Exhibit 10.33
 
ARADIGM CORPORATION
and
COMPUTERSHARE TRUST COMPANY, N.A.
as Rights Agent
Amended and Restated Rights Agreement
Dated as of September 5, 2008
 

 

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Amended and Restated Rights Agreement
     This Amended and Restated Rights Agreement (“Agreement”), dated as of
September 5, 2008, between Aradigm Corporation, a California corporation (the
“Company”), and Computershare Trust Company, N.A. (“Rights Agent”).
     The Board of Directors of the Company (the “Board of Directors”) has
authorized and declared a dividend of one preferred share purchase right (a
“Right”) for each Common Share (as such term is hereinafter defined) outstanding
at the close of business on September 8, 1998 (the “Record Date”), each Right
representing the right to purchase one one-hundredth of a Preferred Share (as
such term is hereinafter defined), upon the terms and subject to the conditions
herein set forth, and has further authorized and directed the issuance of one
Right with respect to each Common Share that shall become outstanding between
the Record Date and the earliest to occur of the Distribution Date, the
Redemption Date and the Final Expiration Date (as such terms are hereinafter
defined); provided, however, that Rights may be issued with respect to Common
Shares that shall become outstanding after the Distribution Date and prior to
the earlier of the Redemption Date and the Final Expiration Date in accordance
with the provisions of Section 22 hereof.
     This Agreement amends and restates that certain Rights Agreement, dated as
of August 31, 1998, as amended, between the Company and the Rights Agent.
     Accordingly, 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 (as such term is hereinafter
defined) who or which, together with all Affiliates and Associates (as such
terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as
such term is hereinafter defined) of 15% or more of the Common Shares then
outstanding. Notwithstanding the foregoing, (A) the term Acquiring Person shall
not include (i) the Company, (ii) any Subsidiary (as such term is hereinafter
defined) of the Company, (iii) any employee benefit or compensation plan of the
Company or any Subsidiary of the Company, (iv) any entity holding Common Shares
for or pursuant to the terms of any such employee benefit or compensation plan,
(v) any Person, together with all Affiliates and Associates of such Person, who
is the Beneficial Owner of 15% or more of the Common Shares outstanding as of
the date of this Agreement until such time after the date of this Agreement that
such Person, together with all Affiliates and Associates of such Person, shall
become the Beneficial Owner of any additional Common Shares (other than by means
of a dividend made by the Company on the Common Shares outstanding or pursuant
to a split, subdivision or other reclassification of the Common Shares
undertaken by the Company) and shall then beneficially own more than 15% of the
Common Shares outstanding, and (B) no Person shall become an

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      “Acquiring Person” either (x) as the result of an acquisition of Common
Shares by the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such Person
to 15% or more of the Common Shares then outstanding; provided, however, that if
a Person shall become the Beneficial Owner of 15% or more of the Common Shares
then outstanding by reason of share purchases by the Company and shall,
following written notice from, or public disclosure by the Company of such share
purchases by the Company, become the Beneficial Owner of any additional Common
Shares without the prior consent of the Company and shall then Beneficially Own
more than 15% of the Common Shares then outstanding, then such Person shall be
deemed to be an “Acquiring Person,” (y) if the Board of Directors determines in
good faith that a Person who would otherwise be an “Acquiring Person,” as
defined pursuant to the foregoing provisions of this paragraph (a), has become
such inadvertently, and such Person divests, as promptly as practicable (as
determined in good faith by the Board of Directors), but in any event within
five Business Days, following receipt of written notice from the Company of such
event, of Beneficial Ownership of a sufficient number of Common Shares so that
such Person would no longer be an Acquiring Person, as defined pursuant to the
foregoing provisions of this paragraph (a), then such Person shall not be deemed
to be an “Acquiring Person” for any purposes of this Agreement; provided,
however, that if such Person shall again become the Beneficial Owner of 15% or
more of the Common Shares then outstanding, such Person shall be deemed an
“Acquiring Person,” or (z) as the result of the acquisition of Common Shares
directly from the Company or through one or more underwriters or dealers
participating in an underwritten public offering by the Company; provided,
however, that if a Person shall become the Beneficial Owner of 15% or more of
the Common Shares then outstanding by reason of share purchases directly from
the Company or through one or more underwriters or dealers participating in an
underwritten public offering by the Company and shall, after that date, become a
Beneficial Owner of any additional Common Shares without the prior written
consent of the Company and shall then Beneficially Own more than 15% of the
Common Shares then outstanding, then such Person shall be deemed to be an
“Acquiring Person.”     (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 of this Agreement; provided, however,
that the limited partners of a limited partnership shall not be deemed to be
Associates of such limited partnership solely by virtue of their limited
partnership interests.     (c)   A Person shall be deemed the “Beneficial Owner”
of and shall be deemed to “beneficially own” any securities:

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  (i)   that such Person or any of such Person’s Affiliates or Associates is
deemed to beneficially own, within the meaning of Rule 13d-3 of the General
Rules and Regulations under the Exchange Act as in effect on the date of this
Rights Agreement;     (ii)   that such Person or any of such Person’s Affiliates
or Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights (other than these Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person’s Affiliates or
Associates until such tendered securities are accepted for purchase or exchange;
or (B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or     (iii)   that are beneficially owned, directly or
indirectly, by any other Person with which such Person or any of such Person’s
Affiliates or Associates has any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent contemplated by the
proviso to Section 1(c)(ii)(B) hereof) or disposing of any securities of the
Company.

      Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase, “then outstanding,” when used with reference to a Person’s
Beneficial Ownership of securities of the Company, shall mean the number of such
securities then issued and outstanding together with the number of such
securities not then actually issued and outstanding which such Person would be
deemed to own beneficially hereunder.     (d)   “Business Day” shall mean any
day other than a Saturday, a Sunday, or a day on which banking institutions in
the Commonwealth of Massachusetts

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      are authorized or obligated by law or executive order to close.     (e)  
“Close of Business” on any given date shall mean 5:00 p.m., Eastern Time, on
such date; provided, however, that if such date is not a Business Day it shall
mean 5:00 p.m., Eastern Time, on the next succeeding Business Day.     (f)  
“Common Shares” shall mean the shares of common stock, no par value, of the
Company; provided, however, that, “Common Shares,” when used in this Agreement
in connection with a specific reference to any Person other than the Company,
shall mean the capital stock (or equity interest) with the greatest voting power
of such other Person or, if such other Person is a Subsidiary of another Person,
the Person or Persons which ultimately control such first-mentioned Person.    
(g)   “Distribution Date” shall have the meaning set forth in Section 3 hereof.
    (h)   “Final Expiration Date” shall have the meaning set forth in Section 7
hereof.     (i)   “Interested Shareholder” shall mean any Acquiring Person or
any Affiliate or Associate of an Acquiring Person or any other Person in which
any such Acquiring Person, Affiliate or Associate has an interest, or any other
Person acting directly or indirectly on behalf of or in concert with any such
Acquiring Person, Affiliate or Associate.     (j)   “Person” shall mean any
individual, firm, corporation or other entity, and shall include any successor
(by merger or otherwise) of such entity.     (k)   “Preferred Shares” shall mean
shares of Series A Junior Participating Preferred Stock, without par value, of
the Company having the designations and the powers, preferences and rights, and
the qualifications, limitations and restrictions set forth in the form of
Certificate of Determination filed with the Secretary of State of the State of
California on August 31, 1998, as subsequently amended.     (l)   “Purchase
Price” shall have the meaning set forth in Section 7(b) hereof.     (m)  
“Redemption Date” shall have the meaning set forth in Section 7 hereof.     (n)
  “Shares Acquisition Date” shall mean the first date of public announcement by
the Company or an Acquiring Person that an Acquiring Person has become such;
provided, however that, if such Person is determined not to have become an
Acquiring Person pursuant to clause (y) of Subsection 1(a)(B) hereof, then no
Shares Acquisition Date shall be deemed to have occurred.     (o)   “Subsidiary”
of any Person shall mean any corporation or other entity of which a majority of
the voting power of the voting equity securities or equity interest is owned,
directly or indirectly, by such Person.

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  (p)   “Transaction” shall mean any merger, consolidation or sale of assets
described in Section 13(a) hereof or any acquisition of Common Shares which
would result in a Person becoming an Acquiring Person or a Principal Party (as
such term is hereinafter defined).     (q)   “Transaction Person” with respect
to a Transaction shall mean (i) any Person who (x) is or will become an
Acquiring Person or a Principal Party (as such term is hereinafter defined) if
the Transaction were to be consummated and (y) directly or indirectly proposed
or nominated a director of the Company which director is in office at the time
of consideration of the Transaction, or (ii) an Affiliate or Associate of such a
Person.

Section 2.   Appointment of Rights Agent. The Company hereby appoints the Rights
Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable, upon ten (10) days’ prior written notice to the Rights
Agent. The Rights Agent shall have no duty to supervise, and in no event be
liable for, the acts or omissions of any such co-Rights Agent.   Section 3.  
Issue of Right Certificates.

