TABLE OF CONTENTS

 
EXHIBIT 10.36
 

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

 
Salix Pharmaceuticals, Ltd.
 
and
 
Computershare Investor Services, LLC as Rights Agent
 
RIGHTS AGREEMENT
 
Dated as of January 10, 2003
 

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

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

TABLE OF CONTENTS

 
TABLE OF CONTENTS
 

         
Page

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

SECTION 1.
  
Certain Definitions
  
1
SECTION 2.
  
Appointment of Rights Agent
  
3
SECTION 3.
  
Issue of Right Certificates
  
3
SECTION 4.
  
Form of Right Certificates
  
5
SECTION 5.
  
Countersignature and Registration
  
5
SECTION 6.
  
Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates
  
5
SECTION 7.
  
Exercise of Rights; Purchase Price; Expiration Date of Rights
  
6
SECTION 8.
  
Cancellation and Destruction of Right Certificates
  
7
SECTION 9.
  
Availability of Preferred Shares
  
7
SECTION 10.
  
Preferred Shares Record Date
  
8
SECTION 11.
  
Adjustment of Purchase Price, Number of Shares or Number of Rights
  
8
SECTION 12.
  
Certificate of Adjusted Purchase Price or Number of Shares
  
13
SECTION 13.
  
Consolidation, Merger or Sale or Transfer of Assets or Earning Power
  
14
SECTION 14.
  
Fractional Rights and Fractional Shares
  
16
SECTION 15.
  
Rights of Action
  
16
SECTION 16.
  
Agreement of Right Holders
  
17
SECTION 17.
  
Right Certificate Holder Not Deemed a Stockholder
  
17
SECTION 18.
  
Concerning the Rights Agent
  
17
SECTION 19.
  
Merger or Consolidation or Change of Name of Rights Agent
  
18
SECTION 20.
  
Duties of Rights Agent
  
18
SECTION 21.
  
Change of Rights Agent
  
19
SECTION 22.
  
Issuance of New Right Certificates
  
20
SECTION 23.
  
Redemption
  
20
SECTION 24.
  
Exchange
  
21
SECTION 25.
  
Notice of Certain Events
  
22
SECTION 26.
  
Notices
  
23
SECTION 27.
  
Supplements and Amendments
  
23
SECTION 28.
  
Determination and Actions by the Board of Directors, Etc.
  
24
SECTION 29.
  
Successors
  
24
SECTION 30.
  
Benefits of this Agreement
  
24
SECTION 31.
  
Severability
  
24
SECTION 32.
  
Governing Law
  
24
SECTION 33.
  
Counterparts
  
24
SECTION 34.
  
Descriptive Headings
  
24
    
EXHIBITS
    
A
  
Certificate of Designation of Series A Junior Participating Preferred Stock
    
B
  
Form of Right Certificate
    
C
  
Summary of Rights to Purchase Preferred Shares
    

 

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

TABLE OF CONTENTS

 
RIGHTS AGREEMENT
 
THIS RIGHTS AGREEMENT (“Agreement”), dated as of January 10, 2003, between Salix
Pharmaceuticals, Ltd., a Delaware corporation (the “Company”), and Computershare
Investor Services, LLC (“Rights Agent”).
 
The Board of Directors of the Company has authorized and declared a dividend of
one preferred share purchase right (a “Right”) for each Common Share (as such
term is hereinafter defined) outstanding at the close of business on January 20,
2003 (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.
 
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 20% 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, or (iv) any entity holding Common
Shares for or pursuant to the terms of any such employee benefit or compensation
plan of the Company or any Subsidiary of the Company and (B) no Person shall
become an “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 20% or more of the Common Shares then outstanding; provided,
however, that if a Person shall become the Beneficial Owner of 20% 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 20% of the Common Shares then outstanding, then such
Person shall be deemed to be an “Acquiring Person,” or (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),
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 20% or more of the
Common Shares then outstanding, such Person shall be deemed an “Acquiring
Person,” subject to the exceptions set forth in this Section 1(a).
 
(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.
 
(c)    A Person shall be deemed the “Beneficial Owner” of and shall be deemed to
“beneficially own” any securities:

1

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

TABLE OF CONTENTS

 
(i)    which 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)    which such Person or any of such Person’s Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable immediately or only
after the passage of time) 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)    which 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; provided, however, that
nothing in this paragraph (c) shall cause a person engaged in business as an
underwriter of securities to be the “Beneficial Owner” of, or to “beneficially
own,” any securities acquired through such person’s participation in good faith
in a firm commitment underwriting until the expiration of fifty (50) days after
the date of such acquisition.
 
