                             --------  ------- 
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $.01 per Unit on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.

        (C) Dividends shall begin to accrue and shall be cumulative on each
outstanding Unit of Series A Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issuance of such Unit of Series A Preferred
Stock, unless the date of issuance of such Unit is prior to the record date for
the first Quarterly Dividend Payment Date, in which case, dividends on such Unit
shall begin to accrue from the date of issuance of such Unit, or unless the date
of issuance is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of Units of Series A Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to accrue and
be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on Units of Series A Preferred
Stock in an amount less than the aggregate amount of all such dividends at the
time accrued and payable on such Units shall be allocated pro rata on a unit-by-
unit basis among all Units of Series A Preferred Stock at the time outstanding.
The Board of Directors may fix a record date for the determination of holders of
Units of Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.

        2. Voting Rights. The holders of Units of Series A Preferred Stock shall
           -------------
have the following voting rights:

                                       2
<PAGE>
 
        (A) Subject to the provision for adjustment hereinafter set forth, each
Unit of Series A Preferred Stock shall entitle the holder thereof to one vote on
all matters submitted to a vote of the stockholders of the Corporation. In the
event the Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on outstanding shares of Common Stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock or (iii) combine
the outstanding shares of Common Stock into a smaller number of shares, then in
each such case the number of votes per Unit to which holders of Units of Series
A Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction the numerator of which shall
be the number of shares of Common Stock outstanding immediately after such event
and the denominator of which shall be the number of shares of Common Stock that
were outstanding immediately prior to such event; and

        (B) Except as otherwise provided herein, in the Certificate or the
Bylaws of the Corporation or as required by law, the holders of Units of Series
A Preferred Stock and the holders of shares of Common Stock shall vote together
as one class on all matters submitted to a vote of stockholders of the
Corporation, and such holders shall have no special voting rights and their
consents shall not be required for taking any corporate action.

        3. Certain Restrictions. (A) Whenever quarterly dividends or other
           --------------------
dividends or distributions payable on Units of Series A Preferred Stock as
provided herein are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on outstanding Units of
Series A Preferred Stock 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 junior stock; (ii)
declare or pay dividends on or make any other distributions on any shares of
parity stock, except dividends paid ratably on Units of Series A Preferred Stock
and shares of all such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of such Units and all
such shares are then entitled; (iii) redeem or purchase or otherwise acquire for
consideration shares of any parity stock, provided, however, that the
                                          --------  -------
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any junior stock; (iv) purchase or
otherwise acquire for consideration any Units of Series A Preferred Stock,
except in accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such Units.

        (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 3,
purchase or otherwise acquire such shares at such time and in such manner.

        4. Reacquired Shares. Any Units of Series A Preferred Stock purchased or
           -----------------
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such Units shall, upon
their cancellation, become authorized but unissued shares (or fractions of
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 the conditions and restrictions on issuance set forth
herein.

                                       3
<PAGE>
 
        5. Liquidation, Dissolution or Winding Up. (A) Upon any voluntary or
           --------------------------------------
involuntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (i) to the holders of shares of junior stock unless
the holders of Units of Series A Preferred Stock shall have received, subject to
adjustment as hereinafter provided in paragraph (B), the greater of either (a)
$.01 per Unit plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not earned or declared, to the date of such
payment, or (b) the amount equal to the aggregate per share amount to be
distributed to holders of shares of Common Stock, or (ii) to the holders of
shares of parity stock, unless simultaneously therewith distributions are made
ratably on Units of Series A Preferred Stock and all other shares of such parity
stock in proportion to the total amounts to which the holders of Units of Series
A Preferred Stock are entitled under clause (i)(a) of this sentence and to which
the holders of shares of such parity stock are entitled, in each case upon such
liquidation, dissolution or winding up.

        (B) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on outstanding shares of Common Stock
payable in shares of Common Stock, (ii) subdivide outstanding shares of Common
Stock, or (iii) combine outstanding shares of Common Stock into a smaller number
of shares, then in each such case the aggregate amount to which holders of Units
of Series A Preferred Stock were entitled immediately prior to such event
pursuant to clause (i)(b) of paragraph (A) of this Section 5 shall be adjusted
by multiplying such amount by a fraction the numerator of which shall be the
number of shares of Common Stock that are outstanding immediately after such
event and the denominator of which shall be the number of shares of Common Stock
that were outstanding immediately prior to such event.

        6. Consolidation, Merger, etc. In case the Corporation shall enter into
           --------------------------
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or converted into other stock or securities,
cash and/or any other property, then in any such case Units of Series A
Preferred Stock shall at the same time be similarly exchanged for or converted
into an amount per Unit (subject to the provision for adjustment hereinafter set
forth) equal to 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 converted or exchanged. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock, or (iii) combine outstanding
Common Stock into a smaller number of shares, then in each such case the amount
set forth in the immediately preceding sentence with respect to the exchange or
conversion of Units of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which shall be the number of shares
of Common Stock that are outstanding immediately after such event and the
denominator of which shall be the number of shares of Common Stock that were
outstanding immediately prior to such event.

        7. Redemption. The Units of Series A Preferred Stock and shares of
           ----------
Series A Preferred Stock shall not be redeemable.

        8. Ranking. The Units of Series A Preferred Stock and shares of Series A
           -------
Preferred Stock shall rank junior to all other series of the Preferred 

                                       4
<PAGE>
 
Stock and to any other class of Preferred Stock that hereafter may be issued by
the Corporation as to the payment of dividends and the distribution of assets,
unless the terms of any such series or class shall provide otherwise.

        9. Fractional Shares. The Series A Preferred Stock may be issued in
           -----------------
Units or other fractions of a share, which Units or fractions shall entitle the
holder, in proportion to such holder's units or fractional shares, to exercise
voting rights, receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Series A Preferred Stock.

        10. Certain Definitions. As used in this resolution with respect to the
            -------------------
Series A Preferred Stock, the following terms shall have the following meanings:

        (A) The term "Common Stock" shall mean the class of stock designated as
the common stock, par value $.01 per share, of the Corporation at the date
hereof or any other class of stock resulting from successive changes or
reclassification of the common stock.

        (B) The term "junior stock" (i) as used in Section 3 shall mean the
Common Stock and any other class or series of capital stock of the Corporation
hereafter authorized or issued over which the Series A Preferred Stock has
preference or priority as to the payment of dividends and (ii) as used in
Section 5, shall mean the Common Stock and any other class or series of capital
stock of the Corporation over which the Series A Preferred Stock has preference
or priority in the distribution of assets on any liquidation, dissolution or
winding up of the Corporation.

        (C) The term "parity stock" (i) as used in Section 3 shall mean any
     class or series of stock of the Corporation hereafter authorized or issued
     ranking pari passu with the Series A Preferred Stock as to dividends and
             ----------
     (ii) as used in Section 5, shall mean any class or series of capital stock
     ranking pari passu with the Series A Preferred Stock in the distribution of
             ----------
     assets on any liquidation, dissolution or winding up.

                                       5
<PAGE>
 
        IN WITNESS WHEREOF, Electroglas, Inc. has caused this Certificate to be
signed by its Chairman and Chief Executive Officer and its Secretary this ____
day of ____________, 1997.


                                                ELECTROGLAS, INC.


                                                By:____________________________
                                                   Curtis S. Wozniak
                                                   President


                                                By:____________________________
                                                   Armand Stegall
                                                   Secretary







                                       6


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