  (a)   Until the earlier of the Close of Business on (i) the Shares Acquisition
Date or (ii) the tenth Business Day (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) after the date of the commencement (determined in accordance
with Rule 14d-2 under the Exchange Act) by any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the Company or of
any Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) of, or of the first public announcement
of the intention of any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company or any entity holding Common Shares for or pursuant to the terms of any
such plan) to commence, a tender or exchange offer (which intention to commence
remains in effect for five Business Days after such announcement), the
consummation of which would result in any Person becoming an Acquiring Person
(including any such date which is after the date of this Agreement and prior to
the issuance of the Rights, the earlier of such dates being herein referred to
as the “Distribution Date”), (x) the Rights will be evidenced by the
certificates for Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Right Certificates) and not by
separate Right Certificates, and (y) the Rights (and the right to receive Right
Certificates therefor) will be transferable only in connection with the transfer
of Common Shares. As soon as practicable after the Distribution Date, the
Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the

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      Rights Agent will, if requested, send) by first-class, insured,
postage-prepaid mail, to each record holder of Common Shares as of the Close of
Business on the Distribution Date, at the address of such holder shown on the
records of the Company, a Right Certificate, in substantially the form of
Exhibit A hereto (a “Right Certificate”), evidencing one Right for each Common
Share so held, subject to the adjustment provisions of Section 11 of this Rights
Agreement. As of the Distribution Date, the Rights will be evidenced solely by
such Right Certificates.     (b)   On the Record Date, or as soon as practicable
thereafter, the Company will send (directly or through the Rights Agent or its
transfer agent) a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit B hereto (the “Summary of Rights”), by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the Close of Business on the Record Date, at the address of such holder shown on
the records of the Company. With respect to certificates for Common Shares
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. Until the Distribution Date (or the earlier of the Redemption Date and
the Final Expiration Date), the surrender for transfer of any certificate for
Common Shares outstanding on the Record Date shall also constitute the transfer
of the Rights associated with the Common Shares represented thereby.     (c)  
Certificates for Common Shares which become outstanding (including, without
limitation, reacquired Common Shares referred to in the last sentence of this
paragraph (c)) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:

This certificate also evidences and entitles the holder hereof to certain rights
as set forth in an amended and restated Rights Agreement between Aradigm
Corporation (the “Company”) and Computershare Trust Company, N.A. as Rights
Agent (the “Rights Agent”), dated as of September 5, 2008, as amended from time
to time (the “Rights Agreement”), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the principal executive
offices of the Company. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. The Company will mail to the holder of
this certificate a copy of the Rights Agreement without charge after receipt of
a written request therefor. As described in the Rights Agreement, Rights issued
to any Person who becomes an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement) and certain related persons,
whether

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currently held by or on behalf of such Person or by any subsequent holder, shall
become null and void.

      With respect to such certificates containing the foregoing legend, until
the Distribution Date (or, if earlier, the earlier of the Redemption Date or the
Final Expiration Date), the Rights associated with the Common Shares represented
by such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed canceled and retired so that the Company shall not
be entitled to exercise any Rights associated with the Common Shares which are
no longer outstanding. Notwithstanding this Section 3(c), the omission of a
legend shall not affect the enforceability of any part of this Rights Agreement
or the rights of any holder of the Rights.

Section 4.   Form of Right Certificates.

  (a)   The Right Certificates (and the form of election to purchase Preferred
Shares, the form of assignment and the form of certification to be printed on
the reverse thereof) shall be substantially the same as 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 with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or quotation system
on which the Rights may from time to time be listed, or to conform to usage.
Subject to the provisions of Sections 7, 11 and 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of one
one-hundredths of a Preferred Share as shall be set forth therein at the
Purchase Price (as defined in Section 7(b)), but the number of such one
one-hundredths of a Preferred Share and the Purchase Price shall be subject to
adjustment as provided herein.     (b)   Any Right Certificate issued pursuant
to Section 3(a) or Section 22 hereof that represents Rights which are null and
void pursuant to the second paragraph of Section 11(a)(ii) hereof and any Right
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Right Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:

The Rights represented by this Right Certificate are or were beneficially owned
by a Person who was or became an Acquiring Person or an Affiliate or Associate
of an Acquiring Person (as such terms are defined in the Rights Agreement).
Accordingly, this

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Right Certificate and the Rights represented hereby are null and void.
The provisions of Section 11(a)(ii) hereof shall be operative whether or not the
foregoing legend is contained on any such Right Certificate.

Section 5.   Countersignature and Registration. The Right Certificates shall be
executed on behalf of the Company by its Chairman of the Board, its Chief
Executive Officer, its President, its Vice Chairman of the Board, its Chief
Financial Officer, or any of its Vice Presidents, either manually or by
facsimile signature, shall have affixed thereto the Company’s seal or a
facsimile thereof, and shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be countersigned by the Rights Agent, either manually or by
facsimile signature and shall not be valid for any purpose unless countersigned.
In case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Agreement any such
person was not such an officer.       Following the Distribution Date, the
Rights Agent will keep or cause to be kept, at its office designated for such
purpose, books for registration and transfer of the Right Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Right Certificates, the number of Rights evidenced on its face by
each of the Right Certificates and the date of each of the Right Certificates.  
Section 6.   Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject to the
provisions of Section 11(a)(ii), Section 14 and Section 24 hereof, at any time
after the Close of Business on the Distribution Date, and at or prior to the
Close of Business on the earlier of the Redemption Date or the Final Expiration
Date, any Right Certificate or Right Certificates may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the office of the Rights Agent
designated for such purpose. Neither the Rights Agent nor the Company shall be
obligated to take any action whatsoever with respect to the transfer of any such
surrendered Right Certificate until the registered holder shall

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    have completed and signed the certificate contained in the form of
assignment on the reverse side of such Right Certificate and shall have provided
such additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request. Thereupon the Rights Agent shall, subject to
Section 11(a)(ii), Section 14 and Section 24 hereof, countersign and deliver to
the person entitled thereto a Right Certificate or Right Certificates, as the
case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Right
Certificates.       Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company’s request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will issue, execute and deliver
a new Right Certificate of like tenor to the Rights Agent for countersignature
and delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.       Notwithstanding any other provisions
hereof, the Company and the Rights Agent may amend this Rights Agreement to
provide for uncertificated Rights in addition to or in place of Rights evidenced
by Rights Certificates.

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

  (a)   The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date upon surrender of the Right Certificate,
with the form of election to purchase on the reverse side thereof duly executed,
to the Rights Agent at the office of the Rights Agent designated for such
purpose, together with payment of the Purchase Price for each one one-hundredth
of a Preferred Share (or such other number of shares or other securities) as to
which the Rights are exercised, at or prior to the earliest of (i) the Close of
Business on September 8, 2018 (the “Final Expiration Date”), (ii) the time at
which the Rights are redeemed as provided in Section 23 hereof (the “Redemption
Date”), or (iii) the time at which such Rights are exchanged as provided in
Section 24 hereof.     (b)   The purchase price for each one one-hundredth of a
Preferred Share pursuant to the exercise of a Right shall initially be $9.00
(the “Purchase Price”) and shall be subject to adjustment from time to time as
provided in Sections 11 and 13 hereof and shall be payable in lawful money of
the United States of America in accordance with paragraph (c) below.     (c)  
Upon receipt of a Right Certificate representing exercisable Rights, with the
form of election to purchase duly executed, accompanied by payment

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    of the Purchase Price for the shares to be purchased and an amount equal to
any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier’s
check, bank draft or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent for
the Preferred Shares certificates for the number of Preferred Shares to be
purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) if the Company, in its sole discretion,
shall have elected to deposit the Preferred Shares issuable upon exercise of the
Rights hereunder into a depository, requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a
Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company hereby directs the depositary
agent to comply with such request, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14 hereof, (iii) after receipt of such certificates
or depositary receipts, cause the same to be delivered to or upon the order of
the registered holder of such Right Certificate, registered in such name or
names as may be designated by such holder and (iv) when appropriate, after
receipt, deliver such cash to or upon the order of the registered holder of such
Right Certificate. In the event that the Company is obligated to issue
securities of the Company other than Preferred Shares (including Common Shares)
of the Company pursuant to Section 11(a) hereof, the Company will make all
arrangements necessary so that such other securities are available for
distribution by the Rights Agent, if and when appropriate.         In addition,
in the case of an exercise of the Rights by a holder pursuant to
Section 11(a)(ii) hereof, the Rights Agent shall return such Right Certificate
to the registered holder thereof after imprinting, stamping or otherwise
indicating thereon that the rights represented by such Right Certificate no
longer include the rights provided by Section 11(a)(ii) hereof, and, if fewer
than all the Rights represented by such Right Certificate were so exercised, the
Rights Agent shall indicate on the Right Certificate the number of Rights
represented thereby which continue to include the rights provided by
Section 11(a)(ii) hereof.     (d)   In case the registered holder of any Right
Certificate shall exercise fewer than all the Rights evidenced thereby (other
than a partial exercise of rights pursuant to Section 11(a)(ii) as described in
Section 7(c) hereof), a new Right Certificate evidencing Rights equivalent to
the Rights remaining unexercised shall be issued by the Rights Agent to the
registered holder of such Right Certificate or to his duly authorized assigns,
subject to the provisions of Section 14 hereof.     (e)   The Company covenants
and agrees that it will cause to be reserved and kept available out of its
authorized and unissued Preferred Shares or any

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      Preferred Shares held in its treasury the number of Preferred Shares that
will be sufficient to permit the exercise in full of all outstanding Rights in
accordance with this Section 7.     (f)   Notwithstanding anything in this
Agreement to the contrary, neither the Rights Agent nor the Company shall be
obligated to undertake any action with respect to a registered holder upon the
occurrence of any purported exercise as set forth in this Section 7 unless such
registered holder shall have (i) completed and signed the certification
following the form of election to purchase set forth on the reverse side of the
Rights Certificate surrendered for such exercise, (ii) tendered the Purchase
Price (and an amount equal to any applicable transfer tax required to be paid by
the holder of such Right Certificate in accordance with Section 9 to the Company
in the manner set forth in Section 7(c), and (iii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.