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 the Nasdaq Stock Market or the banking institutions in the State of
North Carolina 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, par value $0.001
per share, 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(a)
hereof.
 
(h)    “Final Expiration Date” shall have the meaning set forth in Section 7(a)
hereof.
 
(i)    “Interested Stockholder” 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

2

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

TABLE OF CONTENTS

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, par value $0.001 per share, 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 Designation
attached to this Agreement as Exhibit A.
 
(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(a)
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.
 
(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.
 
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

3

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

TABLE OF CONTENTS

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 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 B hereto (a “Right Certificate”),
evidencing one Right for each Common Share so held, subject to the adjustment
provisions of Section 11 of this Agreement; provided, however, that in the event
that a holder (other than an Acquiring Person) of any security of the Company
convertible into or otherwise exercisable for Common Shares (a “Convertible
Security”) converts or otherwise exercises such Convertible Security into or for
Common Shares after the Distribution Date (but prior to the earlier of the
Redemption Date and the Final Expiration Date), the Company will send or cause
to be sent (and the Rights Agent will, if requested, send) by first-class,
insured, postage-prepaid mail, to such holder, at the address of such holder
shown on the records of the Company, a Right Certificate evidencing one Right
for each Common Share so held, subject to the adjustment provisions of Section
11 of this 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 C 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 a Rights Agreement between Salix Pharmaceuticals, Ltd.
(the “Company”) and Computershare Investor Services, LLC as Rights Agent (the
“Rights Agent”), dated as of January 10, 2003, 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
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 Agreement or the
rights of any holder of the Rights.

4

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

TABLE OF CONTENTS

 
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 B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company deems 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, 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 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 manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. In case any officer of the
Company who shall have signed any of the Right Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Right Certificates, nevertheless, may
be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Agreement any such person was not such an officer.
 
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

5

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

TABLE OF CONTENTS

 
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 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 Agreement to provide for uncertificated Rights in addition to or
in place of Rights evidenced by Right 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 January 9, 2013 (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 $100.00 (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 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

6

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

TABLE OF CONTENTS

 
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
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 approximately five and one-half
years after the cancellation date, 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.

7

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

TABLE OF CONTENTS

 
The Company further covenants and agrees that it will pay when due and payable
any and all federal and state transfer taxes and charges which may be payable in
respect of the issuance or delivery of the Right Certificates or of any
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 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

8

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

TABLE OF CONTENTS

 
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 Share for which a Right is then exercisable,
in accordance with the terms of this Agreement, such number of one
one-hundredths of a Preferred Share 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
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 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 Preferred 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 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

9

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

TABLE OF CONTENTS

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 Preferred 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 Preferred 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 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 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 is fixed; and
in the event that such distribution is not so made, the

10

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

TABLE OF CONTENTS

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 National Market or,
if the Security is not listed or admitted to trading on any national securities
exchange or reported on the Nasdaq National 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 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 the principal
national securities exchange or market 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 or
market, 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, 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.

11

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

TABLE OF CONTENTS

 
(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 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
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.

12

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

TABLE OF CONTENTS

 
(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 stockholders.
 
(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 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.

13

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

TABLE OF CONTENTS

 
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
Stockholder, or if in such merger or consolidation all holders of Common Stock
are not treated alike, any other Person, (y) any Interested Stockholder, 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 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 Stockholder or Stockholders, 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 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 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

14

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

TABLE OF CONTENTS

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
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
of assets or on the Nasdaq National Market if the Common Shares were listed on
the Nasdaq National Market or, if the Common Shares were not listed on a
national securities exchange or the Nasdaq National Market prior to the
consummation of such consolidation, merger, sale or transfer of assets, on a
national securities exchange or the Nasdaq National 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 stockholders 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).

15

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

TABLE OF CONTENTS

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 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 National Market or, if the Rights are not listed or admitted to trading
on any national securities exchange or reported on the Nasdaq National 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 (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

16

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

TABLE OF CONTENTS

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

17

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

TABLE OF CONTENTS

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 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.
 
(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

18

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

TABLE OF CONTENTS

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
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 stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or for any other legal entity.
 
(i)    The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
 
(j)    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.
 