Section 8.   Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if delivered or surrendered to the Rights Agent, shall be canceled by it,
and no Right Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement. The Company shall deliver
to the Rights Agent for cancellation and retirement, and the Rights Agent shall
so cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company, or shall, at the written request
of the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.   Section 9.  
Availability of Preferred Shares. The Company covenants and agrees that so long
as the Preferred Shares (and, after the time a person becomes an Acquiring
Person, Common Shares or any other securities) issuable upon the exercise of the
Rights may be listed on any national securities exchange or quotation system,
the Company shall use its best efforts to cause, from and after such time as the
Rights become exercisable, all shares reserved for such issuance to be listed on
such exchange or quotation system upon official notice of issuance upon such
exercise.       The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Preferred Shares (or Common Shares
and other securities, as the case may be) delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares or other securities.       The
Company further covenants and agrees that it will pay when due and payable any
and all federal and state transfer taxes and charges which may be payable in

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    respect of the issuance or delivery of the Right Certificates or of any
Preferred Shares upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Right Certificates to a person other than, or the issuance or
delivery of certificates or depositary receipts for the Preferred Shares in a
name other than that of, the registered holder of the Right Certificate
evidencing Rights surrendered for exercise or to issue or to deliver any
certificates or depositary receipts for Preferred Shares upon the exercise of
any Rights until any such tax shall have been paid (any such tax being payable
by the holder of such Right Certificate at the time of surrender) or until it
has been established to the Company’s reasonable satisfaction that no such tax
is due.       As soon as practicable after the Distribution Date, the Company
shall use its best efforts to:

  (i)   prepare and file a registration statement under the Securities Act of
1933, as amended (the “Act”), with respect to the securities purchasable upon
exercise of the Rights on an appropriate form, will use its best efforts to
cause such registration statement to become effective as soon as practicable
after such filing and will use its best efforts to cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the Final Expiration Date; and     (ii)   use its
best efforts to qualify or register the Rights and the securities purchasable
upon exercise of the Rights under the blue sky laws of such jurisdictions as may
be necessary or appropriate.

Section 10.   Preferred Shares Record Date. Each person in whose name any
certificate for Preferred Shares or other securities is issued upon the exercise
of Rights shall for all purposes be deemed to have become the holder of record
of the Preferred Shares or other securities represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered with the forms of election and certification
duly executed 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 Shares or other securities transfer
books of the Company are closed, such person shall be deemed to have become the
record holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Shares or other securities
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Right Certificate, as such, shall not be
entitled to any rights of a holder of Preferred Shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, 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 of Shares or Number of
Rights. The Purchase Price, the number of Preferred Shares covered by each Right
and the

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    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 Shares payable in Preferred
Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the
outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(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 capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, such 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 exercise of one Right. If an event occurs which would require an
adjustment under both 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)   Subject to Section 24 hereof and the provisions of the next
paragraph of this Section 11(a)(ii), in the event any Person shall become an
Acquiring Person, each holder of a Right shall, for a period of 60 days after
the later of such time any Person becomes an Acquiring Person or the effective
date of an appropriate registration statement filed under the Act pursuant to
Section 9 hereof (provided, however that, if at any time prior to the expiration
or termination of the Rights there shall be a temporary restraining order, a
preliminary injunction, an injunction, or temporary suspension by the Board of
Directors, or similar obstacle to exercise of the Rights (the “Injunction”)
which prevents exercise of the Rights, a new 60-day period shall commence on the
date the Injunction is removed), have a right to receive, upon exercise thereof
at a price equal to the then current Purchase Price multiplied by the number of
one one-hundredths of a Preferred

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      Share for which a Right is then exercisable, in accordance with the terms
of this Agreement and in lieu of Preferred Shares, such number of Common Shares
as shall equal the result obtained by (A) multiplying the then current Purchase
Price by the number of one one-hundredths of a Preferred Share for which a Right
is then exercisable and dividing that product by (B) 50% of the then current per
share market price of the Common Shares (determined pursuant to Section 11(d)
hereof) on the date such Person became an Acquiring Person; provided, however,
that if the transaction that would otherwise give rise to the foregoing
adjustment is also subject to the provisions of Section 13 hereof, then only the
provisions of Section 13 hereof shall apply and no adjustment shall be made
pursuant to this Section 11(a)(ii). In the event that any Person shall become an
Acquiring Person and the Rights shall then be outstanding, the Company shall not
take any action which would eliminate or diminish the benefits intended to be
afforded by the Rights.         Notwithstanding anything in this Agreement to
the contrary, from and after the time any Person becomes an Acquiring Person,
any Rights beneficially owned by (i) such Acquiring Person or an Associate or
Affiliate of such Acquiring Person, (ii) a transferee of such Acquiring Person
(or of any such Associate or Affiliate) who becomes a transferee after the
Acquiring Person became such, or (iii) a transferee of such Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person’s becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Board of Directors of the Company has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 11(a)(ii), shall become null and void without any
further action and no holder of such Rights shall have any rights whatsoever
with respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company shall use all reasonable efforts to insure that the
provisions of this Section 11(a)(ii) and Section 4(b) hereof are complied with,
but shall have no liability to any holder of Right Certificates or other Person
as a result of its failure to make any determinations with respect to an
Acquiring Person or its Affiliates, Associates or transferees hereunder. No
Right Certificate shall be issued at any time upon the transfer of any Rights to
an Acquiring Person whose Rights would be void pursuant to the preceding
sentence or any Associate or Affiliate thereof or to any nominee of such
Acquiring

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Person, Associate or Affiliate; and any Right Certificate delivered to the
Rights Agent for transfer to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence shall be canceled.

  (iii)   In lieu of issuing Common Shares in accordance with Section 11(a)(ii)
hereof, the Company may, if a majority of the Board of Directors then in office
determines that such action is necessary or appropriate and not contrary to the
interests of holders of Rights, elect to (and, in the event that the Board of
Directors has not exercised the exchange right contained in Section 24(c) hereof
and there are not sufficient treasury shares (if applicable) and authorized but
unissued Common Shares to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii), the Company shall) take all
such action as may be necessary to authorize, issue or pay, upon the exercise of
the Rights, cash (including by way of a reduction of the Purchase Price),
property, Common Shares, other securities or any combination thereof having an
aggregate value equal to the value of the Common Shares which otherwise would
have been issuable pursuant to Section 11(a)(ii) hereof, which aggregate value
shall be determined by a nationally recognized investment banking firm selected
by a majority of the Board of Directors then in office. For purposes of the
preceding sentence, the value of the Common Shares shall be determined pursuant
to Section 11(d) hereof. Any such election by the Board of Directors must be
made within 60 days following the date on which the event described in
Section 11(a)(ii) hereof shall have occurred. Following the occurrence of the
event described in Section 11(a)(ii) hereof, a majority of the Board of
Directors then in office may suspend the exercisability of the Rights for a
period of up to 60 days following the date on which the event described in
Section 11(a)(ii) hereof shall have occurred to the extent that such directors
have not determined whether to exercise their rights of election under this
Section 11(a)(iii). In the event of any such suspension, the Company shall issue
a public announcement stating that the exercisability of the Rights has been
temporarily suspended.

  (b)   In case the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Preferred Shares entitling them (for a
period expiring within 45 calendar days after such record date) to subscribe for
or purchase Preferred Shares (or shares having the same designations and the
powers, preferences and rights, and the qualifications, limitations and
restrictions as the Preferred Shares (“equivalent preferred shares”)) or
securities convertible into Preferred Shares or equivalent preferred shares at a
price per Preferred Share or equivalent preferred share (or having a conversion
price per share, if a security convertible into Preferred Shares or equivalent
preferred shares) less than the then current per share market price of the
Preferred Shares (as such term is hereinafter

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      defined) on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of Preferred Shares which the aggregate offering price of the total
number of Preferred Shares and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current market price and the denominator
of which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors, whose determination shall be described in a statement filed with the
Rights Agent. Preferred Shares owned by or held for the account of the Company
shall not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed; and
in the event that such rights, options or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.     (c)   In case the Company
shall fix a record date for the making of a distribution to all holders of the
Preferred Shares (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation) of evidences of indebtedness or assets (other than a regular
quarterly cash dividend or a dividend payable in Preferred Shares) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the then current per
share market price of the Preferred Shares (as such term is hereinafter defined)
on such record date, less the fair market value (as determined in good faith by
the Board of Directors, whose determination shall be described in a statement
filed with the Rights Agent) of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
current per share market price of the Preferred Shares; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date

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

  (d)    

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

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      the principal national securities exchange on which the Security is listed
or admitted to trading is open for the transaction of business or, if the
Security is not listed or admitted to trading on any national securities
exchange, a Business Day.     (ii)   For the purpose of any computation
hereunder, the “current per share market price” of the Preferred Shares shall be
determined in accordance with the method set forth in Section 11(d)(i) hereof.
If the Preferred Shares are not publicly traded, the “current per share market
price” of the Preferred Shares shall be conclusively deemed to be the current
per share market price of the Common Shares as determined pursuant to
Section 11(d)(i) hereof (appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof)
multiplied by one hundred. If neither the Common Shares nor the Preferred Shares
are publicly held or so listed or traded, “current per share market price” shall
mean the fair value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent.

  (e)   No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-hundredth of a
Preferred Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or
(ii) the date of the expiration of the right to exercise any Rights.     (f)  
If as a result of an adjustment made pursuant to Section 11(a) hereof, the
holder of any Right thereafter exercised shall become entitled to receive any
shares of capital stock of the Company other than Preferred Shares, thereafter
the number of such other shares so receivable upon exercise of any Right shall
be subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Preferred Shares
contained in Sections 11(a) through 11(c) hereof, inclusive, and the provisions
of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Shares
shall apply on like terms to any such other shares.     (g)   All Rights
originally issued by the Company subsequent to any adjustment made to the
Purchase Price hereunder shall evidence the right to purchase, at the adjusted
Purchase Price, the number of one one-hundredths of a Preferred Share
purchasable from time to time hereunder upon exercise of

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      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) hereof, upon each adjustment of the Purchase Price as a result of the
calculations made in Section 11(b) and Section 11(c) hereof, each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a Preferred Share (calculated to the nearest one
one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number
of one one-hundredths of a Preferred Share covered by a Right immediately prior
to this adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.     (i)   The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one 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 Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.     (j)   Irrespective of any
adjustment or change in the Purchase Price or the

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      number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-hundredths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.     (k)   Before taking any action that would cause an
adjustment reducing the Purchase Price below one one-hundredth of the then par
value, if any, of the Preferred Shares 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
fully paid and nonassessable Preferred Shares at such adjusted Purchase Price.  
  (l)   In any case in which this Section 11 shall require that an adjustment in
the Purchase Price be made effective as of a record date for a specified event,
the Company may elect to defer until the occurrence of such event the issuing to
the holder of any Right exercised after such record date of the Preferred Shares
and other capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder’s right to receive such
additional shares upon the occurrence of the event requiring such adjustment.  
  (m)   The Company covenants and agrees that, after the Distribution Date, it
will not, except as permitted by Section 23 or Section 27 hereof, take (or
permit any Subsidiary to take) any action the purpose of which is to, or if at
the time such action is taken it is reasonably foreseeable that the effect of
such action is to, materially diminish or eliminate the benefits intended to be
afforded by the Rights. Any such action taken by the Company during any period
after any Person becomes an Acquiring Person but prior to the Distribution Date
shall be null and void unless such action could be taken under this Section
11(m) from and after the Distribution Date.     (n)   Anything in this
Section 11 to the contrary notwithstanding, the Company shall be entitled to
make such reductions in the Purchase Price, in addition to those adjustments
expressly required by this Section 11, as and to the extent that it in its sole
discretion shall determine to be advisable in order that any consolidation or
subdivision of the Preferred Shares, issuance wholly for cash of any Preferred
Shares at less than the current market price, issuance wholly for cash of
Preferred Shares or securities which by their terms are convertible into or
exchangeable for Preferred Shares, dividends on Preferred Shares payable in
Preferred Shares or issuance of rights, options or warrants referred to
hereinabove in Section 11(b), hereafter made by the Company to holders of its
Preferred Shares shall not be taxable to such shareholders.     (o)   In the
event that at any time after the date of this Agreement and prior to the
Distribution Date, the Company shall (i) declare or pay any dividend

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      on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(o) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.     (p)   The exercise of Rights under Section 11(a)(ii) hereof
shall only result in the loss of rights under Section 11(a)(ii) hereof to the
extent so exercised and shall not otherwise affect the rights represented by the
Rights under this Agreement, including the rights represented by Section 13
hereof.

     
Section 12.
  Certificate of Adjusted Purchase Price or Number of Shares. Whenever an
adjustment is made as provided in Sections 11 and 13 hereof, the Company shall
promptly (a) prepare a certificate setting forth such adjustment, and a brief
statement of the facts accounting for such adjustment, (b) file with the Rights
Agent and with each transfer agent for the Common Shares or the Preferred Shares
a copy of such certificate and (c) mail a brief summary thereof to each holder
of a Right Certificate in accordance with Section 25 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
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 Shares Acquisition Date or, if a
Transaction is proposed, the Distribution Date, directly or indirectly (x) the
Company shall consolidate with, or merge with and into, any Interested
Shareholder, or if in such merger or consolidation all holders of Common Stock
are not treated alike, any other Person, (y) any Interested Shareholder, or if
in such merger or consolidation all holders of Common Stock are not treated
alike, any other Person shall consolidate with the Company, or merge with and
into the Company, and the Company shall be the continuing or surviving
corporation of such merger (other than, in the case of either transaction
described in (x) or (y), a merger or consolidation which would result in all of
the voting power represented by the securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into

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      securities of the surviving entity) all of the voting power represented by
the securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation and the holders of such securities not having
changed as a result of such merger or consolidation), or (z) the Company shall
sell, mortgage or otherwise transfer (or one or more of its subsidiaries shall
sell, mortgage or otherwise transfer), in one or more 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 Interested Shareholder or
Shareholders, or if in such transaction all holders of Common Stock are not
treated alike, any other Person, (other than the Company or any Subsidiary of
the Company in one or more transactions each of which individually and the
aggregate does not violate Section 13(d) hereof) then, and in each such case,
proper provision shall be made so that (i) each holder of a Right, subject to
Section 11(a)(ii) hereof, shall have the right to receive, upon the exercise
thereof at a price equal to the then current Purchase Price multiplied by the
number of one one-hundredths of a Preferred Share for which a Right is then
exercisable in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of freely tradeable Common Shares of the Principal
Party (as such term is hereinafter defined), free and clear of liens, rights of
call or first refusal, encumbrances or other adverse claims, as shall be equal
to the result obtained by (A) multiplying the then current Purchase Price by the
number of one one-hundredths of a Preferred Share for which a Right is then
exercisable (without taking into account any adjustment previously made pursuant
to Section 11(a)(ii) hereof) and dividing that product by (B) 50% of the then
current per share market price of the Common Shares of such Principal Party
(determined pursuant to Section 11(d) hereof) on the date of consummation of
such consolidation, merger, sale or transfer; (ii) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation,
merger, sale or transfer, all the obligations and duties of the Company pursuant
to this Agreement; (iii) the term “Company” shall thereafter be deemed to refer
to such Principal Party, it being specifically intended that the provisions of
Section 11 hereof shall apply to such Principal Party; and (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation of a
sufficient number of shares of its Common Shares in accordance with Section 9
hereof) in connection with such consummation as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its Common Shares thereafter deliverable upon the
exercise of the Rights.

  (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) hereof, the Person that is the issuer of any
securities into which Common Shares are converted in such merger or
consolidation, and if no securities are so issued, the Person that is the other
party to the merger or consolidation (or, if

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      applicable, the Company, if it is the surviving corporation); and     (ii)
  in the case of any transaction described in clause (z) of Section 13(a)
hereof, the Person that is the party receiving the greatest portion of the
assets or earning power transferred pursuant to such transaction or
transactions;

provided, however, that in any case, (1) if the Common Shares of such Person are
not at such time and have not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, and such Person is a
direct or indirect subsidiary or Affiliate of another Person the Common Shares
of which are and have been so registered, “Principal Party” shall refer to such
other Person; (2) if such Person is a subsidiary, directly or indirectly, or
Affiliate of more than one Person, the Common Shares of two or more of which are
and have been so registered, “Principal Party” shall refer to whichever of such
Persons is the issuer of the Common Shares having the greatest aggregate market
value; and (3) if such Person is owned, directly or indirectly, by a joint
venture formed by two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in (1) and (2) above shall
apply to each of the chains of ownership having an interest in such joint
venture as if such party were a “subsidiary” of both or all of such joint
venturers and the Principal Parties in each such chain shall bear the
obligations set forth in this Section 13 in the same ratio as their direct or
indirect interests in such Person bear to the total of such interests.

  (c)   The Company shall not consummate any such consolidation, merger, sale or
transfer unless the Principal Party shall have a sufficient number of authorized
Common Shares that 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 each Principal Party and each other Person who may
become a Principal Party as a result of such consolidation, merger, sale or
transfer shall have (i) 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 (ii) prepared, filed and had declared and remain
effective a registration statement under the Act on the appropriate form with
respect to the Rights and the securities exercisable upon exercise of the Rights
and further providing that, as soon as practicable after the date of any
consolidation, merger, sale or transfer of assets mentioned in paragraph (a) of
this Section 13, the Principal Party at its own expense will:

  (i)   cause the registration statement under the Act with respect to the
Rights and the securities purchasable upon exercise of the Rights on an
appropriate form to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the Final Expiration Date;     (ii)   use its
best efforts to qualify or register the Rights and the

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      securities purchasable upon exercise of the Rights under the blue sky laws
of such jurisdictions as may be necessary or appropriate;     (iii)   list the
Rights and the securities purchasable upon exercise of the Rights on each
national securities exchange on which the Common Shares were listed prior to the
consummation of such consolidation, merger, sale or transfer or on the Nasdaq
Capital Market or Nasdaq Global Market if the Common Shares were listed on the
Nasdaq Capital Market or Nasdaq Global Market or, if the Common Shares were not
listed on a national securities exchange or the Nasdaq Capital Market or Nasdaq
Global Market prior to the consummation of such consummation of such
consolidation, merger, sale or transfer, on a national securities exchange or
the Nasdaq Capital Market or Nasdaq Global Market; and     (iv)   deliver to
holders of the Rights historical financial statements for the Principal Party
and each of its Affiliates which comply in all material respects with the
requirements for registration on Form 10 under the Exchange Act.