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

19

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

TABLE OF CONTENTS

Right Certificates by first-class mail. The Company may remove the Rights Agent
or any successor Rights Agent upon 30 days’ notice in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent 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 either (a) a corporation, business trust or limited
liability company organized and doing business under the laws of the United
States or of any other state of the United States which is authorized under such
laws to exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50 million or (b) a direct or indirect wholly owned Subsidiary of such an
entity or its wholly-owning parent. 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 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 $0.0001 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

20

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

TABLE OF CONTENTS

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 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 Stockholder or a Transaction Person or (y)(A) if and
for so long as the Acquiring Person is not thereafter the Beneficial Owner of
20% or more of the then outstanding Common Shares, and (B) at the time of
redemption no other Persons are Acquiring Persons.
 
(a)    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.
 
(b)    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 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 Preferred Shares at
an exchange ratio of one one-hundredth of a Preferred 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.

21

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

TABLE OF CONTENTS

 
(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 Preferred 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 Preferred 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 Preferred 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 and authorized but unissued Preferred Shares to
permit any exchange of the Rights in accordance with Section 24(a) hereof, the
Company shall) take all such action as may be necessary to authorize, issue or
pay, upon the exchange of the Rights, cash, property, Common Shares, other
securities or any combination thereof having an aggregate value equal to the
value of the Preferred 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 Preferred 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 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 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.
 
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.

22

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

TABLE OF CONTENTS

 
(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.
 
SECTION 26.     NOTICES.  Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
 
Salix Pharmaceuticals, Ltd.
8540 Colonnade Center Drive, Suite 501
Raleigh, North Carolina 27615
Attention: Chief Financial Officer
 
With a copy to:
 
Donald R. Reynolds
Wyrick, Robbins, Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
 
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
 
Computershare Investor Services, LLC
2 North Lasalle Street
Chicago, Illinois 60602
Attention:                      Department
 
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
 
SECTION 27.     SUPPLEMENTS AND AMENDMENTS.  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
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.

23

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

TABLE OF CONTENTS

 
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 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
Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts to be made and performed
entirely within such State.
 
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.
 
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

24

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

TABLE OF CONTENTS

 
 
IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement to be
duly executed, all as of the day and year first above written.
 
SALIX PHARMACEUTICALS, LTD.
By:
 

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

Name:
 

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

Title:
 

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

 
COMPUTERSHARE INVESTOR SERVICES, LLC
By:
 

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

Name:
 

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

Title:
 

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

25

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

TABLE OF CONTENTS

 
EXHIBIT A
 
CERTIFICATE OF DESIGNATION
 
OF
 
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
 
(Pursuant to Section 151 of the
Delaware General Corporation Law)
 
SALIX PHARMACEUTICALS, LTD., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
“Company”), hereby certifies that the following resolution was adopted by the
Board of Directors of the Corporation as required by Section 151 of the General
Corporation Law on December 12, 2002:
 
RESOLVED, that pursuant to the authority granted to and vested in the Board of
Directors of the Company in accordance with the provisions of its Certificate of
Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $0.001 per share, of the Company and hereby states the
designation and number of shares, and fixes the relative designations and the
powers, preferences and rights, and the qualifications, limitations and
restrictions thereof (in addition to the provisions set forth in the Certificate
of Incorporation of the Company, which are applicable to the Preferred Stock of
all classes and series), as follows:
 
Series A Junior Participating Preferred Stock:
 
Section 1.    Designation and Amount.  Nine hundred thousand (900,000) shares of
Preferred Stock, $0.001 par value, are designated “Series A Junior Participating
Preferred Stock” with the designations and the powers, preferences and rights,
and the qualifications, limitations and restrictions specified herein (the
“Junior Preferred Stock”). Such number of shares may be increased or decreased
by resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Junior Preferred Stock to a number less than the number
of shares then outstanding plus the number of shares reserved for issuance upon
the exercise of outstanding options, rights or warrants or upon the conversion
of any outstanding securities issued by the Company convertible into Junior
Preferred Stock.
 
Section 2.    Dividends and Distributions.
 