The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers.

  (d)   After the Distribution Date, the Company covenants and agrees that it
shall not (i) consolidate with, (ii) merge with or into, or (iii) sell or
transfer to, in one or more 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, any other Person (other than a Subsidiary of the Company in a
transaction which does not violate Section 11(m) hereof), if (x) at the time of
or after such consolidation, merger or sale there are any charter or bylaw
provisions or any rights, warrants or other instruments or securities
outstanding, agreements in effect or any other action taken which would 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 shareholders of the Person who constitutes, or would
constitute, the “Principal Party” for purposes of Section 13(a) hereof shall
have received a distribution of Rights previously owned by such Person or any of
its Affiliates and Associates. The Company shall not consummate any such
consolidation, merger, sale or transfer unless prior thereto the Company and
such other Person shall have executed and delivered to the Rights Agent a
supplemental agreement evidencing compliance with this Section 13(d).

     
Section 14.
  Fractional Rights and Fractional Shares.

  (a)   The Company shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the

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      Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price for any
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Rights are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or as
reported on the Nasdaq Capital Market or Nasdaq Global Market or, if the Rights
are not listed or admitted to trading on any national securities exchange or
reported on the Nasdaq Capital Market or Nasdaq Global Market, the last quoted
price or, if not so quoted, the average of the high bid and low asked prices in
the over-the-counter market, as reported by Nasdaq or such other system then in
use or, if on any such date the Rights are not quoted by any such organization,
the average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors.
If on any such date no such market maker is making a market in the Rights, the
fair value of the Rights on such date as determined in good faith by the Board
of Directors shall be used.     (b)   The Company shall not be required to issue
fractions of Preferred Shares (other than fractions which are integral multiples
of one one-hundredth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share). Fractions of Preferred Shares in integral multiples of one one-hundredth
of a Preferred Share may, at the election of the Company, be evidenced by
depositary receipts; provided, however, that holders of such depositary receipts
shall have all of the designations and the powers, preferences and rights, and
the qualifications, limitations and restrictions to which they are entitled as
beneficial owners of the Preferred Shares represented by such depositary
receipts. In lieu of fractional Preferred Shares that are not integral multiples
of one one-hundredth of a Preferred Share, the Company shall pay to the
registered holders of Right Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one Preferred Share. For the purposes of this Section 14(b), the
current market value of a Preferred Share shall be the current per share market
price of the Preferred Shares (as determined pursuant to the second sentence of
Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
such exercise

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      (or, if not publicly traded, in accordance with Section 11(d)(ii) hereof).
    (c)   Following the occurrence of one of the transactions or events
specified in Section 11 hereof giving rise to the right to receive Common
Shares, capital stock equivalents (other than Preferred Shares) or other
securities upon the exercise of a Right, the Company shall not be required to
issue fractions of Common Shares or units of such Common Shares, capital stock
equivalents or other securities upon exercise of the Rights or to distribute
certificates which evidence fractional Common Shares, capital stock equivalents
or other securities. In lieu of fractional Common Shares, capital stock
equivalents or other securities, the Company shall pay to the registered holders
of Right Certificates at the time such Rights are exercised as herein provided
an amount in cash equal to the same fraction of the current market value of one
Common Share or unit of such Common Shares, capital stock equivalents or other
securities. For purposes of this Section 14(c), the current market value shall
be the current per share market price (as determined pursuant to
Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
such exercise and, if such capital stock equivalent is not traded, each such
capital stock equivalent shall have the value of one one-hundredth of a
Preferred Share.     (d)   The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).

     
Section 15.
  Rights of Action. All rights of action in respect of this Agreement, excepting
the rights of action given to the Rights Agent under Sections 18 and 20 hereof,
are vested in the respective registered holders of the Right Certificates (and,
prior to the Distribution Date, the registered holders of the Common Shares) and
any registered holder of any Right Certificate (or, prior to the Distribution
Date, of the Common Shares), without the consent of the Rights Agent or of the
holder of any other Right Certificate (or, prior to the Distribution Date, of
the Common Shares), may, in his own behalf and for his own benefit, enforce, and
may institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement. Holders of Rights
shall be entitled to recover the reasonable costs and expenses, including
attorneys fees, incurred by them in any action to enforce the provisions of this
Agreement.
 
   
Section 16.
  Agreement of Right Holders. Every holder of a Right, by accepting the same,
consents and agrees with the Company and the Rights Agent and with every other
holder of a Right that:

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  (a)   prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Shares;     (b)   after the
Distribution Date, the Right Certificates are transferable (subject to the
provisions of this Rights Agreement) only on the registry books of the Rights
Agent if surrendered at the principal office of the Rights Agent, duly endorsed
or accompanied by a proper instrument of transfer; and     (c)   the Company and
the Rights Agent may deem and treat the person in whose name the Right
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Right Certificates or the associated Common Shares certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any notice to the
contrary.

     
Section 17.
  Right Certificate Holder Not Deemed a Shareholder. No holder, as such, of any
Right Certificate shall be entitled to vote, receive dividends or be deemed for
any purpose the holder of the Preferred Shares or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Right
Certificate be construed to confer upon the holder of any Right Certificate, as
such, any of the rights of a shareholder of the Company or any right to vote for
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in Section 25 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Right Certificate
shall have been exercised in accordance with the provisions hereof.
 
   
Section 18.
  Concerning the Rights Agent. The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and, from time
to time, on demand of the Rights Agent, its reasonable expenses and counsel fees
and other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability, or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability in the premises. The indemnity provided herein shall survive the
expiration of the Rights and the termination of this Agreement.
 
   
 
  The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities of

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  the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof. In no case will the Rights Agent be liable for special,
indirect, incidental or consequential or consequential loss or damage at any
kind whatsoever (including but not limited to lost profits), even if the Rights
Agent has been advised of such loss or damage.

     
Section 19.
  Merger or Consolidation or Change of Name of Rights Agent. 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 shareholder services or corporate
trust business of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as a successor
Rights Agent under the provisions of Section 21 hereof. In case at the time such
successor Rights Agent shall succeed to the agency created by this Agreement any
of the Right Certificates shall have been countersigned but not delivered, any
such successor Rights Agent may adopt the countersignature of the predecessor
Rights Agent and deliver such Right Certificates so countersigned; and in case
at that time any of the Right Certificates shall not have been countersigned,
any successor Rights Agent may countersign such Right Certificates either in the
name of the predecessor Rights Agent or in the name of the successor Rights
Agent; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
 
   
 
  In case at any time the name of the Rights Agent shall be changed and at such
time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.

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

  (a)   The Rights Agent may consult with legal counsel of its choice (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.

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  (b)   Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Financial Officer, any Vice
President, the Treasurer or the Secretary of the Company and delivered to the
Rights Agent; and such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.     (c)   The Rights Agent
shall be liable hereunder to the Company and any other Person only for its own
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 Right Certificates (except its
countersignature thereof) or be required to verify the same, but all such
statements and recitals are and shall be deemed to have been made by the Company
only.     (e)   The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any
adjustment in the terms of the Rights (including the manner, method or amount
thereof) provided for in Sections 3, 11, 13, 23 or 24 hereof, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after receipt of a certificate pursuant to Section 12 hereof
describing such change or adjustment); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any Preferred Shares to be issued pursuant to this Agreement or
any Right Certificate or as to whether any Preferred Shares will, when issued,
be validly authorized and issued, fully paid and nonassessable.     (f)   The
Company agrees that it will perform, execute, acknowledge and deliver or cause
to be performed, executed, acknowledged and delivered all such further and other
acts, instruments and assurances as may reasonably be required by the Rights
Agent for the carrying out or performing by the Rights Agent of the provisions
of this Agreement.     (g)   The Rights Agent is hereby authorized and directed
to accept instructions

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      with respect to the performance of its duties hereunder from any one of
the Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer, any Vice President, the Secretary or the Treasurer of the
Company, and to apply to such officers for advice or instructions in connection
with its duties, and it shall not be liable for any action taken or suffered by
it in good faith in accordance with instructions of any such officer or for any
delay in acting while waiting for those instructions. Any application by the
Rights Agent for written instructions from the Company may, at the option of the
Rights Agent, set forth in writing any action proposed to be taken or omitted by
the Rights Agent with respect to its duties or obligations under this Agreement
and the date on and/or after which such action shall be taken or omitted and the
Rights Agent shall not be liable for any action taken or omitted in accordance
with a proposal included in any such application on or after the date specified
therein (which date shall not be less than three business days after the date
indicated in such application unless any such officer shall have consented in
writing to an earlier date) unless, prior to taking or omitting any such action,
the Rights Agent has 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, and
the Rights Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agents or for any loss to the
Company resulting from any such act, default, neglect or misconduct, provided
reasonable care was exercised in the selection and continued employment thereof.
    (j)   No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be 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 Right 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 not
been executed, the Rights Agent shall not take any further action with respect
to such requested exercise of transfer without first consulting with the
Company.