(A)    Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Junior
Preferred Stock with respect to dividends, the holders of shares of Junior
Preferred Stock, in preference to the holders of Common Stock, par value $0.001
per share (the “Common Stock”), of the Company, and of any other junior stock,
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends payable in
cash on the first day of April, July, October and January in each year (each
such date being referred to herein as a “Quarterly Dividend Payment Date”),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Junior Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $l.00 or (b)
subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Junior Preferred Stock. In the event the Company shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the

1

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

TABLE OF CONTENTS

outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount to which holders of
shares of Junior Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
 
(B)    The Company shall declare a dividend or distribution on the Junior
Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided, that in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Junior
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
 
(C)    Dividends shall begin to accrue and be cumulative on outstanding shares
of Junior Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Junior Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Junior Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Junior Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
 
Section 3.    Voting Rights.  The holders of shares of Junior Preferred Stock
shall have the following voting rights:
 
(A)    Subject to the provision for adjustment hereinafter set forth, each share
of Junior Preferred Stock shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the stockholders of the Company. In the event the
Company shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Junior Preferred Stock
were entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
 
(B)    Except as otherwise provided herein, in any other Certificate of
Designation creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Junior Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the Company having general voting
rights shall vote together as one class on all matters submitted to a vote of
stockholders of the Company.
 
(C)    Except as set forth herein, or as otherwise provided by law, holders of
Junior Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate action.

2

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

TABLE OF CONTENTS

 
Section 4.    Certain Restrictions.
 
(A)    Whenever quarterly dividends or other dividends or distributions payable
on the Junior Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Junior Preferred Stock outstanding shall have been
paid in full, the Company shall not:
 
(i)      declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock;
 
(ii)     declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Junior Preferred Stock, except dividends
paid ratably on the Junior Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
 
(iii)    redeem or purchase or otherwise acquire for consideration shares of any
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Junior Preferred Stock, provided that the Company may at any
time redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Company ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Junior
Preferred Stock; or
 
(iv)      redeem or purchase or otherwise acquire for consideration any shares
of Junior Preferred Stock, or any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Junior
Preferred Stock, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
 
(B)    The Company shall not permit any subsidiary of the Company to purchase or
otherwise acquire for consideration any shares of stock of the Company unless
the Company could, under paragraph (A) of this Section 4, purchase or otherwise
acquire such shares at such time and in such manner.
 
Section 5.    Reacquired Shares.  Any shares of Junior Preferred Stock purchased
or otherwise acquired by the Company in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the Certificate of
Incorporation, or in any other Certificate of Designation creating a series of
Preferred Stock or any similar stock or as otherwise required by law.
 
Section 6.    Liquidation, Dissolution or Winding Up.  Upon any liquidation,
dissolution or winding up of the Company, no distribution shall be made (1) to
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Preferred Stock unless,
prior thereto, the holders of shares of Junior Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Junior Preferred Stock shall be entitled
to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Junior Preferred Stock, except
distributions made ratably on the Junior Preferred Stock and all such parity
stock in proportion to the total amounts to which the holders

3

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

TABLE OF CONTENTS

of all such shares are entitled upon such liquidation, dissolution or winding
up. In the event the Company shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Junior Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(1) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
 
Section 7.    Consolidation, Merger, Etc.  In case the Company shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case each share of Junior
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 100 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Company
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of shares of
Junior Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
 
Section 8.    No Redemption.  The shares of Junior Preferred Stock shall not be
redeemable.
 
Section 9.    Rank.  The Junior Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of any
other class of the Company’s Preferred Stock.
 
Section 10.    Amendment.  The Certificate of Incorporation of the Company shall
not be amended in any manner which would materially alter or change the powers,
preferences or special rights of the Junior Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of at least two-thirds of
the outstanding shares of Junior Preferred Stock, voting together as a single
class.
 

4

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

TABLE OF CONTENTS

 
IN WITNESS WHEREOF, the undersigned has executed this certificate as of January
10, 2003.
 
 
SALIX PHARMACEUTICALS, LTD.
By:
 

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

Title:
 

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

5

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

TABLE OF CONTENTS

 
EXHIBIT B
 
FORM OF RIGHT CERTIFICATE
 
(EXHIBIT B TO RIGHTS AGREEMENT)
 
Certificate No. R-
 
____ Rights

 
NOT EXERCISABLE AFTER JANUARY 9, 2013 OR EARLIER IF REDEMPTION OR EXCHANGE
OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $0.0001 PER RIGHT AND TO
EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
 
RIGHT CERTIFICATE
SALIX PHARMACEUTICALS, LTD.
 