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Section 21.   Change of Rights Agent. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon
30 days’ notice in writing mailed to the Company and to each transfer agent for
the Common Shares or Preferred Shares by registered or certified mail, and to
the holders of the Right Certificates by first-class mail. In the event the
transfer agency relationship in effect between the Company and the Rights Agent
terminates, the Rights Agent will be deemed to have resigned automatically and
be discharged from its duties under this Agreement as of the effective date of
such termination, and the Company shall be responsible for sending any required
notice. The Company may remove the Rights Agent or any successor Rights Agent
upon 30 days’ notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent for the Common Shares or
Preferred Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation, trust company or limited liability company organized and
doing business under the laws of the United States, in good standing, which is
authorized under such laws to exercise corporate trust or stock transfer powers
and is subject to supervision or examination by federal or state authority and
which has individually or combined with an affiliate at the time of its
appointment as a Rights Agent a combined capital and surplus of at least
$50 million dollars. 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 for
the Common Shares or Preferred Shares, and mail a notice thereof in writing to
the registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.  
Section 22.   Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities
or property

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      purchasable under the Right Certificates made in accordance with the
provisions of this Agreement. In addition, in connection with the issuance or
sale of Common Shares following the Distribution Date and prior to the earlier
of the Redemption Date and the Final Expiration Date, the Company (a) shall with
respect to Common Shares so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement in existence prior to the
Distribution Date, or upon the exercise, conversion or exchange of securities,
notes or debentures issued by the Company and in existence prior to the
Distribution Date, and (b) may, in any other case, if deemed necessary or
appropriate by the Board of Directors, issue Right Certificates representing the
appropriate number of Rights in connection with such issuance or sale; provided,
however, that (i) the Company shall not be obligated to issue any such Right
Certificates if, and to the extent that, the Company shall be advised by counsel
that such issuance would create a significant risk of material adverse tax
consequences to the Company or the Person to whom such Right Certificate would
be issued, and (ii) no Right Certificate shall be issued if, and to the extent
that, appropriate adjustment shall otherwise have been made in lieu of the
issuance thereof.

Section 23.   Redemption.

  (a)   The Rights may be redeemed by action of the Board of Directors pursuant
to Section 23(b) hereof and shall not be redeemed in any other manner.     (b)  
 

  (i)   The Board of Directors may, at its option, at any time prior to the
earlier of (A) such time as any Person becomes an Acquiring Person or (B) the
Final Expiration Date, redeem all but not less than all of the then outstanding
Rights at a redemption price of $0.001 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such redemption price being hereinafter referred to as the
“Redemption Price”), and the Company may, at its option, pay the Redemption
Price in Common Shares (based on the “current per-share market price,” as such
term is defined in Section 11(d) hereof, of the Common Shares at the time of
redemption), cash or any other form of consideration deemed appropriate by the
Board of Directors. The redemption of the Rights by the Board of Directors may
be made effective at such time, on such basis and subject to such conditions as
the Board of Directors in its sole discretion may establish. Notwithstanding
anything contained in this Agreement to the contrary, the Rights shall not be
exercisable pursuant to Section 11(a)(ii) hereof prior to the expiration or
termination of the Company’s right of redemption under this Section 23(b)(i).  
  (ii)   In addition, the Board of Directors may, at its option, at any time
after the time a Person becomes an Acquiring Person and after the

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      expiration of any period during which the holder of Rights may exercise
the rights under Section 11(a)(ii) hereof but prior to any event described in
clause (x), (y) or (z) of the first sentence of Section 13 hereof, redeem all
but not less than all of the then outstanding Rights at the Redemption Price
(x) in connection with any merger, consolidation or sale or other transfer (in
one transaction or in a series of related transactions) of assets or earning
power aggregating 50% or more of the assets or earning power of the Company and
its subsidiaries (taken as a whole) in which all holders of Common Shares are
treated alike and not involving (other than as a holder of Common Shares being
treated like all other such holders) an Interested Shareholder or a Transaction
Person or (y)(A) if and for so long as the Acquiring Person is not thereafter
the Beneficial Owner of 15% or more of the then outstanding Common Shares, and
(B) at the time of redemption no other Persons are Acquiring Persons.

  (c)   Immediately upon the action of the Board of Directors ordering the
redemption of the Rights pursuant to Section 23(b) hereof, and without any
further action and without any notice, the right to exercise the Rights will
terminate and the only right thereafter of the holders of Rights shall be to
receive the Redemption Price. The Company shall promptly give public notice of
any such redemption; provided, however, that the failure to give, or any defect
in, any such notice shall not affect the validity of such redemption. Within
10 days after such action of the Board of Directors ordering the redemption of
the Rights pursuant to Section 23(b) hereof, the Company shall mail a notice of
redemption to all the holders of the then outstanding Rights at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares, provided, however, that failure to give, or any defect in, any
such notice shall not affect the validity of such redemption. 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. Neither the
Company nor any of its Affiliates or Associates may redeem, acquire or purchase
for value any Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 24 hereof, and other than in connection
with the purchase of Common Shares prior to the Distribution Date.     (d)   The
Company may, at its option, discharge all of its obligations with respect to any
redemption of the Rights by (i) issuing a press release announcing the manner of
redemption of the Rights and (ii) mailing payment of the Redemption Price to the
registered holders of the Rights at their last addresses as they appear on the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Shares, and upon such
action, all outstanding Right Certificates shall be null and void without any
further

33

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      action by the Company.

Section 24.   Exchange.

  (a)   The Board of Directors may, at its option, at any time after any Person
becomes an Acquiring Person, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 11(a)(ii) hereof) for Common Shares at an
exchange ratio of one Common Share per Right, appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the date
hereof (such exchange ratio being hereinafter referred to as 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 the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or any such Subsidiary, or any entity holding Common Shares for or pursuant to
the terms of any such plan), together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.     (b)   Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to Section 24(a) hereof and without
any further action and without any notice, the right to exercise such Rights
shall terminate and the only right thereafter of a holder of such Rights shall
be to receive that number of Common Shares 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; provided, however, that the failure to give,
or any defect in, such notice shall not affect the validity of such exchange.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the Common Shares for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 11(a)(ii) hereof) held by each holder of Rights.     (c)  
In lieu of issuing Common Shares in accordance with Section 24(a) hereof, the
Company may, if a majority of the Board of Directors then in office determines
that such action is necessary or appropriate and not contrary to the interests
of the holders of Rights, elect to (and, in the event that there are not
sufficient treasury shares (if applicable) and authorized but unissued Common
Shares to permit any exchange of the Rights in accordance with Section 24(a)
hereof, the Company shall) take all such

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      action as may be necessary to authorize, issue or pay, upon the exchange
of the Rights, cash (including by way of a reduction of the Purchase Price),
property, Common Shares, other securities or any combination thereof having an
aggregate value equal to the value of the Common Shares which otherwise would
have been issuable pursuant to Section 24(a) hereof, which aggregate value shall
be determined by a nationally recognized investment banking firm selected by a
majority of the Board of Directors then in office. For purposes of the preceding
sentence, the value of the Common Shares shall be determined pursuant to Section
11(d) hereof. Any election pursuant to this Section 24(c) by the Board of
Directors must be made by resolution within 60 days following the date on which
the event described in Section 11(a)(ii) hereof shall have occurred. Following
the occurrence on the event described in Section 11(a)(ii) hereof, a majority of
the Board of Directors then in office may suspend the exercisability of the
Rights for a period of up to 60 days following the date on which the event
described in Section 11(a)(ii) hereof shall have occurred to the extent that
such directors have not determined whether to exercise their rights of exchange
under this Section 24(c). In the event of any such suspension, the Company shall
issue a public announcement stating that the exercisability of the Rights has
been temporarily suspended.

  (d)   The Company shall not be required to issue fractions of Common Shares or
to distribute certificates which evidence fractional Common Shares. In lieu of
such fractional Common Shares, the Company shall pay to the registered holders
of the Right Certificates with regard to which such fractional Common Shares
would otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole Common Share. For the purposes of this
Section 24(d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately after the date of
the first public announcement by the Company that an exchange is to be effected
pursuant to this Section 24.

  (e)   The Company shall not be required to issue fractions of Preferred Shares
(other than fractions which are integral multiples of one one-hundredth of a
Preferred Share) upon exchange of the Rights or to distribute certificates which
evidence fractional Preferred Shares (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share). Fractions of Preferred
Shares in integral multiples of one one-hundredth of a Preferred Share may, at
the election of the Company, be evidenced by depositary receipts; provided,
however, that holders of such depositary receipts shall have all of the rights,
privileges, and preferences to which they are entitled as beneficial owners of
the Preferred Shares represented by such depositary receipts. In lieu of
fractional Preferred Shares that are not integral multiples of one one-hundredth
of a Preferred Share, the Company shall pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal

35

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      to the same fraction of the current market value of one Preferred Share.
For the purposes of this Section 24(e), the current market value of a Preferred
Share shall be one hundred (100) times the closing price of a Common Share (as
determined pursuant to the second sentence of Section 11(d)(i) hereof) for the
Trading Day immediately after the date of the first public announcement by the
Company that an exchange is to be effected pursuant to this Section 24.

Section 25.   Notice of Certain Events.

  (a)   In case the Company shall propose (i) to pay any dividend payable in
stock of any class to the holders of its Preferred Shares or to make any other
distribution to the holders of its Preferred Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares
rights or warrants to subscribe for or to purchase any additional Preferred
Shares or shares of stock of any class or any other securities, rights or
options, (iii) to effect any reclassification of its Preferred Shares (other
than a reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, or to effect
any sale or other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer), in one or more transactions, of 50% or more
of the assets or earning power of the Company and its Subsidiaries (taken as a
whole), to any other Person, (v) to effect the liquidation, dissolution or
winding up of the Company, or (vi) to declare or pay any dividend on the Common
Shares payable in Common Shares or to effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares), then, in each such case, the Company
shall give to each holder of a Right Certificate, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record date
for the purpose of such stock dividend, or 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 Common Shares and/or the
Preferred Shares, if any such date is to be fixed, and such notice shall be so
given in the case of any action covered by clause (i) or (ii) above at least
10 days prior to the record date for determining holders of the Preferred Shares
for purposes of such action, and in the case of any such other action, at least
10 days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or the Preferred
Shares, whichever shall be the earlier.     (b)   In case the event set forth in
Section 11(a)(ii) hereof shall occur, then the Company shall as soon as
practicable thereafter give to each holder of a Right Certificate, in accordance
with Section 26 hereof, a notice of the occurrence of such event, which notice
shall describe the event and the consequences of the event to holders of Rights
under Section 11(a)(ii) hereof.

36

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

Aradigm Corporation
3929 Point Eden Way
Hayward, CA 94545
Attn: Chief Financial Officer

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

Computershare Trust Company, N.A.
250 Royall 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 Right Certificate shall be
sufficiently given or made if sent by first-class mail or overnight delivery
service, postage prepaid, addressed to such holder at the address of such holder
as shown on the registry books of the Company.

Section 27.   Supplements and Amendments. Prior to the Distribution Date, the
Company and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Agreement without the approval of any holders of the
Rights. From and after the Distribution Date, the Company and the Rights Agent
shall, if the Company so directs, from time to time supplement or amend any
provision of this Agreement without the approval of any holders of Right
Certificates in order to (i) cure any ambiguity, (ii) correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or (iii) change any other provisions with respect to the
Rights which the Company may deem necessary or desirable; provided, however,
that no such supplement or amendment shall be made which would adversely affect
the interests of the holders of Rights (other than the interests of an Acquiring
Person or its Affiliates or Associates). Any supplement or amendment adopted
during any period after any Person has become an Acquiring Person but prior to
the Distribution Date shall become null and void unless such supplement or
amendment could have been adopted by the Company from and after the Distribution
Date. Any such supplement or amendment shall be evidenced by a writing signed by
the Company and the Rights Agent. Upon delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 27, the Rights Agent
shall execute such supplement or amendment unless the Rights Agent shall have

37

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    determined in good faith that such supplement or amendment would adversely
affect its interest under this Agreement. Prior to the Distribution Date, the
interests of the holders of Rights shall be deemed coincident with the interests
of the holders of Common Shares.   Section 28.   Determination and Actions by
the Board of Directors, etc. For all purposes of this Agreement, any calculation
of the number of Common Shares outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding Common
Shares or any other securities of which any Person is the Beneficial Owner,
shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the
General Rules and Regulations under the Exchange Act as in effect on the date of
this Agreement. The Board of Directors of the Company shall have the exclusive
power and authority to administer this Agreement and to exercise all rights and
powers specifically granted to the Board, or the Company, or as may be necessary
or advisable in the administration of this Agreement, including without
limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the 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
in good faith, shall (x) be final, conclusive and binding on the Rights Agent
and the holders of the Rights, and (y) not subject the Board to any liability to
the holders of the Rights.   Section 29.   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 30.   Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Shares) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares).   Section 31.   Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
  Section 32.   Governing Law. This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
California and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts to be made and performed
entirely within such State.

38

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Section 33.   Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.   Section 34.   Descriptive Headings. Descriptive headings
of the several Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
hereof.   Section 35.   Force Majeure. Notwithstanding anything to the contrary
contained herein, the Rights Agent shall not be liable for any delays or
failures in performance resulting from acts beyond its reasonable control,
including, without limitation, acts of God, terrorist acts, shortage of supply,
breakdowns or malfunctions, interruptions or malfunction of computer facilities,
or loss of data due to power failures or mechanical difficulties with
information storage or retrieval systems, labor difficulties, war, or civil
unrest.

39

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     In Witness Whereof, parties whereto have caused this Agreement to be duly
executed, all as of the day and year first above written.

                      Attest:       Aradigm Corporation    
 
                   
By:
  /s/ D. Jeffery Grimes       By:   /s/ Igor Gonda    
 
                        D. Jeffery Grimes           Igor Gonda, Ph.D.        
Vice President of Legal Affairs,           President and Chief Executive Officer
   
 
  General Counsel and Secretary                

                      Attest:       Computershare Trust Company, N.A.    
 
                   
By:
  /s/ James Walsh       By:   /s/ Katherine Anderson    
 
                   
 
                   
Title:
  Relationship Manager       Title:   Managing Director    

40

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TABLE OF CONTENTS

              Page  
Section 1. Certain Definitions
    1    
Section 2. Appointment of Rights Agent
    5    
Section 3. Issue of Right Certificates
    5    
Section 4. Form of Right Certificates
    7    
Section 5. Countersignature and Registration
    8    
Section 6. Transfer, Split Up, Combination and Exchange of RighCertificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates
    8    
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights
    9    
Section 8. Cancellation and Destruction of Right Certificates
    11    
Section 9. Availability of Preferred Shares
    11    
Section 10. Preferred Shares Record Date
    12    
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights
    12    
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
    21    
Section 14. Fractional Rights and Fractional Shares
    24    
Section 15. Rights of Action
    26    
Section 16. Agreement of Right Holders
    26    
Section 17. Right Certificate Holder Not Deemed a Shareholder
    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    
Section 22. Issuance of New Right Certificates
    31    
Section 23. Redemption
    32    
Section 24. Exchange
    34    
Section 25. Notice of Certain Events
    36    
Section 26. Notices
    37    
Section 27. Supplements and Amendments
    37    
Section 28. Determination and Actions by the Board of Directors, etc.
    38    
Section 29. Successors
    38    
Section 30. Benefits of this Agreement
    38  

 

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              Page  
Section 31. Severability
    38    
Section 32. Governing Law
    38    
Section 33. Counterparts
    39    
Section 34. Descriptive Headings
    39    
Section 35. Force Majeure
    39  
 
       
Section 36.
       
 
       
Exhibit A — Form of Right Certificate
         
Exhibit B — Summary of Rights to Purchase Preferred Shares
       

 

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(Exhibit A to Amended and Restated Rights agreement)
Form of Right Certificate

      Certificate No. R-                        Rights

NOT EXERCISABLE AFTER SEPTEMBER 8, 2018, OR EARLIER IF REDEMPTION OR EXCHANGE
OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $0.001 PER RIGHT AND TO EXCHANGE
ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
Right Certificate
ARADIGM CORPORATION
     This certifies that                      or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the
Amended and Restated Rights Agreement, dated as of September 5, 2008 (the
“Rights Agreement”), between Aradigm Corporation, a California corporation (the
“Company”), and Computershare Trust Company, N.A. (the “Rights Agent”), to
purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Agreement) and prior to 5:00 p.m., Eastern Time, on
September 8, 2018 at the office of the Rights Agent designated for such purpose,
or at the office of its successor as Rights Agent, one one-hundredth of a fully
paid non-assessable share of Series A Junior Participating Preferred Stock (the
“Preferred Shares”), of the Company, at a purchase price of $9.00 per one
one-hundredth of a Preferred Share (the “Purchase Price”), upon presentation and
surrender of this Right Certificate with the Form of Election to Purchase duly
executed. The number of Rights evidenced by this Right Certificate (and the
number of one one-hundredths of a Preferred Share which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of                     , based on the Preferred
Shares as constituted at such date.
     From and after the time any Person becomes an Acquiring Person, (as such
terms are defined in the Rights Agreement), if the Rights evidenced by this
Right Certificate are beneficially owned by (i) an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
in the Rights Agreement), (ii) a transferee of any such Acquiring Person,
Associate or Affiliate who becomes a transferee after the Acquiring Person
becomes such, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of any such Acquiring Person, Associate or Affiliate who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such, such Rights shall become null and void without any further action and no
holder hereof shall have any right with respect to such Rights from and after
the time any Person becomes an Acquiring Person.