This certifies that                              or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of January 10, 2003 (the “Rights Agreement”), between Salix
Pharmaceuticals, Ltd., a Delaware corporation (the “Company”), and Computershare
Investor Services, LLC (the “Rights Agent”), with an office located at
                                                                     , 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
January 9, 2013 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, par
value $0.001 per share (the “Preferred Shares”), of the Company, at a purchase
price of $100.00 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 January 20, 2003
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

1

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

TABLE OF CONTENTS

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 (1) may be redeemed by the Company at a redemption price of $0.0001
per Right or (2) may be exchanged in whole or in part for fractions of shares of
the Company’s Preferred Stock, or, upon circumstances set forth in the Rights
Agreement, cash, property or other securities of the Company, including Common
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
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised 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.
 

2

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

TABLE OF CONTENTS

 
WITNESS the facsimile signature of the proper officers of the Company and its
corporate seal. Dated as of             , 20    .
 
ATTEST:
     
SALIX PHARMACEUTICALS, LTD.
By:
 

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

     
By:
 

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

Name:
 

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

     
Name:
 

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

Title:
 

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

     
Title:
 

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

 
 
COUNTERSIGNED:
 
COMPUTERSHARE INVESTOR SERVICES, LLC,
as Rights Agent
 

         
By:
 

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

           
Name:
 

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

           
Title:
 

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

           

3

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

TABLE OF CONTENTS

 
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
 

4

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

TABLE OF CONTENTS

 
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 Stockholder 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
Stockholder, or an Affiliate or Associate thereof.
 
                                                                              
                                                                   
Signature
 

5

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

TABLE OF CONTENTS

 
FORM OF ELECTION TO PURCHASE
 
(To be executed if holder desires to exercise Rights represented by the Right
Certificate.)
 
To Computershare Investor Services, LLC:
 
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
 

6

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

TABLE OF CONTENTS

 
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 Stockholder 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 Stockholder, 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.

7

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

TABLE OF CONTENTS

 
EXHIBIT C
 
SALIX PHARMACEUTICALS, LTD.
 
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
 
On December 12, 2002, the Board of Directors of Salix Pharmaceuticals, Ltd.
declared a dividend of one preferred share purchase right (a “Right”) for each
outstanding share of common stock, par value $0.001 per share. The dividend is
effective as of the record date of January 20, 2003 with respect to the
stockholders of record on that date. The Rights will also attach to new common
stock issued after the record date. Each Right entitles the registered holder to
purchase from Salix one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $0.001 per share, of Salix at a
purchase price of $100.00 per one one-hundredth of a preferred share, 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 a
Rights Agreement dated as of January 10, 2003, between Salix and the rights
agent, Computershare Investor Services, LLC.
 
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 (1) a public announcement that a
person or group of affiliated or associated persons, has become an “Acquiring
Person,” as defined in the Rights Agreement, or (2) 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 20% or more
of the outstanding common stock (the earlier of such dates being called the
“Distribution Date”), the Rights will be evidenced, with respect to any of the
common stock certificates outstanding as of the record date, by such common
stock certificate. In general, an “Acquiring Person” is a person, the affiliates
or associates of such person, or a group, which has acquired beneficial
ownership of 20% or more of the outstanding common stock.
 
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 stock 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. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights will be mailed to
holders of record of the common shares as of the close of business on the
Distribution Date and those 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 January 9, 2013 (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 stockholder 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

1

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

TABLE OF CONTENTS

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%. 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 Salix, 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.00 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 our preferred stock.
 
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 preferred 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 Salix 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 (1) the close of business on the day of the
first public announcement that a person has become an Acquiring Person, or (2)
the Final Expiration Date, the Board of Directors of Salix may redeem the Rights
in whole, but not in part, at a redemption price of $0.0001 per Right. 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 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 one-hundredth of a preferred share, or, under
circumstances set forth in the Rights Agreement, cash, property or other
securities per Right (with value equal to such preferred shares).

2

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

TABLE OF CONTENTS

 
AMENDMENT OF RIGHTS
 
The terms of the Rights generally may be amended by the Board of Directors
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).
 
ADDITIONAL INFORMATION
 
A copy of the Rights Agreement has been filed with the Securities and Exchange
Commission as an Exhibit to a Current Report on Form 8-K dated January 10, 2003.
A copy of the Rights Agreement is available from the Company by writing to:
Attention: Chief Financial Officer, 8540 Colonnade Center Drive, Suite 501
Raleigh, North Carolina 27615. 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.

3