 

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

 

     As provided in the Rights Agreement, the Purchase Price and the number of
one one-hundredths of a Preferred Share which may be purchased upon the exercise
of the Rights evidenced by this Right Certificate are subject to modification
and adjustment upon the happening of certain events.
     This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, as amended from time to time, which terms,
provisions and conditions are hereby incorporated herein by reference and made a
part hereof and to which Rights Agreement reference is hereby made for a full
description of the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Company and the holders of the
Right Certificates. Copies of the Rights Agreement are on file at the principal
executive offices of the Company and the above-mentioned offices of the Rights
Agent.
     This Right Certificate, with or without other Right Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
     Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate (i) may be redeemed by the Company at a redemption price of
$0.001 per Right or (ii) may be exchanged in whole or in part for shares of the
Company’s Common Stock, no par value per share, or, upon circumstances set forth
in the Rights Agreement, cash, property or other securities of the Company,
including fractions of a share of Preferred Stock.
     No fractional Preferred Shares 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 Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts) but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
     No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting shareholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.
     This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
     Witness the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of                     .

 

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                  Attest:   ARADIGM COPORATION    
 
                              [Signing Company Secretary’s Name]   [Signing
Company Officer’s Name]     [Title]   [Title]    
 
                Countersigned:        
 
                COMPUTERSHARE TRUST COMPANY, N.A.,         as Rights Agent      
 
 
               
By:
               
 
               
 
  [Authorized Signature]            

 

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Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
     FOR VALUE RECEIVED                                          hereby sells,
assigns and transfers unto

     
 
   
                    (Please print name and address of transferee)
   

                                         this Right Certificate, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint                      Attorney, to transfer the within Right
Certificate on the books of the within-named Company, with full power of
substitution.
Dated:                     
                                        
Signature
Form of Reverse Side of Right Certificate — continued

 

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Signature Guaranteed:
     Signatures must be guaranteed by an “eligible guarantor institution” as
defined in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934,
as amended.
     The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not being sold, assigned or transferred by or on behalf of
a Person who is or was an Acquiring Person, an Interested Shareholder or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement); and (2) after due inquiry and to the best of the knowledge of the
undersigned, the undersigned did not acquire the Rights evidenced by this Right
Certificate from any Person who is or was an Acquiring Person, an Interested
Shareholder, or an Affiliate or Associate thereof.
                                        
Signature

 

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FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To                [Rights Agent]               
     The undersigned hereby irrevocably elects to exercise
                                         Rights represented by this Right
Certificate to purchase the Preferred Shares issuable upon the exercise of such
Rights and requests that certificates for such Preferred Shares be issued in the
name of:
Please insert social security
or other identifying number:                     

     
 
   
                    (Please print name and address)
   
 
   
 
   

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

     
 
   
                    (Please print name and address)
   
 
   
 
     
Dated:                     
   

                                        
Signature
Form of Reverse Side of Right Certificate — continued

 

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Signature Guaranteed:
     Signatures must be guaranteed by an “eligible guarantor institution” as
defined in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934,
as amended.
     The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not beneficially owned by nor are they being exercised on
behalf of an Acquiring Person, an Interested Shareholder or an Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement); and
(2) after due inquiry and to the best of the knowledge of the undersigned, the
undersigned did not acquire the Rights evidenced by this Right Certificate from
any Person who is or was an Acquiring Person, an Interested Shareholder, or an
Affiliate or Associate thereof.
                                        
Signature
NOTICE
     The signature in the Form of Assignment or Form of Election to Purchase, as
the case may be, must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
     In the event the certification set forth above in the Form of Assignment or
the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.

 

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(Exhibit B to Amended and Restated Rights agreement)
ARADIGM CORPORATION
Summary of Rights to Purchase
Preferred Shares
     On August 4, 1998, the Board of Directors of ARADIGM CORPORATION (the
“Company”) declared a dividend of one preferred share purchase right (a “Right”)
for each outstanding share of common stock, without par value per share, (the
“Common Shares”) of the Company. The dividend is effective as of September 8,
1998 (the “Record Date”) with respect to the shareholders of record on that
date. The Rights will also attach to new Common Shares issued after the Record
Date. Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock,
without par value per share, (the “Preferred Shares”) of the Company at a price
of $9.00 per one one-hundredth of a Preferred Share (the “Purchase Price”),
subject to adjustment. Each Preferred Share is designed to be the economic
equivalent of 100 Common Shares. The description and terms of the Rights are set
forth in an amended and restated Rights Agreement dated as of September 5, 2008
(the “Rights Agreement”), between the Company and Computershare Trust Company,
N.A. (the “Rights Agent”).
Detachment and Transfer of Rights
     Initially, the Rights will be evidenced by the stock certificates
representing Common Shares then outstanding, and no separate Right Certificates
will be distributed. Until the earlier to occur of (i) a public announcement
that a person or group of affiliated or associated persons, has become an
“Acquiring Person” (as such term is defined in the Rights Agreement) or (ii) 10
business days (or such later date as the Board may determine) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer which would result in the beneficial ownership by an Acquiring
Person of 15% or more of the outstanding Common Shares (the earlier of such
dates being called the “Distribution Date”), the Rights will be evidenced, with
respect to any of the Common Share certificates outstanding as of the Record
Date, by such Common Share certificate. In general, an “Acquiring Person” is a
person, the affiliates or associates of such person, or a group, which has
acquired beneficial ownership of 15% or more of the outstanding Common Shares.
     The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferable with
and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Record Date upon transfer or new issuance of Common Shares will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights) the
surrender or transfer of any certificates for Common Shares outstanding as of
the Record Date, even without such notation or a copy of this Summary of Rights
being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights (“Right Certificates”) will be mailed to holders of record of the
Common Shares as of the close of

 

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business on the Distribution Date and such separate Right Certificates alone
will evidence the Rights.
Exercisability of Rights
     The Rights are not exercisable until the Distribution Date. The Rights will
expire on September 8, 2018 (the “Final Expiration Date”), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case as described below. Until a Right is
exercised, the holder thereof, as such, will have no rights as a shareholder of
the Company, including, without limitation, the right to vote or to receive
dividends.
     The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable or payable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution. The number of
outstanding Rights and the number of one one-hundredths of a Preferred Share
issuable upon exercise of each Right are also subject to adjustment in the event
of a stock split of the Common Shares or a stock dividend on the Common Shares
payable in Common Shares, or subdivisions, consolidations or combinations of the
Common Shares occurring, in any such case, prior to the Distribution Date. With
certain exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in such Purchase
Price. No fractional Preferred Shares will be issued (other than fractions which
are integral multiples of one one-hundredth of a Preferred Share, which may, at
the election of the Company, be evidenced by depositary receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.
Terms of Preferred Shares
     Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $l per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each Preferred
Share will have 100 votes, voting together with the Common Shares. Finally, in
the event of any merger, consolidation or other transaction in which Common
Shares are exchanged, each Preferred Share will be entitled to receive 100 times
the amount received per Common Share. These rights are protected by customary
anti-dilution provisions. Because of the nature of the Preferred Shares’
dividend, liquidation and voting rights, the value of the one one-hundredth
interest in a Preferred Share purchasable upon exercise of each Right should
approximate the value of one Common Share. The Preferred Shares would rank
junior to any other series of the Company’s preferred stock.

 

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Trigger of Flip-In and Flip-Over Rights
     In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person or any
affiliate or associate thereof (which will thereafter be void), will thereafter
have the right to receive upon exercise that number of Common Shares having a
market value of two times the exercise price of the Right. This right will
commence on the date of public announcement that a person has become an
Acquiring Person (or the effective date of a registration statement relating to
distribution of the rights, if later) and terminate 60 days later (subject to
adjustment in the event exercise of the rights is enjoined).
     In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold to an Acquiring Person, its affiliates or associates or certain
other persons in which such persons have an interest, proper provision will be
made so that each such holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a market value of two times the exercise
price of the Right.
Redemption and Exchange of Rights
     At any time prior to the earliest of (i) the close of business on the day
of the first public announcement that a person has become an Acquiring Person,
or (ii) the Final Expiration Date, the Board of Directors of the Company may
redeem the Rights in whole, but not in part, at a price of $0.001 per Right (the
“Redemption Price”). In general, the redemption of the Rights may be made
effective at such time on such basis with such conditions as the Board of
Directors in its sole discretion may establish. Immediately upon any redemption
of the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
     At any time after any Person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the outstanding Common
Shares, the Board of Directors of the Company may exchange the Rights (other
than Rights owned by such person or group which will have become void), in whole
or in part, at an exchange ratio of one Common Share, or, under circumstances
set forth in the Rights Agreement, cash, property or other securities of the
Company, including fractions of a Preferred Share (or of a share of a class or
series of the Company’s preferred stock having equivalent designations and the
powers, preferences and rights, and the qualifications, limitations and
restrictions), per Right (with value equal to such Common Shares).
Amendment of Rights
     The terms of the Rights generally may be amended by the Board of Directors
of the Company without the consent of the holders of the Rights, except that
from and after such time as the Rights are distributed no such amendment may
adversely affect the interests of the holders of the Rights (excluding the
interest of any Acquiring Person).

 

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Additional Information
     A copy of the Rights Agreement will be filed with the Securities and
Exchange Commission as an exhibit to the Company’s next quarterly report on Form
10-Q. A copy of the Rights Agreement is available from the Company by writing
to: D. Jeffery Grimes, Aradigm Corporation, 3929 Point Eden Way, Hayward, CA
94545. This summary description of the Rights is not intended to be complete and
is qualified in its entirety by reference to the Rights Agreement, which is
hereby incorporated herein by reference.